It was a rough week for both the stock and bond markets as the Fed put a scare in investors by reiterating that they will, at some point soon, lighten up on their bond buying policy. While this should be a positive because it insinuates that the economy is getting closer to being able to run on its own without Fed intervention, the economic data doesn’t suggest the economy is running on all cylinders yet.
Here are the up to date TSP fund returns through June 21. The strength in the dollar hit the I-fund hardest this week, while giving the F-fund (bonds) some fits as well. The G-fund has been the only safe haven of late.
As I talked about in last week’s Wrap Up, and also in this past week’s daily commentary, I have been overlooking the indicators and instead concentrating on the charts – in particular the comparison between today’s chart and that of the 1987 chart, which of course was the year we saw a major stock market crash. Since then we’ve seen a break of a major support line, which should put a little scare in you.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Stock market crashes are quite rare so the chances of seeing one here is not very great. But the setup we are seeing now looks so similar to ’87 that I have put on hold any other analysis until this comparison breaks.
According to the 1987 chart, there was a sharp spike up after an initial break of the rising support line, so it’s possible we see a nice rally early next week. In 1987 that rally only lasted a day, but it was a 1.7% gain.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
If the S&P 500 can rally and march right up and make a move above last week’s high, I’d say we can just about forget the 1987 comparison and move on. But if we get a sharp spike higher that does not move above last week’s high, all bets are off and we have to be concerned with what happened next in 1987…
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
I’m not saying we are going to crash, but any kind of strength this week could be an opportunity to get on the sidelines – just in case. If we’re wrong, we move on and worst case is we miss out on some modest gains. If we do crash, how nice would it be to be sitting in the G-fund?
Hopefully by next week’s Wrap Up I’ll be posting the indicators again and the talk of a crash will be behind us. Until then, buckle up.
Good luck, and thanks for reading. We will be back here next week with another TSP Wrap Up.
Tom Crowley
www.tsptalk.com
Weekly Wrap-Ups Archive
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