Sunday Update: 29 January 2017

Current Allocations: 34% C Fund, 33% S Fund, 33% I Fund.

The market had been in a 6 week consolidation and finally broke out to the upside on Wednesday!  We’re going to look at 2 important questions in this post.  Where are we in the market cycle? How long will this up trend last?  Let’s start with the very long term chart and work our way inward.

Current Market Cycle

Below is an update to a chart I first posted back in July 2016 (Scroll to the bottom of the post).  The last major stock market low was 665 in 2009.  Since then, the market has rallied about 345% thru 4 of 5 projected steps.  So to answer the question of where we are in the market cycle, as you can see on the chart, we are in the early stages of the 5th step up, and close to the end of this primary up move in stock prices.  This is critical info for the TSP investor.  (If the 2500 price area turns out to be the top, we should expect the follow-up correction to take us down to 1600 minimum!)

How long will this up trend last?

If we are nearing the end of this primary up move in stock prices then, how much higher will the market likely go before the correction begins?  This is truly the $6M question!  If I had the answer, I’d have quit my day job long ago…  What I do know is that lots of patterns, thru multiple time ranges, are pointing to a top at around 2500; about 7% to 10% higher than where we are now.

One of the best reasons for using price charts to watch stock market trends is that you start to see patterns, and these patterns often repeat.  When multiple patterns thru Very Long, Long, and Short Term time ranges point to the same number, it is a good idea to pay attention!  This is what we have going on right now with the S&P500 (C fund).

In the chart above (Very Long Term), the market dropped from 1600 at the top in 2007 to a low of 665 in 2009 (935 points).  The market then retraced 100% back to 1600 by mid-2013. A retracement of 200% would take us to 2535.  This number also fits in nicely with the symmetry of the chart.

Below is the 2 year weekly (Long Term) chart of the C fund.  The last significant low on a weekly basis was back in February 2016 at about 1800. The subsequent leg up to new highs took the C fund to about 2200 before correcting back to about 2100. Using a very reliable AB=CD pattern, if AB=CD then D=2500.

Below is the 6 month daily chart of the C fund.  The last significant low on a daily basis was 4 November 2016 at about 2080.  The subsequent leg up to new highs took us to about 2280 before the flat consolidation that we just broke out of.  If AB=CD then D=2480 (depending on where we peg point C).

So, looking at very long, long and short term price charts above and applying some basic pattern analysis, all indicators are that 2500 will be a critical number to watch (2460-2535).  This does not guarantee a major top at 2500 but it gives us a very educated target.  I expect we will see 2500 hit by late spring followed by a very rocky summer but, we’ll dive into that as it approaches…

The S fund break out was not as strong as the C fund this past week.  Also, the S fund technical indicators are rolling over.  It will be interesting to see if the S continues moving up with the C, or if it leads into the eventual correction…

The I fund is still looking very strong.  Having cleared resistance at the 60 level on strong volume, the I fund is in good shape to make a run up to the prior high of 65.

The bottom line is, we are nearing the end of a bull market that began in 2009.  2500 may not be the final high but, we need to watch that area closely (it’s only about 10% away).  The correction is coming and my plan is to get back into the G fund as close to the top a possible…

Have a great week and please post questions to comments.

Jerry