Another down week for the stock funds but, the F fund is starting to perk up… For the week the C fund was down 2.21%, S fund down 2.97%, I fund down 1.77% and F fund up 1.46%.

This week we’ll start with a long term analysis of each TSP fund. We’re looking for potential areas of support at the Fibonacci retracement level and the trend line. Next we’ll look at the long term and short term Elliott Wave count. Finally, we’ll take a look at the 6 month daily charts.

Long Term

The C fund chart below begins at the 2009 low where each vertical tick is 1 month of price movement. Price has a long way to go before hitting its trend line at this scale. From 2009 to 2019, price remained relatively close to the ascending trend line. At the beginning of 2020, price had become extremely over extended above the trend line and overshot on the downside during Covid. From mid-2020 to January 2022, price became even more extended above the trend line. Because of this, we could see another overshoot below the trend line at the bottom of this Bear Market.

Fibonacci retracement levels often provide areas of support for price. There is a lot of talk about the 3400 level on the S&P500 in the mainstream financial media. 3400 would be the high before Covid and very close to the 38% retracement level on this chart. This is an area that we could see strong support and a potentially tradable recovery rally.

The S fund is just below its 38% Fibonacci retracement level and testing the pre-Covid high. The S fund was also extremely over extended above its long term trend line. Price could easily overshoot the trend line to the downside, potentially finding support at the 62% retracement level.

The I fund is similar to the S fund. Support for the I fund failed at 65 but, price is approaching its trend line and the 38% retracement level.

The F fund has been consolidating on its trend line for the past 3 months. If the F fund can get back above the 104-105 level, that would be extremely bullish and indicate the beginning of a significant recovery rally for bonds.

Elliott Wave Analysis

Elliott Waves gives us a road map but is only verified in hindsight. The bull market that began at the 2009 low and ended at the January 2022 high was the longest bull market is history! According to Elliott Wave Theory, the correction of the bull market should take price back down to the area of the prior 4 wave. IF the theory holds, price should fall to the area of 2250. Another price to watch closely is 2400. This would represent approximately a 50% nominal drawdown from the January top at 4800.

If we zoom in to the period from the Covid low to the January high, we can see the short term Elliott Wave count. A 1.618 Fibonacci extension of wave 1 gives us a potential target for wave 3 at about 3400. This is definitely my short term target. This is the level that I would expect a tradable recovery rally to begin.

The completion of wave 5 would complete wave A in the longer term chart above.

Elliott Waves are all about patterns within patterns and can only be verified in hindsight. They give us a potential road map. Price may or may not align with these projections. We will adjust the count and projections as we move forward.

Short Term

In the short term, the June rally has certainly stalled and seems to have ended. With price below the 20WMA, RSI below 50, and CCI below 0, the technical indicators do not look good. The MACD has put in a positive crossover. Because of this, we will keep a close eye on price action. A daily close above the June high at 3950 would be extremely bullish.

The short term set-up of the S fund is exactly the same as the C fund. MACD has crossed up, giving us 1 of the 4 technical requirements to reallocate to the S fund based on this stack.

The I fund is similar to the C and S funds but, is clearly attempting to find a bottom at 61. MACD has barely crossed positive but the other 3 requirements have not been met. IF the I fund can rally next week and close above its 20DMA line, it would then contend with resistance at a downward sloping trend line at about 66.

The F fund triggered a buy signal at the close on Thursday and followed through on Friday. We saw the same type of buy signal at the beginning of March and late May. Both of these signals failed. I want to see the F fund correct back down and find support at the 20DMA line before making a reallocation decision.

Bottom Line

Things are getting interesting. The FED is telling us that it will continue to raise rates in an effort to break historically high inflation. The rally in bond price is telling us that the market does not believe the FED. The bond market is anticipating that the FED will “Pivot” and pause or even reduce rates within the next 6 months. We are in for an extremely volatile summer with the hope of a tradable rally in stocks in the fall.

The long term technical analysis and Elliott Wave counts call for lower prices going forward. With that as the backdrop, we are looking to take advantage of any tradable recovery rally as the long term Bear Market continues to unfold.

Have a great 4th!

Jerry