Sunday Update: 05 May 2019

It was a volatile but productive week for the TSP stock funds.  The C fund, after putting in a decent reversal off of a 2900 low, finished the week almost where it began.    The S and I funds both fared better than the C, and the F fund finished at the lower end of it’s weekly trading range.  For the week the C fund was up 0.20%, S and I funds were both up 0.81%, and the F fund down 0.10%.

I’m not going to enclose the daily charts in this post.  To be honest, they aren’t that interesting.  Having gone basically straight up since the December 2018 low, the market is very over bought in the short term and needs a correction.  The BIG QUESTION is, where does the market go from here??…  This post is going to focus on the top 2 possibilities based on Elliott Waves.

Elliott Waves

We’ve talked about Elliott Waves many times in previous posts (type Elliott Waves in the search bar to view).  The foundation of Elliott Wave theory is that prices move in Impulse and Corrective waves.  Impulse waves make up the the primary trend, advancing in 5 legs.  Corrective waves counter the primary trend, advancing in 3 legs.  Since the last major low in 2009, the market is progressing in 5 legs.  The first 3 legs have completed.  Our goal now is to identify the completion of the 4th leg / beginning of the 5th leg.  There are 2 primary possibilities.

Possibility A 

Below is an IDEAL expanding triangle pattern.  When you connect the lower lows and lower highs you get the expanding triangle pattern.  The pattern completes in 5 waves of a, b, c, d, e.  The 4th leg of the larger pattern is completed at e.  The 5th leg then progresses in 5 legs higher.

Below is how this pattern is playing out on the C fund since the 2009 low.

Possibility B

The second possibility is that the 4th leg completed at the December 2018 low.  If this pattern plays out, the current rally will be the first in a series of 5 legs to complete the pattern that began in 2009.

Take Aways:

1. The LONG TERM pattern is still moving higher regardless of which scenario ultimately plays out.
2. The next correction should take us down to the 50WMA (red line).  This is a CRITICAL juncture!
3. IF the 50WMA provides support then scenario B is likely.  
4. IF the 50WMA does not hold then the market SHOULD fall below 2400 to complete wave 4 of possibility A.  

Bottom Line:  In the LONG TERM (1-2 yrs) prices should be higher than they are today.  In the short term (next 6 months) things are likely to get very volatile.  Watch the 50WMA very closely on the next correction!

Have a great week!

Jerry