TSP Talk Blog

Classic test

After a positive start on Monday, stocks rolled over in the latter part of the week and the S&P 500 finds itself nearing a test of the prior lows.

The TSP stock funds saw sharp losses for the week. The C-fund closed down 4.63%, the S-fund lost 6.50%,and the I-fund fell 4.50%. Bonds (F-fund) gained 0.36%, and the G-fund was up 0.04%.



For the month of August the C-fund is now down 12.90%, the S-fund has given up 17.18%, the I-fund has lost 14.68%, the F-fund has gained 1.97%, and the G-fund is up 0.12%.

The S&P 500 moved down in what will be an apparent test of the early August lows. This is very typical behavior after a sharp decline takes the indices to new lows. The market will rally, then come back to test those lows. The obvious question now is whether the test is going to hold, or whether we will see another leg down.


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

There are many people out there who believe that buy and hold is the only way to manage your TSP account. I would say that the majority of TSP Talk readers are more interested in a more hands approach by doing a little market timing by getting aggressive or defensive based on the current situation.

The answers are not always clear but when the market is sitting on a precious, as it is today, the buy and hold investor must take whatever the market dishes out. The timer has a choice and the choice would not be the same for everyone. For example, a 25 year old may be more willing to gamble where a 50 year old may choose the safer route.

The market indicators are oversold at this point, and investor sentiment is very bearish. The extreme oversold / overly bearish readings are normally more bullish for the market, but volatility is high and the charts are broken so a rally is not a given.

What I like to do in this kind of situation is to gamble a little while the indices are above support and the prior lows, with the understanding that I have to get out of stocks and lick my wounds if the test fails and we see new lows. Barring a market crash (which is possible in this environment) I would likely be risking a modest loss, for the chance of catching a sharp rally off of the bottom.

I don’t recommend this approach for everybody because there are risks of not only losses, but with our TSP interfund transfer limits, you risk selling and missing any subsequent rally because you may be out of transactions.

Just as a reminder, you are allowed 2 interfund transfers (IFT) per month, but after#2, you are allowed to move into the G-fund – either all at once, or in increments, as long as the G-fund is the only fund that increases in allocation. That means if you used IFT #2 to move over to the G-fund, you won’t be able to make an interfund transfer to get back into the stock funds until the first business day of the following month.

My suggestion to you is to have a plan in your mind and be ready to execute it. Volatility will be high in the coming day sand weeks and trying to make a decision while emotions are high and the market is swinging wildly can be very tough.

Good luck, and thanks for reading. We will be back here next week with another TSP Wrap Up.

Tom Crowley
www.tsptalk.com
Weekly Wrap-Ups Archive


The legal stuff: This information is for educational purposes only! This is not advice or are commendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.