At first glance, it doesn’t look like anything significant happened in the market this week. In fact, the S&P500 (C Fund) actually closed 0.25% lower than last week. In reality, this week was definitely significant! We saw another successful test of the 200DMA on the C fund, a successful test then bounce off the 50DMA for the I fund, and a close above the 50DMA for the S fund. A very constructive week! Having said that, we’re not out of the woods yet! While Friday was a great day in terms of price gain, volume did not inspire confidence…
As we discussed last week, the bias is toward another leg up to new highs. This week COULD be the beginning of that move. If we do breakout, how high can we expect the market to go? The Elliot Wave guidelines tells us that, of the 5 steps in a complete wave, step 1 and step 5 tend to be the same on a percentage basis. If we apply this guideline to the 2 year chart of the C fund below, we get a projected step 5 high of approximately 3025. This is not an exact science but it does give us a sign post.
A big price move off of the 200DMA on Friday. The problem is that this move came on low volume and closed below the daily high. While it was a great day, it does not count as a breakout day. Hopefully we will see that next week with a gap up thru the 50DMA on Big Volume…
The S fund chart is pretty similar to the C fund chart but, the S closed the week above its 50DMA. We’d love to see a close above 1380 to identify a trend change.
The I fund is possibly leading us higher. The I fund broke up thru its 50DMA back in mid-April. Since then, it has come back down to test the 50DMA, and popped higher on Friday. A close above 72 would confirm a new up trend.
To wrap it up, we had another very constructive week with successful tests of the 200DMA or 50DMA depending on which TSP stock fund you look at. On the down side, volume was suspect and prices did not finish at the daily highs on Friday. We are almost done with this correction and my guess is that it resolves higher but, there are no guarantees. Stay alert!
Have a great week!