Should you be worried?

It was an interesting week for the stock market. The losses were not overly extreme, but the action sure was.

For the week, the C-fund was down 0.68%, the S-fund lost 1.29%, and the continued strength in the dollar pushed the I-fund down 3.11%. The F-fund (bonds) was up 0.30%, and the G-fund ticked up 0.04%.

So, February gets off to bad start after a disappointing January. Is this something to be concerned about? We talk a lot about the type of investor that you are, and how you approach this market will depend on your investment style. A buy and hold investor will see this as a short-term blip, with an opportunity to buy new TSP shares with their bi-weekly contributions, at lower prices. That’s not my style, as it has not worked out very well over the last decade, but it is still the most widely used approach – mostly because no work or effort is needed after you’ve set up your automatic contributions.

If you are more apt to try to make some educated guesses at the direction the market is going to take in the short to intermediate-term, this type of market action has got to have your attention. We could potentially be in for another leg down, and you may be trying to avoid a repeat of the disaster of 2008.

Last week started out very strong with two consecutive 100-point gains for the Dow on Monday and Tuesday. Things flattened out on Wednesday, but on Thursday we saw a steep 268-point sell-off. Friday did not start out much better as the Dow was down an additional 160-points, but a late afternoon surge recouped those losses and the day actually ended on the positive side and a 10-point gain.

The interesting, or significant part of the late Friday rebound was that it was initiated at the 200-day exponential moving average (EMA); a place where we like to see some support – and we got it.

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

Having dropped to that EMA and rebounding sharply could trigger a follow-through rally into early next week, but as you and see above, we may have begun a new downtrend. The S&P 500 could hit some resistance near 1085, and the 20 and 50-day EMA’s (not shown) are just above the 1100 area. This means any rallies could run into trouble rather quickly. We won’t get a longer-term green light on this market until we see the S&P 500 move back above that 1100 – 1105 area.

To sum it up, the TSP stock funds have sold off sharply over the last couple of weeks and they are probably due for a short-term rebound. However, the technical picture has deteriorated and there is a good chance that any rally will be short-lived, unless the charts can take back those key resistance areas.

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