September is upon us. Wall Street is headed back to work in an attempt to salvage the remainder of 2022. Unfortunately, if history and current price action are any indication, the wall street wizards have their work cut out for them… For the week the C fund was down 3.29%, S fund down 4.54%, I fund down 3.57%, and F fund down 1.03%.

On September 6th we’re holding a webinar in the public Facebook group titled, “Bear Market Rallies”. We’ll cover a ton of important info, especially at this point in the market cycle as price approaches a retest of the June lows. I would definitely encourage you all to sign up for the webinar and share it with your friends!

The question is, how do we distinguish a bear market rally from the beginning of a new up-trend? Understanding how to label Elliott Wave counts can really help.

Elliott Waves

The chart below shows the ideal Elliott Wave pattern in both a Bull and Bear Market, along with the Elliott Wave Rules. The top of the bull market from the Covid low completed in January 2022 at wave (5). Since then, price has followed the ideal Elliott Wave count for a Bear Market Impulse Wave. IF price continues to follow this ideal wave pattern, we are just beginning the third wave down in this bear market. Confirmation will happen if price closes below the June low.

https://www.liberatedstocktrader.com/elliott-wave-theory-principle-examples-stock-market/

Here is the current 10 month chart of the C fund. We can see that the pattern is playing out very close to the ideal from the chart above. The June low is critical support! If price cannot find support at the June low then the next wave down in this bear market is confirmed.

The longer term chart is much more problematic… IF the current bear market corrects the bull market that began at the 2009 low, then the pattern could play out something like this. Corrections tend to bring price back to the wave 4 of prior degree. In this case, wave 4 of the impulse wave from 2009 completed at the Covid low. Therefore, in keeping with the ideal Elliott Wave count, the current correction should take price back down to the 2020 Covid low. This could happen in a 5 wave pattern, an A-B-C pattern, or some combination.

This is the worst case scenario over the next 12 to 18 months. It is certainly not a foregone conclusion and absolutely not a prediction! It is simply an interpretation of the current price action with respect to the Elliott Wave rules. The bottom line is, we need to be mentally prepared for this worst case scenario.

The TSP Funds

In the 10 month daily charts below I am using closing day prices rather than candle sticks. This takes away some of the noise of intra-day price fluctuations and helps us see the pattern more clearly.

The C fund is approaching a critical support/resistance level at 3900. This price level acted as support for price back in mid-May, resistance in June and July, and support in late July. IF price again finds support at the 3900 level, this would be very bullish in the short term. RSI is very close to being oversold on a relatively long term basis. We could certainly see support and a rally attempt from the C fund in the coming days. However, any rally attempt here would be extremely suspect…

The S fund is also approaching oversold levels on the RSI but, the technical indicators are clearly breaking to the downside. RSI is in a down trend. MACD is expanding to the downside along with the histogram. We could see a short term rally in the S fund but, again, it would be very suspect.

The I fund is by far the worst looking chart. This is consistent with the macro factors in the economy presently as Europe is in much worse shape than the U.S. As of Friday’s close, the I fund is back to its July lows and trending lower. The RSI has just hit oversold levels but, MACD is expanding to the downside. We could see some short term consolidation in the next few days but, a close below the July lows is very likely.

The F fund gives us the best example of an a-b-c bear market rally correction. The rally from the June low clearly took price outside the longer term down channel in an a-b-c corrective pattern vs a 5 wave impulse pattern. This is a text book example of a bear market rally in an ongoing bear market.

Bottom Line

Unfortunately, there is very little reason to be optimistic based on the current charts. In the short term, the market is oversold. We could see a rally attempt over the next several days but, it’s not likely to last long.

EVERYONE is watching the June lows at this point. IF the June lows do not provide support, we should expect price to accelerate to the downside. A breakdown below the June low will be confirmation that the next wave in this bear market is underway.

The charts are what they are but, don’t get overwhelmed! Our reallocation methodology does not change. We will continue to take advantage of tradable rallies as they present themselves. At some point, this bear market will end. We need to stay in the game mentally. If we remain focused and emotionally detached, we will see the bottom when it comes and position ourselves for the next Bull Market.

Have a great week!

Jerry