TSP Talk Weekly Wrap Up

Volatility is king and the wild swings in the market have investors on edge. We have had 13 triple digit moves in the Dow in the last 19 days. Last week alone saw four, and three of them were 272-point or more… in both directions. It’s no wonder investors are confused and concerned.

Fear is high, and it’s not just the fear of losing money. Some are losing money but don’t want to sell out of fear of missing the snap-back rally, which we have seen can be just as explosive. A capitulation is reached when we finally see bulls give up and say, “Get me out at any cost. I can’t take the pain anymore.” We may be getting close, but it could get even uglier out there before we reach it.

Here are the weekly, monthly, and annual TSP fund returns for the week ending October 10:

The SPY (S&P 500 / C-fund) has fallen sharply since the September highs. There are charts that are breaking down, but there are a few positives in the S&P 500 if you can get passed the fear of losing money.

1) The S&P 500 is still above it’s 200-day EMA, and the 50-day EMA is still above the 200-day EMA. That’s a bull market.
2) The 20-day EMA just moved down to the 50-day EMA and over the last couple of years, we saw some pretty sharp oversold rallies get triggered when that has happened (red arrows.)

3) Volume spiked to almost panic levels, and when that happens it tends to precede a change in direction in the market (blue arrows.)

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

Of course every bear market started out as a bull market that eventually failed so there are no guarantees. If you believe in the bull market, the economy stabilizing, and the strong historical seasonality of the 4th quarter, this is likely a better time to be a buyer than a seller. If you don’t believe in those things, you may want to play defense and watch it play out from the sidelines.

The Wilshire 4500 (S-fund) and the Russell 2000 (small cap index) have gone down precipitously since early September. Over the last several years, the small caps have led on the upside and now we see them leading to the downside. This chart is clearly oversold and markets don’t usually go straight down so expect some kind of relief rally in the coming days or weeks, but what happens after the rally will tell us the bigger picture, i.e.: if this is the start of a bear market, or just a correction in a bull market.

Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The EFA (EAFE Index / I-fund) has also been hit hard but we have seen economic slowdowns in Europe and the weakness makes more sense. The question is how much will the slowdown abroad impact the U.S. economy?

Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The AGG (Bonds / F-fund) has benefited from the sell-off in stocks and will likely continue to until stocks rebound. When that will be remains to be seen.

Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
Good luck and thanks for reading! We will be back here next week with another TSP Wrap Up. You can read our daily market commentary at http://www.tsptalk.com/comments.php. If you need some help deciding what to do with your account, perhaps one of our premium services can help.

Tom Crowley
www.tsptalk.com
Weekly Wrap-Ups Archive
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The legal stuff: This information is for educational purposes only! This is not advice or are commendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.