TSP Weekly Newsletter: 09 April 2023

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It was a mixed week for the TSP funds. The S fund took a bit of a hit but, given the rally we’ve had since mid-March, it was a constructive pull back. For the week the C fund finished down 0.10%, S fund down 2.82%, I fund up 0.59%, and F fund up 1.06%.

In this weekend’s Podcast, we do an overview of the “Tactical Seasonal Switching Strategy” from StockTradersAlmanac.com and a review of Larry Williams forecast to date. It gives a great perspective for what to expect over the next couple of months. You definitely want to check it out!

Tactical Seasonal Switching Strategy

Jeff Hirsch is the publisher of the Stock Trader’s Almanac. The soft cover annual report is an excellent resource as well as the website and email list. The primary trading strategy of the Almanac is based on seasonality. Historically, the best 6 months for the market are November thru April. The worst 6 months are May thru October.

Applied to TSP, this simple strategy is to be invested in the stock funds during the best 6 months and the G or F fund during the worst 6 months. The trade signal is a negative MACD cross in April and a positive MACD cross in October. (A MACD cross in the S&P500 must be confirmed by a MACD cross in the DJIA.) He is very focused on the next negative MACD crossover… The chart below is the results of this strategy on the Dow Jones Industrial Average (DJIA) from 1950 thru 2022.

Here’s what this methodology looks like in practice over the past few years. Like any system, it’s not perfect. This is a fixed seasonality methodology with an active trigger. 2021 and 2022 were both unusual years relative to the average. In 2021, stocks did very well from May through October. In 2022, stocks did not do well in the first quarter. Even in these extreme years, the methodology held up pretty well. The next sell trigger happens on the next MACD negative cross.

Larry Williams Update

We’ve seen this chart before from Larry Williams. It was included in his 2023 Annual Forecast. The chart shows his expected trajectory for the S&P500 throughout 2023. The direction of the line is what’s important, not the magnitude. Most important are the turning point dates. So far, his forecast has been extremely accurate.

This is the actual chart of the S&P500. Price moved higher from late December through early February as forecast. The Feb/March consolidation played out in a relatively deep correction but, the bottom was in on 13 March; one trading day after the 10 March forecast date! The forecast chart calls for the rally to continue into early May and then a challenging remainder of 2023. It will be very interesting to see how the remainder of this forecast plays out.

Analysis of a Sell Signal

In last week’s Newsletter, we explained the hybrid Swing/Trend trading methodology that we use at GrowMyTSP. We also explained that we are hyper-focused on locking in gains since the 29 March Alert in anticipation of the next leg down. Please go back and read last weekend’s Newsletter if you haven’t already.

The Grow Model Portfolio is currently 100% allocated to the stock funds. The question is, how do we know when to reallocate out of the stock funds and lock-in gains? No one has a crystal ball so, we use technical analysis to anticipate a top, and a sell trigger to execute.

Having a methodology is CRITICALLY important! It keeps you from making emotional decisions that make you sell too soon or too late. Our methodology will NOT have us sell on the top day of a rally. There must be some kind of consolidation or breakdown for the technical indicators to give us a sell signal.

Since the October 2022 bottom, we have had 2 confirmed sell triggers. Prior to the sell triggers, we can see that RSI is rolling over and MACD has crossed negative even as price continues elevated. This is our warning. It tells us that momentum is waning and price is soon to fall. The sell trigger comes when price closes below the 20DMA line.

With respect to the current rally, this week’s pull back did not give us a tradable signal. We don’t have lower lows in RSI and MACD is still clearly positive. Price is still above the trendline and well above the 20DMA line. Reallocating out of the stock funds this week would have been an emotional, fear based decision. It may have been the “right” decision in hindsight; we’ll find out next week. But it is not consistent and repeatable. Holding fast to the methodology will produce the best results in the long run and help keep emotions out of the decision process.

* Watching for a MACD negative crossover with respect to the Stock Trader’s Almanac methodology *

The TSP Fund Charts

The C fund closed the week flat and at the bottom of the resistance zone from 4100 to 4200. Confirmation to the upside would be a weekly close above 4300. Confirmation on the downside would be a weekly close below the March lows of 3800. In the short term, we are watching for rejection at 4100 or a drive through the resistance zone and a close above 4200.

The S fund pulled back this week but did not take out last week’s lows. As long as the S fund remains above the up sloping trendline, the rally is still in place.

The I fund was able to push higher and close the week above resistance at the prior 2023 high. The I fund is the strongest of the TSP fund charts but is very dependent on the direction of the U.S. Dollar. If the dollar continues to fall, the rally in the I fund will continue.

The F fund is the most interesting chart. The Elliott Wave count below is the Bullish count for the F fund. If wave 5 completed at the October low, the current consolidation is wave 2, and wave 3 could take price significantly higher. A close above 104 would confirm a new up trend for the F fund. Until we get a close above 104, the Bearish count is still a possibility. We will discuss that if necessary going forward.

Bottom Line

If we take the Stock Trader’s Almanac methodology and Larry Williams forecast, we are approaching a pivotal time of the year for stocks. At GrowMyTSP, this helps us form a negative bias. This means that we are watching closely to reallocate out of the stock funds on any confirmed market weakness.

An Alert could post as early as this week OR, price could continue higher into May or beyond. We want to pull all possible gains out of this rally AND minimize downside risk.

Stay focused! Wild volatility is likely to continue…

Have a great week!

The Grow My TSP Team