As we explained in the 15 October Newsletter, there are most likely only 2 options for the stock funds going forward. Either the market is getting ready to rip higher OR we are about to begin a major collapse. Sideways movement is unlikely given the relentless move higher in both yield and the dollar, as well as chaos in DC and the war in Israel.
4200 is really the bottom line. A close below 4200 all but ends the possibility of new highs by the end of the year, and likely confirms that price is headed much lower.
If you are an aggressive TSP investor, you could choose to remain in the stock funds unless and until price closes below 4200. If you are more conservative or risk averse, there are plenty of reasons to move to the G fund at this point. A combination is also a possibility. An allocation of 50% C fund and 50% G fund protects half of your account from further decline and keeps you in the game if price does get support at or before 4200 and rallies.
The dollar began rising in mid-2021 and peaked in October 2022. Since mid-2021, a rising dollar has been a severe headwind for stocks. The dollar bottomed in July 2023 and has been rising, finding support at its 20DMA line ever since. The dollar hit resistance at the 50% Fibonacci level but has consolidated rather than rolling over. The consolidation over the past 2 weeks, above its 20DMA line, suggests that the uptrend in the price of the dollar will continue. This will put continued pressure on stocks. Stocks will not rally meaningfully as long as the dollar remains in this persistent uptrend.
10 Year Yield
The 10 year yield closed just below 5% yesterday. Yield is another headwind for stocks, particularly the S fund. As long as yield continues to rise, stocks will continue to be under pressure. Unfortunately, the likely outcome is a collapse in yield due to some kind of systemic breakdown in the market. At that point, both yield and stock prices will fall.
In the sort term, yield is extremely overbought. If a systemic breakdown does not occur, yield could correct naturally. This would be a positive for stocks.
TSP Fund Charts
A weekly view of the C fund is pretty telling. After closing below its 20WMA line in September, the 20WMA has become resistance. While we have not seen a collapse is price, the longer price remains below the 20WMA, the more likely price continues lower. The 20WMA has rolled over and is now declining. A declining 20WMA line is not good as we can see from 2022.
The daily chart of the C fund puts price back into the support/resistance zone of 4200 to 4300. The 4300 level is significant as it is the August 2022 high. The 4200 level is significant because it was a very clear support and resistance level throughout 2022 and into 2023. A close below 4200 would be the nail in the coffin for the current bull market that began at the October 2022 low.
If we look at the C fund daily with the technical indicator stack, we see the decline in sellers over the past 2 weeks found support at the 20 line and buyers have begun to retreat. CCI is below 0 and declining, RSI is below 50 and declining, and MACD is just barely positive. Because of MACD, we don't yet have a sell trigger for the C fund but, one more down day will do it.
The S fund has been forming a long-term bearish consolidation pattern since the June 2022 low. An a-b-c-d-e triangle consolidation pattern is very common. Once complete, price tends to continue in the direction of the previous trend; down in this case. Most telling is the 5 wave impulse move down from e. This impulse pattern suggests that price will continue lower over the next several months.
The I fund put in a rounded top and is clearly in a defined down channel with lower highs and lower lows. As long as the dollar continues to rise, the I fund continues lower.
A rising dollar is a headwind for all three of the TSP funds but, the dollar has almost an exact inverse correlation to the I fund. We can see this very clearly in the chart below. When the dollar, in candle sticks, is rising, the I fund is falling. When the dollar is falling, the I fund is rising. I can't over emphasize the importance of watching the chart of the dollar.
The F fund, which tracks inversely to yield, should be very close to completing wave 5 down. Once complete, the F fund should rally significantly. The concern, as we explained in detail in the 04 October Market Update, is a 2008 style collapse. In that case, because the F fund is comprised of both treasuries and corporate bonds, the F fund could fall under the weight of declining corporate bonds. It should not fall as dramatically as the stock funds because declining corporate bonds would be off-set by rising treasuries within the F fund.
Because of the historic decline in bond prices over the past 3 years and the very clear Elliott Wave pattern, the F fund has the highest potential for positive returns of all the TSP funds; once its bottom is in.
There are 7 trading days left in the month. Since this is the second reallocation for October, any additional reallocation can only increase holdings in the G fund. Because 4200 is such an important support level, and the seasonal tendencies for stocks to rally in the 4th quarter of the 3rd year of a Presidential Cycle, the Grow Model Portfolio will take a middle of the road approach with 50% C fund, 50% G fund.
This allows us to reallocate fully into the G fund next week IF the market collapses through 4200. There is obviously risk to the downside with this option but, it keeps us in the game if seasonal tendencies prevail. As always, it is up to each TSP investor to make reallocation decisions based on individual circumstances and risk tolerance.
New Grow Model Portfolio Allocation: 50% C Fund, 50% G Fund
GrowMyTSP.com does NOT provide personal investment advice. The Alert and Analysis are designed for you to make your own reallocation decisions based on your personal circumstances and risk tolerance. This Alert analysis details the current allocations within the “Grow Model Portfolio”. You can follow along with these allocations or use this information to make your own reallocation decisions.