The market finished mostly in the Green but, it was a very tough way to end the week… For the week the C fund finished up 1.51%, S fund up 2.49%, I fund up 1.46%, and F fund down 0.37%.

This is going to be a newsletter that you want to keep for reference. We start off with the Primary long term Elliott Wave count, followed by an Alternate long term count. The Primary is the “conventional wisdom”. It is the count that most Elliott Wave analysts agree is correct. The Alternate is my count. It is equally valid in that it does not violate any of the Elliott Wave rules.

If the Primary count is correct, price has a long way down to go. If the Alternate count is correct, once we complete the current correction, we are set up for a decades long Bull Market. There is no way to know which will ultimately play out but, the beauty of Elliott Waves is that we have a clear price level that invalidates possibilities.

Next, by popular request, we are doing a deep dive into the Slow Stochastic indicator. Showing its value both as a stand-alone indicator, and when combined with our stack of indicators on the chart.

Finally we look at the 1 year daily chart of the TSP funds.

A Very Long Term Bullish Elliott Wave Alternate Count

The chart below is the conventional Elliott Wave count. Virtually all Elliott Wave analysts agree with this as the primary, long term count. In this case price should correct in an A-B-C pattern to the prior wave IV at 2250-2500. This would take several years to complete and result in about a 50% drawdown from the 2022 high at 4800.

Is there another viable Elliott Wave count? Yes.

The chart below puts the wave V high at the 2020 top, completing a longer term wave I. The wave II would be complete at the Covid low, which corrected to the prior IV wave. The huge thrust higher from the 2020 low would be the beginning of a wave III that would last for decades.

If this count is correct, the move from the 2020 low to the 2022 high is wave I of III. The 2022 correction would be wave II of this move. This is extremely important as we approach the 50% and 61.8% retracement levels on the chart. Wave II tends to complete at the 61.8% retracement level. There is a lot of speculation in the financial media about a final bottom to this correction happening between 3200 and 3400. If that happens, this alternate count could absolutely be in play. The alternate count is confirmed IF price closes above the 2022 highs before closing below the Covid low.

The implication of these two Elliott Wave counts tell us the direction of the economy for the next 10 years or longer. IF the Primary count is correct, we have a lot of pain coming our way. IF the Alternate count is correct, once the current correction is complete, we should begin a decades long bull market. These are very long term charts so, not useful for reallocation decisions. What they give us is 2 possible scenarios for the foreseeable future of the economy. A monthly close below 3191 would be a very bad sign…

Slow Stochastic as a Technical Indicator

The Slow Stochastic is one of 50 technical indicators available at StockCharts.com. It is a momentum indicator where a cross up and through 20 is a buy signal, a cross down and through 80 is a sell signal. The range is 0-100 with 20-80 as the default setting. The slow stochastic is a great indicator but, it’s best used in conjunction with other indicators is a stack.

In the 1 year chart of the C fund below, the dotted vertical lines are when the slow stochastic crosses the 50 line to the upside. Of the 9 occurrences, the market moved higher 5 times. The other 4 times, the market moved lower. If we combine the 20DMA, slow stochastic, RSI, and MACD, we get a much more comprehensive basis from which to make decisions. I would want to see slow stochastic and RSI above 50, MACD cross positive, and price above the 20DMA to initiate a strong buy signal. We got this strong buy signal in 4 of the 9.

Slow stochastic tends to be a leading indicator. When the slow stochastic crosses up through 20, I watch the chart for confirmation by the other indicators before making a buy decision.

The TSP Fund Charts

By the end of the week, the C fund gave back the vast majority of its gains from earlier in the week. We saw a huge move higher on Monday and Tuesday that took price right up to resistance at the 20DMA line. RSI and CCI never got above their median lines but, the MACD did turn positive. This is a great example of why we have multiple indicators in the stack. Any single indicator us useful but, several taken together are 10x more effective. There is little reason to expect any kind of meaningful support until the 3500 level.

The S fun chart is similar. Price gapped up during the first two days of the week and hit resistance at the 20DMA line. Price did close above the 20DMA on Tuesday but RSI and CCI never closed above their median lines. Like the C fund, the MACD did cross positive early in the week.

Unlike the C fund, the S fund has not really put in a lower low. The 1500 level is the last line of defense and it will be tested this week.

The I fund had the biggest gains early in the week, mainly due to the correction in the U.S. Dollar. Those gains quickly faded and the I fund will likely test new lows this week.

This extreme weakness in the F fund is telling us that interest rates are going higher. Since its September low, the F fund rallied to resistance at the 20DMA line and rolled over this week. We should expect the F fund to continue to new lows over the next week.

Bottom Line

Print out the first two charts of this newsletter and tape them to the wall. We are either 9 months into a prolonged Bear Market OR we are close to the bottom of a wave II that, once complete, will begin a decades long Bull Market. I know it seems extreme but, both the Primary and Alternate count are valid. Either could play out. Watch that 3200 level. A monthly close below is a very bad sign…

Either way, volatility will only increase from here. These extreme Bear Market Rallies are not going away! Try to stay focused on the indicators and price action. Don’t worry about the day to day movements, no matter the direction or the dollar amount.

It’s a great time to be watching this from the sidelines of the G fund!

Have a great week!

Jerry