Current Allocations: 50% C Fund / 50% G Fund

It was a very tough week for all 3 TSP stock funds.  The big question is whether this is an opportunity to “buy the dip” or the beginning of a more significant correction.  If you’ve been following for the past few months, and have an idea of the wave count, then you probably know where this post is headed.  You can get a refresh of the Elliott Wave count here.  

Below is a chart from the July 9th Sunday Update.  IF this week’s price decline is the beginning of the circled 4 correction then we are right on track.  How/when will we know for sure?  How do we position our allocation in TSP to maximize this?  We’ll sort it all out in the charts below…

 

We may have finally seen the short term top, and started the consolidation, that will set us up for new highs going into 2018.  So far we’re right on track.  While the market tanked pretty hard this week, 1 week does not make a trend.  IF this is the beginning of the circle 4 correction in the chart above, there are a couple of ways this plays out over the next several weeks.

  1. The market could just tank right down to the 200DMA.  This is entirely possible given all the current geo-political uncertainty, and we have had very few significant price declines so far this year.  
  2. The market finds support at the 50DMA and rally’s but stays below 2500.  This would give us a great opportunity to get out of stocks completely before the final drop into the buy zone at the 200DMA.  
  3. The market may not rally back up above the 50DMA.  If the 50DMA becomes a ceiling, prices will continue to decline down to the 200DMA.

Ideally, we want to see the C fund consolidate down to the buy zone in the chart below and find support at the 200 DMA at around 2360+/-.  At that point I would expect an ALERT back to 100% stock funds to catch the final move up into 2018.  . 

Short Term

The market did a total head fake on us this week!  The short term triangle consolidation pattern broke out to the upside on Tuesday but it didn’t stay there long…  By the end of the day it had reversed and then tanked hard on Thursday, closing just below the 50DMA.  We didn’t get much support on Friday and closed for the week just below the 50DMA.

Long Term

The 2 year weekly price charts for all 3 stock funds are looking pretty similar, as are the technical indicators for all 3.  On a weekly basis, we can see that a trend change has NOT been confirmed.  Last week’s price decline took us down to the trend line.  We need to see a weekly close below the trend line for a confirmation. Having said that, all the technical indicators have turned negative.  This is a good indication that we will see the price chart continue down…

The I fund has been the best performer of the year to date.  At a minimum, we will see the I fund decline to around 65 during this correction BUT there is the potential for it to decline all the way back to the 58 level.  The technical indicators will help us see the bottom.

I’m staying at 50% C Fund / 50% G Fund until we get some confirmation on one of the 3 possibilities discussed above.  We’ve got almost 3 full weeks left in the month and only 2 reallocation allowances.  I’ll use the first one to go to 100% G fund when the trend change is confirmed.  I expect to use the the next to go back into the stock funds at/near the buy zone.  Stay tuned… August and September could get VERY interesting!

Have a great week!

Jerry