We had a big move up today on all 3 TSP stock funds.  Hopefully the rally continues and we move higher throughout the week.  Having said that, technical analysis does not operate on “Hope”.  Here’s the bottom line:  The crash we saw over the past 2 weeks is significant.  The market crashed thru the 50DMA and barely found support at the 200DMA.  I do not expect to see new highs going forward.  I expect that the high we saw on the C fund at the end of September is the TOP that we have been anticipating for the past year.  NO ONE has a crystal ball but, based on my reading of the charts, I am operating as if the late September high is the final high of the rally that began in 2009.  

Now what??  Short answer; I’m looking for the best place to reallocate to the G Fund and minimize losses, and I’ll explain why…

Right now I am allocated 50% S Fund and 50% I Fund.  The S Fund and I Fund have their own technical characteristics but, the S&P500 (C Fund) is the standard.  I use the C fund primarily to make reallocation decisions so, let’s take a look at the long/medium/short term C fund charts and see where we are…

Long Term

You’ve all see the chart below many times.  The Elliott Wave Theory is a great predictor but is always confirmed in hindsight.  That’s why the 5 has a ? right now.  If we rally to new highs from this point, the count will change but, right now it looks like the 5 legs have been completed.  IF that is the case then the current crash is the start of leg 1 of a down trend that would ideally take us down to 1800-2200.  I do NOT want to absorb that kind of loss.  With this as a basis, I’ll look at the shorter time frame charts below to determine the best time to minimize losses and get back into the G fund to ride the expected trend down.  This all changes if we get a close above the late September high…

Medium Term

The chart below shows the 5th leg of the chart above, which also played out in 5 legs (patterns within patterns).  We see that the 200DMA has acted as support for the past 3 years.  The current crash violated the 200DMA on an intra-weekly basis but ultimately found support and rallied today.  IF this crash is the beginning of a larger move down then the rally that began today will peter out before making new highs.  USUALLY this happens at the 50DMA.  We’ll watch the price as it approaches the 50DMA but, the real signals will come from the indicators on the Short Term chart below.

Short Term

The short term chart below is the final year of the 3 year chart above.  The price ultimately found support after dipping below the 200DMA and snapped higher by over 2% today.  That’s a a big move but, it’s still a long way up to the 50DMA.  The price may not make it all the way up to the 50DMA or it may break thru and go to new highs.  What I’m watching is the technical indicators.  When the Wm%R gets back into the green and then rolls over to the 50 line, that’s when I’m reallocating back to 100% G Fund.  The price may not run straight up from here.  It could roll over and test the 200DMA again before making another run at the 50DMA.  Barring a major gap down, I expect to stay at my current allocations until the technical indicators tell me to reallocate.

If you’ve made it this far into the post, good on you!  This is some very technical stuff but it works.  My goal is to ride this recovery rally until it peters out and then reallocate to the G fund.  The short term technical indicators are the key.  

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Watch your email and be ready for the next ALERT.  I would expect the alert to happen next week but, you never know.  It’s still October…  Cheers!

Jerry