An extremely volatile week ended mixed for the TSP funds. The C fund ended down 0.30%, S fund down 1.17%, I fund up 0.29%, and F fund down 0.28%. Closing weekly gains or losses are one metric but, how those price moves fit into the ongoing pattern is what drives our reallocation decision process.

While the short term seasonal patterns have been challenging over the past several months, it pays to understand where we are within the long term seasonality cycles. This week we’ll take a look at the Dow Jones Industrial Average 10 Year Cycle chart for context, and drill down to year 2 of that 10 year chart. A look at the average year 2 chart, combined with the current economic environment, will give us a basis for expectations in 2022.

The Decennial Pattern

The chart below was taken from Seasonax.com. It gives us a picture of the average price moves per year of each decade, for the past 124 years, on the Dow Jones Industrial Average. We can see that, on average, years ending in 3, 5, 6, 8 and 9 tend to be positive years for the market. Years ending in 0, 1, 2, 4, and 7 tend to be challenging for the market.

I drew the black line in the chart to roughly correspond to the C fund since the beginning of 2020. Based on the 10 Year Cycle Chart, we are clearly overdue for a correction…

The 10 Year Cycle Chart is the big picture. To drill down, the next chart shows us the average of just the years ending in 2 from 1952 through 2012. This chart was taken from a webinar on StockCharts.com, presented by Larry Williams. We can see that, on average, the first half of all years ending 2 are very challenging for the market. We see strength from mid-July to early September, a corrective period through September, and then a very strong 4th quarter.

These cycle charts are a Guide Line! They give us some insight into how the market acts, on average, over a given time period. Having said that, there is NO substitute for the real-time price pattern and economic conditions. A solid understanding of the historical price tendencies can be very helpful in managing expectations.

The TSP Funds

In the big picture, the C fund continues to find support at the 20WMA and price continues to trend higher. However, 4 of the last 7 weeks have seen lower prices on very high volume. Also, we see significant divergence between price trend and the trend of the technical indicators. This is an indicator of an approaching market top.

In the short term, the C fund is at a critical juncture. A daily close below the 100EMA would be bearish. After that, look for support at the September high of 4550. A close above the 4750 line would be bullish. The technical indicators are trending down and still have a ways to go before hitting oversold levels.

We have 2 bearish trends going on in the S fund; the longer term down trend and the short term consolidation channel. Price is at the bottom of the channel now so, we could see a recovery rally up as high as 2200 before resuming a sell off. This is a great set up for a brokerage account but NOT for TSP. As a TSP investor, there is nothing good about this chart.

The I fund out-performed the C and S funds this week but is still hitting upper resistance. We would need to see price get above the September high to confirm a new rally in the I fund. If price rolls over from here, look for another test of the 75 level.

The F fund has completely broken down below its trading range. Price recovered this week, hit resistance at the lower channel line and collapsed again on Friday. There is absolutely nothing good about this chart.

Bottom Line

The Decennial Pattern is working against us for the first half of 2022. The FED is clearly working against us in terms of interest rate hikes and ending quantitative easing policy. The C fund is under a lot of pressure with mounting, high volume down weeks; although price is fighting to stay above the 20WMA.

The market is not collapsing but, the long term bull is certainly being tested. My crystal ball says that the market moves lower from here but, PRICE will be my guide. 2022 will be a much different year for TSP investors than 2021…

Have a great week!

Jerry