Alert Analysis
"New numbers showed job openings retreating to a 28-month low while fewer workers were quitting. Job listings dropped to 8.8 million, lower than the forecast of 9.5 million. Meanwhile, 3.5 million people quit their jobs in July, the lowest level in over two and a half years — a sign that job seekers are getting more cautious. Consumer confidence also fell in August, dropping to 106.1 from 114, according to the Conference Board. Compared to July, slightly fewer people in August are saying jobs are “plentiful,” while slightly more people are saying a new job is “hard to get.” " - MarketWatch.com.
The take away is that FED rate hikes are beginning to have an effect on employment. The market responded to the upside, as these weakening employment numbers suggest that the FED may end it's rate tightening cycle.
We've been discussing the 10 year yield frequently over the past couple of months. When yield goes up, stocks, particularly tech, tend to go down. The 10 year yield dropped 2.14% today BUT, it's still well within the up trend. The primary Elliott Wave count calls for yield to continue to rise to approximately 4.5%. The Ending Diagonal pattern is common in a 5th wave.
Once this 5th wave is complete, the move up in rates since the low in 2020 should be over and rates will likely fall significantly. Unfortunately, this rate decline will likely coincide with falling stock prices as we discussed in the 20 August Newsletter.
This is what the chart of the 10 year yield looks like with the S&P500 overlay in blue. We can see that, in general, stocks go up as yield goes down and down as the dollar goes up.
When something breaks in the economy, stocks and yield collapse together as we can see from 2000-2003 and 2007-2009.
TSP Fund Charts
After reversing at the 20DMA last Thursday, the C fund powered higher over the past 3 days with a very strong buy trigger today. The next resistance level is the recent high at 4600 and then the prior all-time high at 4800.
The S fund outperformed both the C and I funds today but is just shy of a buy trigger. The next chart shows the S fund relative to the C fund. This is the perfect place for the S fund to begin outperforming the C fund again. If support is lost at the trendline, the C fund is again outperforming the S fund.
The I fund put in a buy trigger closing above its 20DMA, RSI above 50, CCI above 0, and MACD crossing positive. The I fund moves inverse to the price of the dollar. The dollar was down sharply today as we can see on the next chart. While the dollar fell today, it would need to get below resistance at the down sloping trendline for the rally in the I fund to be confirmed.
The F fund put in a buy trigger today but is still clearly in a down channel. When the big move comes in the F fund, it will be on falling stock prices; not rising. As long as stock prices are rising, there is more potential upside in stocks than bonds.
Bottom Line
Today's breakout is unmistakable with new buy triggers in the C, I, and F funds, and the S fund just shy of a buy trigger. As expected, the bearish drum beat got much louder over the past 2 weeks. September and October are historically the worst performing months for the stock funds. In spite of that, the market spoke loudly today.
If you are risk averse, a reasonable course of action is to wait out the historically worst months of the year. If you are more aggressive and looking forward to potential Q4 gains, reallocating to the stock funds may be a good choice for you.
The Grow Model Portfolio is based on Technical Analysis. As such, the portfolio will be adjusted to reflect today's price movement. The portfolio is a guide. You can follow along or make your own reallocation decisions consistent with your circumstances and risk tolerance.
New Grow Model Portfolio allocation: 50% C Fund, 50% S Fund
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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.
