Sunday Update: 08 April 2018

It was another turbulent week for the stock market and people are finally starting to take notice.  I read stock market articles  constantly and one thing is certain.  There is no shortage of analysis that will support your position, whatever that position is.  If you’re a “Buy and Hold” type of investor, regardless of market direction, you can find plenty of articles supporting that type of strategy.  If you believe the top is in and we have entered a Bear Market, there are plenty of pundits out there who support that position.  Finally, if you believe that the market always goes up and we are just experiencing a healthy pause, you can find lots of support for that position as well.  So what does all this mean?  If you’re biased or have a belief that the market will go in one direction or the other, you can certainly find “evidence” to support that bias.  That evidence will make you feel more “right” and further entrench your bias/belief/position.  The more entrenched you get, the more right you feel about the market’s eventual direction, the more difficult it is to evaluate what is ACTUALLY happening and act accordingly.  

The value of a technical analysis approach is that it minimizes personal bias.  It allows you see objectively what is actually happening, identify possibilities going forward, and prioritize those possibilities.  This week we will look at the 10 Year, 2 Year and 4 Month market perspectives.  This will lead to 2 possibilities going forward in the short term.  This perspective can help us make logical, unemotional TSP allocation decisions during this turbulent correction period.  

Long Term  

The 2 Short Term possibilities are based on the Long Term and Medium Term charts below.  In the big scheme of things, we are much closer to a long term market top than a bottom.  It’s possible that the top is already in but we will not know for sure until we see a lower high followed by a lower low.  That means a test of the 2800 level followed by a monthly close below 2600.  Either way, this Bull Market that began in 2009 is on it’s last leg…    

Medium Term

The 2 year, Medium Term chart is the most important time frame for TSP investors.  The 2 year rally that began in early 2016 is almost over.  Ideally, a rally will complete in 5 identifiable steps.  My best count is annotated on the chart below.  IF this count is correct then, we need to see one more push to new highs to complete the 5 steps.  One of 2 possibilities will play out over the next several weeks.  These possibilities are laid out below in the Short Term charts.  I am leaning toward the Bullish Case because that possibility corroborates my medium term chart count.  Having said that, if the Bearish Case prevails, that’s not a problem.  It’s just the second possibility and we will adjust accordingly…    

Short Term

Elliot Waves are patterns within patterns.  The short term, bullish case pattern below would complete the medium term pattern above.  For this to happen, we really need to see the 200DMA line hold and the market move higher from here SOON.  The longer we continue this short sideways consolidation that began on 23 March, the more likely the Bullish Case will fail.  We want to see the 200DMA hold and prices push up thru the 50DMA.  If we get back above 2875 then we’re likely to hit 3400ish…   

If I just looked at the 2 Short Term charts, without the perspective of the medium and long term charts, I would expect the Bearish Case to win the day.  The pattern structure of the 4 month chart below is clearly bearish.  The 1 leg played out in 5 identifiable steps followed by 3 steps for the 2 leg.  This set up leads to an expected 5 steps in the 3rd down leg.  It appears that we are in the second step of the 3rd down leg.  A strong close below the 200DMA will confirm the bearish case to be the winner here…

If you’re a technical analysis geek like me, this is all very exciting.  Having said that, I’m looking forward to identifying a new trend and moving to either 100% stock funds or 100% G fund.  Corrections take time to play out.  Don’t get personally attached to your position and be ready to reallocate TSP funds when a new trend is confirmed.

I have a TSP account just like you and I’ve been working hard to maximize it for over 25 years. If you want to know when I make a move in my personal TSP account BEFORE I do it, become a Member of the site.  At $12 per month or $120 per year, consider it a very affordable insurance policy against big losses in your retirement nest egg!

Have a great week!

Jerry