Friday was a very tough day for the market.  One day DOES NOT make a trend but, Friday’s price action COULD put a serious damper on the short term rally.  The week as a whole gave us an interesting change in leadership.  The C and S funds have been moving higher for the past month while the I fund lagged.  This week we saw a reversal with the I fund leading and the C and S lagging.  For the week the C fund was up 0.61%, the S fund was down -1.56%, and the I fund was up 1.07%.

This week’s post is going to get a bit technical but try to follow along.  We are at a critical juncture.  There are some great learning points here and knowing where we are will help you make decisions as we navigate the next several weeks.  We’re going to take a close look at the long-term (weekly) charts of the C and I funds, and the short-term (daily) charts of all 3 funds.  If you have questions, please post to comments, FB or email.

Long Term

The long-term chart of the C fund still looks very strong and the technical indicators support the price chart.  While we saw a bit of a reversal this week, we did clear the resistance level at 2800 and remained above it.  2800 should act as support going forward.  If we break below that, the next support level is the trend line (about 2750).  A weekly close below the trend line would be a serious red flag!  The technical indicators are moving up and have plenty of room to move higher.  We want to see a weekly close above the prior high of 2875 to finally be free of this consolidation. 

The 5 year weekly chart of the I fund below is a great example of Elliott Wave pattern analysis. My count is open to interpretation but the patterns themselves are pretty recognizable.  Elliot Waves are patterns within patterns.  The primary trend plays out in 5 steps while the secondary (corrective) trends play out in 3 steps.  The roman numerals identify where we are in the long-term bull market that began at the low in 2009.  That long-term pattern has been playing out in 5 steps.  Step III was completed in late June 2014.  Step IV was completed at the low in early 2016.  You can see that step IV was completed in a 3 step pattern, with smaller 5 step patterns forming the 3 step pattern.  Step V is playing out in 5 smaller steps.  All indications are that we completed step 4 with the low at the end of June.  We should now be in the 5thand final step of 5 of V.  Take a good look at the chart and try to get a feeling for the pattern and counting the steps within the steps.  It takes practice but, once you get it, you’ll always be able to look at a chart and have a basic understanding of the market risk going forward. 

Short Term

The short-term TSP fund charts are much less clear than the long-term charts.  The C fund had a very productive week until Friday.  After clearing the resistance line at the 2800 level, the C fund retested that level and moved higher.  This was a great sign!  Unfortunately, Friday’s down day all but wiped out Wednesday’s big follow thru day.  The saving grace was that Friday did not close at the low for the day.  We are still above 2800 and the indicators have not definitively rolled over YET.  The C fund is shaky but still in good shape.

The S fund chart tells a bit of a different story.  The S fund broke down very hard on Friday (thanks to FaceBook and Twitter), closing below the 1440 support level.  It did recover off of its 50DMA which keeps the S fund in the game for now.  Like the C fund, the S was rattled pretty good on Friday but is still in good shape as long as it’s 50DMA holds…  Unfortunately for the S fund, the technical indicators do not look good.  If it continues to fall next week, I’ll be looking very closely at the 1400 support level.

The I fund is the best looking chart of the 3 TSP funds right now.  The I fund has pushed thru its 50DMA and is working to push above its 200DMA.  Currently the price sits on the 200DMA and right in the middle of the trading range.  If it can stay above the 200DMA, we can expect to see a re-test of the 70.5-71 area before its next resistance.  The indicators definitely support this and have lots of room to move higher.  

My bias continues to be short term bullish.  We MAY see higher prices over the next several months but, the major rally that began in 2009 is almost at its end…  The S fund has already surpassed its January high and I expect the C and I funds to follow suit.  Having said that, there’s no way to know how far above the January high we will get before rolling over.  Stay Alert!  When the market does crater it can do so very quickly!

Have a great week!

Jerry