This is your TSP Watchdog UPDATE for the week ended April 3, 2020.

After a strong bounce last week, stocks slid again this week.  The S&P 500 was DOWN 2.08%.  The Dow was DOWN 2.70%.  The NASDAQ was DOWN 1.72%.

It is worth noting that the NASDAQ, with it’s larger percentage of technology stocks, has held up a little better than it’s S&P and Dow counterparts.

As testament to the extreme volatility we are experiencing, the smallest move in either direction during the week was Fri’s 360 point decline.  Happily, there were no thousand point moves.

Last week’s rally continued Mon and into Tue, but as the last trading day of the quarter (Tue) moved towards its close, selling took over – wiping out the gains for the day and taking prices into negative territory.  The window dressing for Q1 reporting was over, and buyers disappeared.  In short, the rally from Mar 24 thru Mar 30 was the product of technical factors and an extreme near term oversold condition – not necessarily an indication that the market has found a bottom.

At some point it is highly likely the low seen on Mar 23 will be re-tested.  A successful re-test – where the previous low holds and stocks do NOT break through to lower lows – is, more often than not, the first concrete step in the bottoming process.  It is not a guarantee that the worst is behind us, but it is a healthy step.

As we said in previous comments, everything is about C-19 at this point – and when we can begin to open up our lives again.  Everyone knows that the economy is in the toilet.  No one needs data to quantify it.  Until we begin to get a glimmer of hope that the economy is being re-opened, volatility will continue and the markets will remain tenuous, at best.

Of course, in our TSP Watchdog database, we have no trend changes to report.  All funds continue on negative trends.  We remain 100% in the G fund in all our models – as we have been since Mar 2 – safe from all the destruction.

If you did not follow our suggestion to move to the G fund at the beginning of March, I feel for your predicament.  I even understand how/why you might not have moved to the G fund.  Every time we issue a recommendation, in either direction, we feel a sense of trepidation.  Are we making a change at the end of the trend-changing move in the markets?  Are we just going to get whipsawed by a quick market reversal?

What we have, that not every one of you has, is 35 years of experience with the markets and the understanding that these trend changes are not trivial.  They are helpful most of the time, and the risk of a quick reversal is outweighed by the risk of not respecting them.  We have seen trend changes play out correctly enough times to trust and follow them.

For those of you who are still invested, you have a few options:

1. You can ride it out.  The argument for this approach is that at this point, we may have seen most of the damage.  Why get out now and risk compounding the problem by missing any part of the recovery.  The risk is that things could still get worse – much worse.
2. You can get out now.  The argument here is that the trends are still negative and moving to the sidelines (G fund) would provide shelter from the continuing storm.  The risk is that the market bottoms soon, and you miss the beginning of the recovery.
3. You can step out gradually over the coming weeks.  This is a middle ground between the first two alternatives.  The argument here is that, as long as the trends remain negative, the G fund is the best place to be, and moving gradually reduces the chance that you get out right as the market hits bottom and begins to recover.

FYI…the limit of two interfund transfers per month does not apply to moves into the G fund.You can always move funds into the G fund – regardless of how many interfund transfers you have already made.

Without knowing your unique situation, it is difficult to make a blanket statement as to which approach is “best”.  I can, however, offer a few comments:

• Riding it out could be dangerous.  Where the market goes from here is unknowable, but it is not a stretch to imagine it going lower.
• Getting out now is a bigger risk if you do not have a methodology for getting back in.  But you DO have a methodology.  TSP Watchdog will tell you when the trends turn positive again.
• Getting out gradually is a way to “split the difference” with an approach that addresses the upside and downside of both riding it out and getting out now.  If you are torn between these opposing alternatives, this middle ground may be worth considering.

We are all living through something new and extreme.  Hopefully, things will begin to get better before too long.  Be prepared for things to get tougher in the short run, but don’t stop looking for the light at the end of the tunnel.

As always, please feel free to reply to this email with questions.

Scot B.