The futures market opened down this morning and regular trading continued the trend. The problem was not so much the C fund, or even the I fund. The problem was a very disappointing breakdown on the S fund intra-day chart. We will get into the C fund, S fund, and the F fund below. First, let’s look at the tactics of this Interfund Transfer (IFT)
Today is the 16th of August and we are fully invested in the TSP stock funds. There are 12 trading days left in the month and we have not made any IFTs so far in August. Tactically, we are in a great position. We can reallocate out of the stock funds, back into the stock funds, and back out again all over the course of the next 12 days IF NECESSARY.
In terms of seasonality, we know August, September and October are historically the worst performing months for the market. Though the S fund has been basically flat, we have seen some decent gains in the C and I funds this month. I’m not willing to push my luck going into these seasonal headwinds.
I am optimistic that a consolidation/correction over the next couple of months will not be extreme. My primary Elliott Wave count still calls for new highs after a relatively short correction. Having said that, my secondary Elliott Wave count makes the case that the next correction will be extreme. We will get into both of those counts in the Weekly Update Newsletter this weekend as it does not affect this IFT Alert.
The Chart Analysis
The breakdown in the intra-day chart of the S fund is a serious problem. We expected to see a breakout to the upside from this triangle consolidation. Unfortunately, we got a clear breakdown this morning. This is significant because the S fund has the most pent up demand of all 3 TSP stock funds. The S fund has been in a long term, sideways consolidation for most of 2021. It SHOULD be leading the next major move higher. Today’s breakdown calls that move into question. Continued weakness in the S fund will almost certainly pull the C and I funds down as well.
The C fund has performed extremely well in 2021 and is due for a breather. The I fund put in a double top yesterday and gapped down significantly this morning. The two important levels to watch on the S fund are 2270 and 2190. A close above 2270, BEFORE a close below 2190 would be very bullish. A close below 2190 means the S fund is headed down to test the lower channel line again.
The 6 month daily chart of the C fund below looks quite strong. The only real concern is increasing price on decreasing volume. Additionally, the technical indicators are failing to make new highs along with price. This divergence often signals a top in price.
We talked about the F fund in great detail during the Members Only Webinar last week as well as the Weekly Update Show and the Weekly Update Newsletter. The F fund found support at its 50DMA, hitting Elliott Wave 4. This morning, the F fund gapped up and cleared its 10DMA. All very bullish indications.
The only downside to the F fund chart is the gap at 116.25. The Friday before last, the F fund gapped down thru its 10DMA at 116.25. This morning the F fund gapped up, filled last Friday’s gap down, and reversed. A reversal after filling a gap is not a great sign. As long as price remains above its 10DMA, the F fund is in good shape. The reversal after filling the gap is the only reason that I did not reallocate 100% to the F fund.
This Alert is driven by 4 market and TSP realities. Primarily, the breakdown in the S fund. Second, known seasonal headwinds. Third, the F fund is a great alternative given weakness in the stock funds. Finally, our very favorable tactical position, with an opportunity for 3 IFTs over only 12 trading days remaining.
The intra-day gap down on the S fund is a serious problem because the S fund has the most long term potential. IF we are going to see another major move higher after a short correction, the S fund SHOULD lead the way. I will be watching the S fund closely for an indication to get back into the stock funds.
As always, this Alert is NOT a personal recommendation. I am sharing what I am doing within my personal TSP account. You can choose to follow along, disregard, or combine this info with other sources and make you own decisions. Always take into account your personal circumstances and risk tolerance.
Have a great week!