Sunday Update: 11 March 2018

As we’ve been talking about over the past several weeks, volatility will continue for the foreseeable future.  Why is that?  Why was 2017 so easy and 2018 is full of big up and down days?  The answer lies in the Elliott Wave Count and can give us an idea of what to expect in the future.  

This week we’re going to start with the long view and then drill down into the pattern that is currently in play.  It’s not an exact science but, all 3 of the TSP stock funds are exhibiting the same pattern so, understanding how the pattern ends is good to know!

Long Term

Take a look at the 10 year chart below.  Why was 2017 such an easy year?  Because it comprised almost the entire 3 leg of the pattern that began in November 2016.  The 3 leg tends to be the longest and strongest leg of the 5 wave count.  The top in January 2018 ended this 3 leg and we are now in the 4th leg, or consolidation period, preparing for the final push up to complete the 5 wave cycle.  IF my count is correct, the current consolidation should stay above the blue trend line, maybe testing it one more time, before moving to new highs and the top at 5.  Another possibility is that my count is off slightly and the 4 leg consolidation goes down to the longer term black trend line.  Either way, a move higher is needed to complete the 5 waves.  So how do we play this?  Watch the blue trend line closely.  If it holds and the stock funds move higher, we are in good shape.  If we get a close below the blue trend line then expect a test of the lower black trend line.  Volatility is here to stay until the 4th leg consolidation is complete.

Short Term

The chart above lays out the big picture of where we are likely headed.  What about the coming couple of months and this 4th leg consolidation?  All 3 of the TSP stock funds look to be forming what is known as a “Bearish Gartley 222” pattern.  It is a “Bearish” pattern because, once the pattern is complete at D, prices roll over big time!  Below is a picture of the ideal pattern.

Now take a look at the 6 month daily charts of the 3 TSP stock funds.  All 3 are very similar to the ideal above.  

The pattern is not complete.  We are likely to see higher prices over the next week or 2 until we get to D.  IF the pattern is complete at D then we should expect prices to fall back to the blue trend line on the first chart (about 2600).  That could be our next best time to get back into the stock funds.  If the pattern plays out, that trend line will become critical to watch!  

This is all about risk management.  While I do expect prices to continue higher for the next week or so, the risk/reward balance is keeping me generally out of the stock funds for now.  If we didn’t have the 2 move per month rule in TSP, I’d be much more aggressive here.  Given the restrictions within TSP, I’m taking the conservative approach.  I want to be able to move into the stock funds when the price finds support at the blue trend line…

I know this post was pretty technical.  If you have questions, hit me up in the comments or on FaceBook.

Have a great week!

Jerry