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TSP Talk Weekly Wrap-Up – Breakout

I may not be able to post here anymore. This editor is just impossible to work with. I hope you can read it because it won’t let me change the font…

The breakout

The S&P 500 started the week bumping up against the November high, and after testing that resistance level for a few days as the tax cut compromise discussions in Washington played out, we finally saw a breakout to new highs. This could be a good sign for the coming weeks.

For the TSP, it was another good week for the stock funds: The C-fund gained 1.32%, the S-fund was up 1.71%, and the I-fund added 0.37%, lagging after a 1-week bounce in the dollar. Bonds (F-fund) fell 0.85%, and the G-fund added 0.05%.

For the month of December, the C-fund is now up 5.13%, the S-fund has gained 5.76%, and the I-fund still leads at +5.80%. The F-fund is now down 1.52% in December as bond yields rose sharply, and the G-fund is up 0.02%.

Last week we said, “The next test is for [the S&P 500] to make a new high – a close above line [A]. While I do have some concerns, I am encouraged because the market leader, Dow Transportation Index, has already done so.”

Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The S&P 500 has passed the test so far and has pushed above the November highs, just as the market leaders, Dow Transportation Index and Nasdaq have already done.

A longer-term view of the index shows that breakouts tend to bring in more buyers, and thus the upside continues. Of course the rallies don’t go on forever as we saw in April, but being a market timer and not buy and hold investor, I will cross that bridge when we get there, and hopefully the charts and indicators will give us the clues to get out.

Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The bond market and the F-fund have been rolling over lately. As we know, bond prices and the F-fund move in the opposite direction of bond yields, and bond yields have exploded recently. We’ve seen the yield of the 10-year T-Note move from about 2.3% in October, to 3.3% this past week.

As economic data improves, whether for the short-term or the long-term, we’d expect bond yields to continue to rise from their historically low levels, and this should have a negative impact on the F-fund. You may want to consider the G-fund as a safe haven, instead of the F-fund, if you prefer to keep some of your assets out of the stock funds.

Good luck, and thanks for reading. We will be back here next week with another TSP Wrap Up.

Tom Crowley


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