It was a down week for the market with RED across the board. For the week the C fund closed down 1.27%, S fund down 4.47%, I fund down 1.88%, and F fund down 1.89%. After 3 positive weeks, has the Bear Market returned? How will we know if the rally since late March is real or if the Bear is back? We answer both of those questions at the bottom of this post…

We start with some very interesting (disturbing) data concerning the F fund. We then look at the long term charts and the 6 month daily chart of the C fund. The 6 month chart of the C fund answers the 2 questions above…

The F Fund

The slide below was taken from @charliebilello on Twitter. It shows historical drawdowns for the F Fund all the way back to 1977. In 1981, the biggest drawdown was 9.0%. This means that, at its lowest price level in 1981, the F fund was down 9.0% during that year. Compare that to the current, 2022 drawdown of 7.6%. We haven’t seen losses in the F fund of this magnitude since all the way back to 1981!

What’s really important is Charlie’s statement in the tweet. “In 1981 the 10 year yield was 15.8%. Today it’s at 2.6%.” Why is this so important? When the FED raises rates, the price of the F fund goes down. The current 10 year yield is 2.6% and rising! The FED has told us that it will continue to raise rates into 2023. This virtually guarantees that, by the end of 2022, the price of the F fund will be significantly lower than it is today.

The max drawdown in 2022 will likely rival if not exceed the 12.7% drawdown of 1980!

Still on Plan A

In the big picture, our Plan A is still intact. The C fund is progressing in a clear Elliott Wave pattern. IF wave IV completed in early March then the current rally will take us to new all time highs. IF price closes below wave IV then Plan A is invalidated.

The C fund chart below is the same time period as the chart above. It is a daily chart rather than a weekly chart and shows the blue 200DMA (Day Moving Average). The rally that began in mid-March pushed price back above the 200DMA. The pull-back over the past 2 weeks has brought price back down to test support at the moving average line.

IF price moves higher from here, that would be VERY bullish. A daily close above the late March high would confirm that this rally is real and price will likely go to new all time highs.

A daily close below the February lows would confirm that this rally has failed.

The Long Term TSP Fund Charts

If you are a long term TSP investor, looking to be on the right side of the market, the 4 TSP fund charts below are really all you need to watch! If price is above the 20WMA (Week Moving Average), you want to be in the fund. If price is below the 20WMA, you do not want to be in the fund. It’s really that simple…

The C fund closed below the 20WMA back in January. It remained below the line for 9 weeks and got back above the line 3 weeks ago. As of this week’s close, the C fund is just barely above its 20WMA. RSI is above 50 (just barely) and declining. As long as price stays above the 20WMA, on a weekly closing basis, it is reasonable for the long term TSP investor to have some exposure to the C fund.

The S fund tells a much different story… Since closing below its 20WMA back in November 2021, the S fund has not been able to reclaim that moving average line. On each rally attempt, price has hit resistance at the 20WMA and went on to lower lows. Additionally, RSI is well below the 50 line and declining. Until price can get back above the 20WMA, there is no reason for long term TSP investors to have exposure to the S fund.

The I fund is similar to the S fund. Since breaking below the 20WMA in November 2021, the I fund got back above the line briefly, but the down trend continued. We see clear resistance at that moving average line throughout 2022. Additionally, RSI is below 50 and declining. There is no reason for long term TSP investors to be exposed to the I fund at this point.

The F fund has completely collapsed. As we discussed above, there is no reason to believe that the F fund will find a bottom anytime soon. In fact, the FED has told us the opposite…

Short Term

If you are a short term (day to day) trader in this market, you are probably pulling your hair out! The market tends to fall very quickly, with short but powerful recovery rallies. Given the 2 IFT per month rule, the way to maintain your sanity is not to trade until a pattern is confirmed. You could be fully invested in the stock funds, 100% G fund, or some combination that suits your risk tolerance. No matter your allocation, I would consider holding that allocation until a real pattern emerges. What does that mean?

The C fund has been on its 200DMA for the past 3 days. IF price moves higher from here and closes above 4650, then a bull rally is confirmed. That means we need to see almost a 4% increase in price to confirm a bull rally.

If price drops below the 200DMA, we should expect a retest of 4150. A close below 4150 would confirm a failure of this rally attempt. That means we need to see price fall about 8% before confirming this rally failure!

ANYTHING can happen between 4650 and 4150. Trading within this range will be gut wrenching to say the least!

Bottom Line

In the long term, the Bull Market is still in place and our Plan A Elliott Wave count is still in play. A daily price close on the C fund above 4650 will confirm Plan A. A daily close below 4150 invalidates Plan A. Trading in between 4150 and 4650 is extremely dangerous!

So, is the Bear Market back? How will we know if the rally that began in March is real? A close below 4150 confirms that the Bear is back! A close above 4650 confirms that the rally is real! Anything that happens in between is anyone’s guess…

Have a great week!

Jerry