After 4 consecutive weekly gains, the TSP funds pulled back a bit this week. We’ve enjoyed a huge price advance since the June lows so, an orderly pull back is both expected and necessary for this rally to continue. The question for us is whether or not we have seen the top of the Bear Market rally OR a pause in a rally that will ultimately take us to new highs… As you would expect, there are strong opinions on each side of that question.

On the Bullish side is Larry Williams. A legendary trader and technical analysist from Stockcharts.com. On the Bearish side is Michael Burry. An infamous investor who made his name betting against the housing market in 2008. He was the big (only) winner in the movie “The Big Short”.

In this Newsletter, we explore both of those possibilities, do a deep dive analysis of the C fund, and look at the long term charts of all 4 TSP fund charts.

For the week the C fund closed down 1.21%, S fund down 3.23%, I fund down 3.10%, and F fund down 1.10%

Decennial Pattern

The first chart below is taken from Larry Williams at StockCharts.com. It shows the average price pattern of years ending in 2 going back to 1952. The second chart is the actual S&P500 daily chart to date in 2022. We have experienced much more volatility in 2022 than the average but, there are certainly similarities between the average and the current year.

On average, price trends down during the first half of years ending in 2. We certainly saw that in 2022. On average, there are 2 short rally periods before price bottoms in the June/July time frame. We see the same type of pattern in 2022. The question is, how will price finish out this year compared to the average?

If 2022 continues to follow the general pattern of the average, we should expect a pretty significant pull back from late August to early October. This shakeout should be followed by a MONSTER rally through the end of the year. Will the pattern continue? We’ll see…

On The Other Hand…

The chart below was taken from @burrytracker on Twitter. It overlays the 2008 topping process and first leg down vs the 2022 topping process to date. The similarities are unmistakable! If 2022 plays out like 2008, once this current rally completes, price will roll over and begin the most severe down leg of this bear market…

The decennial road map chart is based on a certain data set. The burrytracker chart is based on a completely different data set. What they both have in common is their attempt to extrapolate the future from the past. Each of them is a crystal ball that takes you to a different place…

DO NOT get sucked into anyone’s crystal ball narrative! It’s very likely that either Williams or Burry will be correct. It’s also possible that some other pattern will emerge. No one knows the future! We need to respond to the market that is happening in front of us right now.

The TSP Fund Charts

In the short term chart of the S&P500 (C Fund) there is, as always, good news and bad news. Since the June low, price has recovered between 50% and 62% of its losses. Price hit the down trend line, and the 200DMA line (not shown) on Tuesday of this week. That was significant resistance and the market rolled over on Friday. The technical indicators appear to be rolling over which supports this bearish argument. Is this the beginning of the next leg down? It’s certainly possible.

On the positive side, price is still above the 20DMA and within the Andrew’s Pitchfork bounds. If price consolidates for the next several days along roughly 4200, we could certainly see another move higher to the 61.8% retracement line before the next major correction begins. A close below the 20DMA line and below the 50RSI line would invalidate this bullish argument.

From a weekly perspective, the C fund is clearly above its 20WMA but reversed this week. Could price roll over to new lows like we saw following the March rally? Absolutely. Could price find support at the 20WMA and keep moving higher? Absolutely! This is what we saw in June 2020. As long as price is above its 20WMA, the up trend is in place ON A WEEKLY BASIS.

The S fund had a huge breakout last week and closed above its 20WMA for the first time since November 2021. That’s a very bullish sign! This week, price gave back almost all of last week’s gains but closed above the 20WMA. The next couple of weeks will be very important for the S fund. If support holds at the 20WMA, the rally is likely to continue. If price closes below the 20WMA, a new leg in the bear market is likely beginning.

The I fund chart is not what we want to see but it’s very instructive. Last week price closed just barely above the 20WMA. This week, price took back more than last week’s gains, closed at the bottom of the trading range, and below the 20WMA. This is a classic roll over at resistance and is supported by the RSI. This chart would indicate that the I fund is headed down to test the prior low.

The F fund is similar to the I fund. Price has been oscillating at the 20WMA for 3 weeks. This week, price broke down significantly. The chart implies a retest of the prior low or worse…

Bottom Line

The market is at a critical level! Whether you tend toward the Larry Williams bullish model or the Michael Burry bearish model, September is ugly in each scenario. Could price go higher from here? Yes, it’s possible. Is it probable? No. In the short term, there is significant overhead resistance at the 200DMA and down trend line on the C fund. On a weekly basis, there is still hope for the C and S funds but, the I and F funds have clearly rolled over.

IF the Larry Williams scenario plays out, we want to be in the stock funds following the expected September correction. IF the Michael Burry scenario plays out, the G fund will be our friend… Either way, there is very limited upside potential at present.

Based on the totality of the circumstances, there will be an Alert on Monday to 100% G fund. The Alert Analysis will explain this more in detail. I want to protect my gains since June and be ready to take advantage of any Q4 rally.

Have a great week!

Jerry