Coolhand's Market Analysis

Last year was a challenging year for many as the TSP stock funds ended the year mixed. And as paltry as the gains were for the G fund it delivered the best performance last year of all the funds.

We enter 2016 with no shortage of stock market concerns. Crude prices are at their lowest levels in years, which may be good for consumers, but it is an indication of questionable growth prospects for global stock markets moving forward.

China is devaluing their currency, which is spooking investors and fueling capital flight out of China. Their economic policies have been flip-flopping and that is not instilling investor confidence that they can stabilize their own stock market. This leads to the potential of destabilizing foreign markets as well.

The Federal Reserve has begun a path of monetary tightening, but it is not without risk given the mixed economic picture.

I find it interesting that many forecasters have a somewhat positive expectation for 2016. I neither agree nor disagree with them. Here is a sample of some the economic elements they cite to support their positive expectations:

Corporate profits perking up.

Oil prices staying low.

Residential construction improving.

Unemployment falling.

Auto sales setting records.

Manufacturing strengthening.

Wages inching up.

So those are some of the "positives" that are being cited. But they are fundamental elements that some would say are at least somewhat questionable. What are the charts telling us?



Of the 3 TSP stock funds, the C fund (S&P 500) fared the best in 2015. But even it is showing signs of potential trouble ahead. This is a 2-year weekly chart. We can see that prices rose to a peak in the May-July 2015 time frame. The 50 day moving average leveled out starting in late July. It has pretty much remained flat for the past 6 months or so, but for how much longer? Since August, we can see that price has spent a good deal of time below that average. Prior to July, price spent the vast majority of its time well above it. Now, we enter 2016 with the worst first-week performance ever for the stock market. Last week's weekly candlestick was long and red. Price closed near the August low. There is a support area that shows some long tails, which indicates that market support firmed up and price was able to recover once again; eventually rising back above the 50 dma for a period of time.

But there is no tail on that last candlestick and price is teetering on falling below last Summer's lows. Downside volume is above average. Momentum is negative and falling sharply.



The Wilshire 4500 (S fund) shows a more troubling technical picture. The Wilshire 4500 shows a bearish Head and Shoulders pattern. Last week's market melt-down put price very near the October 2014 low, which may offer some horizontal support; at least in the short term. But the neckline has already been broken, so buyers beware. I also note that the 50 dma is curling down now. Momentum is falling hard at this time.

Unlike the S&P 500, the Wilshire 4500 was not able to retake its 50 dma on the last rally.

Keep in mind that the Wilshire 4500 is the bulk of the US market. It may be a better barometer than the S&P 500 in terms of things to come.



The EFA (I fund) is another troubling chart. We see a bearish double top, with the weekly price in decline since the second top in May 2015. The 50 dma is drifting lower. The cloud is red in the months ahead. Last week's long, red candlestick has almost no tail, which suggests current downside pressure may not be over. Price also closed well below the 200 dma. Momentum may be just beginning to dive lower.

So for all the bullish spin we may see in the headlines (of course there are bearish ones too), the charts seem to indicate a good potential for trouble ahead.

I have presented what appears to be a largely bearish picture. And admittedly, it is. But we can never totally discount the power of Central Bank intervention. So while the current technical picture may be troubling at the least, Central Bank intervention has the potential to save this market for a given period of time, though we need to understand that they are not omnipotent. It just seems that way most of the time.

It looks like things could get challenging. Are you ready for 2016?