When I take my young sons for a walk, they often run ahead of my wife and I. When they get too far ahead we call and they stop for awhile but as we get close they take off again. Occasionally, they run ahead too far and miss a turn. We pause at the turn waiting until they stop and look at us and we inform them we are turning. They then run back to us as we wait and then, of course, they take off ahead of us in the new direction.
While the small and mid-cap stocks (VXF ETF & TSP S fund) often lead on the way up, they have been anchored to the large cap stocks (VOO ETF, S&P 500 index) for the last few years. Every time the large cap stocks have encountered deep corrections, the smaller cap stocks retraced all of its gains over the large cap stocks during the corrections before once again leading the rally higher.
As you are probably aware, the TSP S fund (VXF ETF) has recently outperformed the TSP C fund (VOO ETF) after retracing the gains it made over the TSP C fund in 2013 during the Oct 2014 correction. It would not be a stretch to guess that if the market corrects significantly this summer (as I assume it will) the TSP S fund will retrace its current gains over the TSP C fund in addition to the losses of the C fund in the correction. I also highlighted the two times the S&P 500 index traded sideways for a significant amount of time. It may not a good time to jump into the TSP S fund, or C fund for that matter.
Market Observations
I have posted the July Current Situation Report on our membership website where I focus on the status of this aging bull market. I have been asked if I provide alerts for when the bear market commences in addition to my normal timing signals. The answer is yes for all members with a qualifying statement that my signal does not report the top, but confirmation that the bull market is over. I do provide the warning flags that occur during the topping process – and it is a process, not an event – in my current situation reports and member posts.
Categories: Perspectives, TSP Charts