Sunday Update: 21 July 2019

It was a rough week for the TSP stock funds.  The market opened on Monday morning at new All-Time Highs but, it was all down hill from there…  The market recovered much of the weekly loss on Friday morning but, by the closing bell, had reversed almost down to the weekly low.  For the week the C fund was down 1.23%, S fund 1.09%, and I fund down 0.44%.

The beauty of the Elliott Wave theory, and technical analysis in general, is that it’s fractal.  The charts have the same qualities at ever expanding or contracting time frames.  If you’re a day trader, you’d be making decisions using very short term charts.  For our purposes as TSP investors, we need to use longer time frame charts to make trading decisions.  Having said that, the short term charts can be very helpful to anticipate what the longer term charts might look like.  In this post we’re looking at the C fund from 3 time frames.  Each of these perspectives will help determine a line in the sand as this topping process plays out.

Very Short Term

The C fund chart below is from the June low to present, where each tick is 30 minutes.  This is a very short term, intra-day chart and is generally not useful for making TSP reallocation decisions.  However, this chart MAY be identifying the absolute top of this rally and is a great illustration of trend analysis.

There are a couple of significant take-aways here.  Since early June, you can see that each significant high was higher than the previous high and each significant low was higher than the previous low.  This gave us a nice upward trending channel.  At the close on Wednesday, prices had broken down thru the lower trend line.  Late Thursday and Friday morning prices rallied back up to the trend line and then reversed.   This reversal created a “lower high”.  This lower high is the first important indication of a possible trend change.  IF prices fall below Thursday’s low then we will have a lower high followed by a lower low. This would be a confirmed trend change (FOR THIS VERY SHORT TERM TIME FRAME).  

Needless to say, this price analysis is calling for prices to head lower.  Combine that with high volume selling at the end of the day on Friday and declining indicators, and the set up does not look good in the very short term.

Short Term

The 1 year daily chart below does not look much better.  Right now we are still within an upward channel trend from the June low.  Friday’s reversal day engulfed Thursday’s attempted rally, not a good sign…  We still have higher lows in place and a ton of support at the 2950 level.  A daily close below 2950 would confirm lower lows and a break down thru an important support level.  With the daily indicators all turning negative, the daily set up is almost as bad as the intra-day set up in the chart above.

Long Term

The 2 year weekly chart below still shows the possibility for new highs.  We have not yet hit the upper channel line on a weekly basis and the indicators have not yet turned negative.  The C fund hit 2950 back in September 2018, then again in April 2019.  Prices finally broke thru the 2950 level during the first week of July 2019.  At that point, 2950 became support rather than resistance.  A weekly close below 2950 would indicate a serious problem…  

Bottom Line: 2950 is the level to watch.  The very short term chart shows us that, on an intra-day basis, a fall to 2950 is absolutely possible.  The daily chart also shows a set up that wants to move lower.  A daily close below 2950 gives us possible support at the 50DMA of 2900.  A weekly close below 2950 would be a clear break in the weekly channel from the June low, with the next possible support at the 50WMA of 2800.

It is entirely possible, though not yet confirmed, that we saw the final top of this rally when the market opened at all-time highs last Monday.  I would watch the 2950 level very closely.  A weekly close below 2950 would be my absolute line in the sand.  

Have a great week!

Jerry