Another extremely volatile week ended with the C fund down 1.82%, S fund up 0.87%, I fund down 0.51%, and F fund down 0.43%.

If you haven’t lived through a Bear Market, or weren’t paying attention to your TSP from 2000 to 2010, then welcome to it! Emotionally, a bear market works a lot like a bull market, only in reverse…. We do a deep dive into the emotional Bull and Bear Market Cycles in the TSP Weekly Update Show. We also breakdown a real life example of the complete Bull/Bear Cycle in Peloton. You definitely want to tune in on Sunday night at 6:30!

So here we are… The past month and a half has been untradable for TSP investors! Since 01 January, we’ve had 11 up and 17 down trading days. Of the 11 up days, only 4 were consecutive. Given the noon rule and the 2 IFT rule, this is the kind of market that could kill you as a TSP investor… The reason is 100% emotional.

Remember when price made consistent higher highs and higher lows? Maybe price came down to the 10DMA or even the 50DMA but then always recovered to new highs. We weren’t worried about small corrections down to a support level or moving average line. We knew price would find support and keep moving higher… Until it didn’t. This was the beginning of a change in investor sentiment, and ultimately in the trend.

Do a little self assessment. When we had the 3 day rally in mid-January, were you relieved and sure the market would keep moving to new highs? How about the late January to early February rally? If you were in the G fund, were you pissed about missing the gains from the late January lows to the early February highs? When those emotions come up, it pays to consciously observe them… The market has changed. If you can’t change with the market, 2022 is going to be emotionally exhausting.

Historical Cycles

In terms of history, what can we expect from 2022? The chart below is year 2 of each Decennial Cycle all the way back to 1952. On average, this is what years ending in 2 look like. This is an average, a GUIDE LINE. 2022 already does not look like the chart below so, take it for what it is. What do I take from this chart?

Year 2 is volatile with price flat to negative until the 4th quarter. HUGE rally, on average, in the 4th quarter.

This chart supports my Plan A Elliott Wave count below.

Elliott Wave Count Possibilities

As we discussed in the 30 January Newsletter, there are really only 2 possible Elliott Wave counts at this point. Either the early January high was the top of wave 3 or the top of wave 5 from the CoVid low in March 2020. I do NOT have a crystal ball! Having said that, I need to prioritize the possibilities. My plan A is that the current correction is a wave 4.

Plan A

The Elliott Wave count below gives us an impulse move off of the low in March 2020 to a high August 2020 for leg I. We then get a 4 week correction for leg II. Leg III is a typical, extended leg that plays out in 5 sub legs to the January 2022 high. We are now in leg IV. Either we have seen the low at just over 4200 or we will get a retest of that low before beginning leg IV to finish at new all time highs.

This count is somewhat supported by the historical year 2 of the Decennial Chart above. On average, years ending in 2 are challenging for the market until the 4th quarter. The current leg IV will not extend for several months. If that happens, we are looking at a different count. Having said that, a strong second half of 2022 would fit nicely into this Elliott Wave count.

Plan B

The alternative count is that leg V completed at the January 2022 high. We will know this count is in play if we get an impulse move lower as price breaks down below 4200. As we discussed in last week’s Newsletter, the current decline from the January high is playing out in a Corrective pattern; not an Impulse. If this pattern turns into an impulse, we are likely in for an extended Bear Market.

C Fund Short Term

In the short term, the market has been quite frustrating; typical for a Bear Market. Once price broke down below the 10DMA on 6 January, the 10DMA became resistance. The brief rally we had from late January until Wednesday of this week stoked hopes that the correction was over. We had support above the 10DMA for a couple of days and price got above the down trend line for one day. Thursday’s reversal, and Friday’s 2% move lower on big volume, ended this rally attempt. The RSI line is a great tool for us at this point. We don’t want to be in the stock funds if there is no momentum behind the rally. When RSI is below 50, momentum is weak.

Technical analysis is part art and part science. None of these tools work 100% of the time. If we only looked at the down trend line, we would have moved back to the stock funds on Wednesday. Taking all of the other factors into account kept us from making that move.

The TSP Fund Charts

The C fund began the week in rally mode, closing above its 100EMA line and down trend line on Wednesday. Unfortunately, the rally was short lived… Support at the 100EMA failed on Thursday and Friday’s almost 2% decline put an end to this rally attempt. The market is likely to move lower in the near term BUT, price is playing out in a corrective longer term pattern. I expect to see a retest of the 4200 level and a buying opportunity for us as TSP investors.

The S fund held up better than the C fund this week. After hitting resistance pretty close to the down trend line on Thursday, price continued lower on Friday. It closed above the lows for the day and just barely below the 10DMA line. I don’t expect support at the 10DMA to hold for long. I would expect another leg down to new lows for the S fund.

The I fund lost support at the 75 level in January. The recent recovery rally failed spectacularly on Thursday and Friday. At this point, I would not expect the 75 level to provide support on the next test.

The F fund MAY have found support at a critical long term trend line. While the F fund was down for the week, Friday’s bullish reversal, on big volume, is encouraging. The F fund has become extremely over sold since its collapse beginning on 6 January. This would be a perfect place to begin a significant recovery rally. If the F fund were to recover up to 112, that would be a 1.7% gain. If price recovered up to 114, that would be a 3.5% gain.

Ordinarily, I would not consider the F fund a safe alternative to the security of the G fund. Given support at this long term trend line, and the potential for a decent recovery rally, the F fund is a reasonable option at this point. If support did not hold at this trend line, I would move back to the G fund. A downside guideline would be 109. That’s a risk of just under 1% for a potential upside of 3.5%.

Bottom Line

The stock funds are in rough shape… I’m watching to see how the pattern plays out as price continues to decline on the C fund. If price continues lower, I would expect the 4200 area to act as support. That is an area at which I would dip a toe back into the stock funds. In the mean time, the F fund is now our best option to make any gains in this market. While there is not HUGE upside potential, any gains while the stock funds are falling is a win!

We are in a Bear Market. It doesn’t mean the sky is falling! It does mean that sentiment has changed and we need to change with it. Do your best to keep emotions in check, do your analysis, and take what the market gives us.

Have a great week!

Jerry