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Relative Strength Trends of the TSP Funds |
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Relative Strength Trends of the TSP Funds
The TSP
Trader system uses the allocation principle when investing in the
market. This spreads the investment risk over three TSP funds (C, S
& I). The different percentage of investment in each fund (25%, 40%,
& 35%) optimizes the investment by how the three funds have done
relative to each other over the recent past. If there has been great
variability in the strengths of the three funds, relative to each
other, then the recent past is the last six months or so. If there
has not been a great deal of relative strength variability between
the three funds, then the recent past could be a year or two.
Therefore, the question becomes, what has been the relative strength
variability between the three funds. The answer is graphically shown
below (green dotted circle where C Fund Strength < S Fund Strength <
I Fund Strength).
There are three
things to note in the chart above. The first is that five TSP Funds
are presented (G, F, I, S & C). The second is the funds sometimes
show relative strength (above the dotted green line), and sometimes
show relative weakness (below the dotted green line). The vertical
Weakness---Strength axis is centered at zero. The G Fund (solid
green line) has a constant strength value of +0.60.
The
next question becomes, what is the baseline for deciding between
relative strength and relative weakness. The answer is to use the G
Fund as the strength-weakness baseline as it has constant strength
(+0.60). This means anytime a fund is above the green line, it is
showing strength. When it is below the green line, it is showing
weakness. The time to buy into a TSP fund (F, I, S or C) is at
maximum weakness (blue box) before it heads upward (increasing daily
share prices). The time to sell a fund and enter the safety of the G
Fund, whose strength does not vary, is when the fund reaches its
maximum strength (blue box) and heads downward.
The last thing in the chart above is
since mid-2004 the relative strengths and weaknesses of the funds
have varied from plus ten (maximum strength) to minus ten (maximum
weakness). However, in general, the strength of the I Fund has
exceeded the S Fund’s strength, and both are stronger than the C
Fund. The relative strengths and weaknesses of the three funds since
mid-2004 to the present yield the TSP Trader system allocation
percentages (C Fund at 25%, S Fund at 40%, & I Fund at 35%). The
chart below shows the relative strengths and weaknesses of the five
funds for H1, 2007.
The
above chart shows the funds are beginning to recover (green circle)
from a period weakness that started in April-May. The C and F Funds
are still in a position of relative weakness, while the S and I
Funds are in a relative strength position. Recall, the baseline of
constant strength is the G Fund (solid green line at +0.60). The bar
chart below shows the relative strength and weakness of the four
funds has been increasing over the last two weeks. This bar chart
will become a regular feature in the close of business Friday update
for the TSP Trader system.
System Stop Loss Analysis
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