TSP Weekly Wrap-Up – Fast Start, Slow Finish

It’s your weekly dose of TSP Talk from www.tsptalk.com.

After starting the new year with a big positive week, the stock market fizzled the rest of the month leaving investors with stiff losses, and while it wasn’t as bad as January 2009, starting the year in the red has many TSP participants concerned for 2010.

For the week, the C-fund was down 1.62%, the S-fund lost 1.98% and, with the dollar rallying last week, the I-fund dropped 2.87%. The G and F funds each gained less than 0.10%.

For January, the losses in the stock funds were fairly steep. The C-fund was down 3.60%, the S-fund -2.43%, and the I-fund a still 5.17%, while invetors opted for bonds driving the F-fund up 1.54%. The G-fund added 0.29%.

Last week we mentioned that things were starting to deteriorate technically but that we wanted to wait 3 to 5 days to see if the losses were knee-jerk reactions to news events. The fact that the market did not rebound is bad sign, and while we have not seen our bear market indicators flash yet, we could be starting some sort of a correction phase (defined as a loss of 10% or more) .

I won’t put a bear market label on the S&P 500 until the 50-day EMA moves below the 200-day EMA, but that doesn’t mean we won’t see a significant correction. At the same time, while we are seeing some technical breakdowns, we have not seen a complete breakdown (lower lows) in the trend. This thing could rebound quickly.

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

The question now is, will a rebound give us an opportunity to be sellers in what could turn out to be a correction, or is this just another pullback in a bull market that needs to be bought for a longer period?

I don’t have the answer for you, but a lot of that answer will depend on the individual investor. What kind of tolerance do you have for risk? Do you want to buy in a risky situation? Do you want to sell in case things get worse?

When you need your TSP money may help you make that decision. Anyone closing in on retirement years may not want to take as many chances as a younger investor.

Just try to be prepared with a plan, for whichever way this breaks. If all support breaks, we may be in for a prolonged down trend. How will you react? If we rebound before support breaks, will you take profits or continue to buy? Having a plan in place beforehand makes it easier to act rather than waiting for a highly emotional spike higher, or breakdown that will likely develop.

Good luck, and thanks for reading. We will be back here next week with another TSP Wrap Up. Our market commentary is updated daily on www.tsptalk.com

Tom Crowley
TSP Talk