TSP Weekly Wrap-Up – Buy Now, or Sell?

Weekly TSP Wrap-up from TSP Talk

Buy now, or sell?

The S&P 500 had closed in positive territory for 6 consecutive trading days, 9 of the last 10 days, and 12 of the last 14, but on Friday we saw the largest one day drop in over two-months triggered by fraud charges against Goldman Sachs by the SEC.

Whether it was Goldman Sachs, a bad earnings report, or weak economic data, something was bound to happen to cool off a market that had been relentlessly higher. Sure, we could see the rally resume this coming week, but a healthy market needs to take an occasional break otherwise support becomes weak and sharp declines are more likely. An occasional pullback creates a foundation for support and stability; hopefully avoiding precipitous losses in the future, à la a bursting bubble.

For the week the TSP funds were mixed. The S-fund led the way again with a gain of 0.94%. The I-fund added 0.24%, and the sell off on Friday took the C-fund into negative territory for the week as it finished down 0.18%. The F-fund (bonds) had a strong week gaining 0.71%, and the G-fund was up 0.06%.

For the month of April, all of the funds remain positive. The S-fund has gained 4.43%, while the C and the I-funds are each up about 2%. The F-fund up 0.65% and the G-fund is up 0.15%.

The chart of the S&P 500 had been forming a bearish rising wedge pattern, which tend to break to the downside, but that is understandable considering the steep angle of incline that we have been seeing since February. The initial break of the wedge was to the upside, but as we talked about in our commentary on Friday, sometimes we see a “fake out” move before the real breakout, or in this case a break down, occurs.

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

If stocks don’t rally out of the gate on Monday, the next levels of support for the S&P 500 are the 20-day exponential moving average (EMA) near 1182, then the 50-day EMA at 1155, which is just above the January highs near 1150. This 1150-1155 area should act as strong support so we will really want to put on our defensive caps if we start seeing the S&P trade below that level.

If you are trying to decide whether to buy, sell or hold in this environment, remember that the best risk / reward buying opportunities come just before a potential breakdown. That is, if you were to get into the stock funds when the S&P 500 starts falling toward that 1150-1155 support, and you are willing to get back on defense (sell) if it falls below those levels, then your losses would be very limited. By contrast if the S&P 500 rebounds off of the strong support levels, your upside potential is much greater.

If you have been in stocks during much of this rally – congratulations! You have been doing very well this year. But again, if we start seeing the S&P 500 drop below 1150, you may want to seriously consider locking in some profits.

Tom Crowley
www.tsptalk.com