It was a relatively flat week but lots happening under the surface. For the week the C fund finished up 0.21%, S fund up 0.59%, I fund down 0.05%, and F fund up 0.06%. All eyes are on a year end rally and the big question of recession in 2024. Forecasters, as usual are on both sides of the fence. One such forecaster, who has been spot on throughout 2023, is Tom Lee (@FundStrat on twitter).

In this recent interview on CNBC, Tom discusses how he viewed the market at different times in 2023 and what he expects for 2024. One of his observations was particularly interesting and goes to a concept that we hit on in the 12 November Newsletter. Towards the end of the interview, Tom was asked if his bullish forecast for 2024 was dependent on a "No Landing" scenario, meaning the US economy is actually in the beginning of a new growth cycle. He explained that the massive interest rate hikes in the U.S. since 2021 caused a hard landing in both Europe and China. If those areas begin to recover in 2024, the U.S. could avoid a recession all together. If you watch the video, its clear that the other panelists are not buying Tom's argument. Time will tell... He may not end up being right but, the concept of weakness is some areas can discount weakness in other areas is valid.

In the 12 November Newsletter, we showed the chart of the C fund below. With only a single down day since the October bottom, we would expect a deeper correction.



We then showed this chart of the S fund, a healthy pull back and great set up for a continued rally. The I fund chart was similar to the S fund in terms of a pull back. The question we asked was, could the pull back in the S and I funds be enough so that the rally could continue in all three stock funds? The answer was obviously Yes as the market continued higher throughout the month.



Tom Lee is essentially asking the same question at a global, macroeconomic level. Will the ongoing recessions in China and Europe take enough of froth out of the system, enabling the U.S. to continue the current bull market? It's certainly possible and definitely not the consensus view.

Is there anything that we can watch to see Tom's bullish 2024 theory play out? What would have a decisive impact to a turn-around in Europe and China? The Dollar.

The Dollar

A falling dollar is a tailwind for stocks, both domestic and international. Is a falling dollar likely or not in 2024?

The chart below shows the dollar going back to 1967. After peaking along with interest rates in the early 1980s, the dollar was in a multi-decade decline until bottoming in 2008. Since then, the trend has changed. The dollar is in secular up trend with numerous counter trend rallies.



If we zoom in to the dollar's rally since 2008, we have a completed Elliott Wave cycle in September 2022. If this count is correct, and wave A equals the length of wave C, then wave II should bring the dollar down to the 92 level.



Measured moves also support a falling dollar. Every cyclical decline in the dollar since its 2008 bottom was the same length. If the current decline continues this pattern, price should bottom at the 92 level. These declines have generally lasted approximately 1 year. If the dollar falls throughout 2024, stocks could do very well.

TSP Fund Charts

We are watching the weekly chart of the C fund closely. The C fund closed at new 2023 highs on Friday and cleared the 4600 level. This is definitely bullish from a long term perspective but, in the sort term, a pull back appears imminent. Buyers (green ADX line) appear to have peaked and we have significant divergence between price and RSI. This is definitely a red flag and something to monitor closely.



On a daily basis, the C fund chart still looks strong. The past 2 weeks of consolidation set the C fund up for Friday's rally. Buyers came back in as sellers continued to exit. RSI has been overbought for a couple of weeks and the momentum is weakening as MACD has turned negative. The rally can continue but, the negative MACD is not a good sign.



The S fund chart looks very strong as it digests rallies with constructive consolidations. The next test for the S fund will be it's July high of 1880.



The I fund also looks strong but, a negative MACD is telling us that momentum is waning on this rally. If the dollar continues to fall, the I fund will continue to rally.



The F fund appears to have peaked. While one day does not make a trend, Friday's job report put a serious dent in the F fund's rally. Any continued weakness, particularly if the red ADX line closes above 20, will trigger a sell for the F fund. Stocks and bonds had been moving higher in lock-step from the October lows through Thursday. With the FED meeting this coming Wednesday, we'll see if that positive correlation continues.

Bottom Line

The market is in rally mode but a correction, before a final push into the end of the year, is not off the table. The daily charts look strong as of Friday's close but, keep an eye on that weekly chart of the C fund. We've had 6 consecutive up weeks. It's high time for a pull back.

Have a great week!

The Grow My TSP Team