This is your TSP Watchdog UPDATE for the week ended June 12, 2020.

After three strong weeks, the market finally paused to catch its breath – and then some.  The S&P 500 lost 4.78%.  The Dow slid 5.55%.  The NASDAQ (after a new all-time high and closing above 10,000 for the first time ever) ended the week 2.30% lower.

(all market data courtesy of Yahoo! Finance)

After a strong day Mon, cautious comments from Fed Chairman Powell – suggesting that it is going to take quite awhile for the economy to return to pre-COVID levels – stopped investors in their tracks.  Then reports of new C-19 cases really spooked investors.  The Dow lost 1,861 points (-6.9%) on Thu before recovering 477 points on Fri.

A pullback after the market has surged like it has since late March is normal and healthy.  Markets do not go straight up – so a correction was in order.  Whether this is the end of the runup, or just a healthy backstep, is yet to be seen.  A few areas and aspects of the market bear watching:

1. Bank stocks have trailed the overall market for several years.  They have started to act well in recent weeks.  Whether they can continue their recent strength is worth watching.
2. In the Transportation industry, it is not surprising that airlines have struggled during the lockdowns.  But until recently, railroad and trucking stocks have been doing quite well.  This week, both of these groups broke down.  Railroads and truckers are at a critical juncture.
3. Ditto energy stocks.  They have bounced nicely from their March lows.  But now they are softening, and further weakness would break their uptrend.
4. The overall market itself is teetering at critical levels.  The decline this week came so quickly, and so sharply, that it has reversed a significant chunk of the recent gains – particularly the most recent gains that had put the market above key resistance levels.  Often, when resistance levels are broken (the market breaks above them), they turn into support levels.  If the market continues to slide, and falls below these new support levels – that would be very negative.

Sometimes, watching components of the overall market, or specific aspects, can give valuable insight.  Right now, these areas are worth keeping an eye on – as they may spotlight where things are headed a little ahead of the actual market move.

In our TSP Watchdog database, we see the C fund, S fund and I fund all at critical junctures.  The C fund is holding on just above its trend line.  The S fund and I fund have slipped just barely below their trend lines – putting them in jeopardy of falling back onto negative trends.  Where these three funds head from here will determine whether they hold their new positive trends (established last week) or fall back onto negative trends.

We talked last week about the possibility of a “head fake” trend signal and suggested caution in implementing the allocations that the new positive trends dictated.  We continue to believe that only the most aggressive investors – those eager to “get back in the game” – should be moving back into the market at this time.  Those of you who are in the “better safe than sorry” camp may be happier to move slowly, if at all.

With no trend changes this week (barely), our view remains the same: if you really want to get back into the markets, the trends are positive, and you can use these positive trends to justify moving back into the C, S and I funds.

BUT, and those capital letters are intentional, if you have any concerns or worries, you may be better off to wait – or hedge your bets by moving back in partially (as we outlined in more detail last week).

The market remains VERY dicey.  In some ways, we are in uncharted territory – most notably, no one knows if the monetary stimulus provided by the Fed is enough to offset a health event that has frozen the economy.  If you are anxious about the current state of affairs, you may be well served to stay on the sidelines.

I also want to clarify that we are NOT a trading advisory.  Our advice is not intended to be nimble enough to guide you in and out of the market in the shorter term.  Our process is not intended to help you jump in at the bottom for quick gains.  We use intermediate term trends – that do not change fast enough to capture short term moves.  This works well for the TSP – which discourages short term trading (i.e. the restriction to making only two interfund transfers per month), but it may disappoint folks who want to capture short term market swings.  Apologies – that is not our mandate.

What we DO do is monitor intermediate term trends – which typically do not change back and forth real quickly.  But, in the current environment, the market volatility may create some quick trend reversals.  Said another way, we are hovering right around the trend line, and we may see some bounces back and forth, above and below the trend lines of the different funds.

We will continue to give you the trend information that we track – and the best input we can on how to use this information to navigate your TSP through these crazy times.

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

Scot B.

P.S.  Our apologies, we are still responding to the last few of the emails that poured in last week.  Thank you for your patience.