2018 is coming to an end and what a wild ride it’s been!  We’ve been talking about increased volatility for the past 6 months.  This week was an amazing example…  

We saw the largest Christmas eve loss EVER followed immediately by the largest stock market single day gain EVER the day after Christmas!  

If you’re in the stock funds, expect the wild ups and downs to continue.  If you’re in the G fund, your rate of return will continue to increase (minimally) as interest rates continue to rise. You’re account will not grow much while in the G fund but you’re definitely not losing, and you may sleep better at night…  

Volatility is spooky and makes for great water cooler conversations in the office but, what you really need to understand is the underlying TREND.  TSP is not a day-trading platform.  To maximize your account over time, you need to be in the stock funds when the TREND is up and in the G fund when the TREND is down.  How do we know the trend?  First, you have to know your timeframe.  Long term trends are best viewed on a 10 year weekly chart.  Short term trends are best viewed on a 2-3 year daily chart.  The moving average lines show you the trends and the Elliott Wave count helps identify when trend changes are likely to take place.  The best case is when the short and long term trends move in the same direction.  Sometimes that is not the case, and this is where we find the market now.

Long Term

The long term chart of the C fund below shows that the price bounced up from its 200WMA (Week Moving Average) this week.  We need to see continued support above this line, and a strong breakout, for the 200WMA to actually hold and the market continue higher.  Right now, based on this long term chart, the trend is still going up.

Short Term

The short term chart of the C fund below is a different matter entirely.  The short term trend is clearly down, indicated by the 50DMA and 200DMA both moving lower.  The best Elliott Wave count puts us in the midst of wave 3 down right now.  We need to see a wave 4 recovery and a lower 5 wave to complete this short term cycle.  IF it plays our this way, the bottom of the 5 wave will be a GREAT time to reallocate back into the stock funds!  It does not mean we would rocket back up to new all time highs.  It just means that a multi-month rally should follow this wave 5 bottom.  

In summary, the volatility will continue.  We are nearing a short term bottom but we are not there yet.  Once we do hit that wave 5 bottom, probable late January/February, we should see a multi-month rally in the stock funds.  

The wild ride will continue and we will likely see BIG price swings in January.  Don’t let that scare you into or out of your current allocations.  Understand the moving average lines, wave count, and watch for a bottom in early 2019.

Here’s to a safe and prosperous 2019!  Happy New Year!

Jerry