It was a mixed week for the TSP with the C fund down 3.05%, S fund down 1.76%, I fund up 1.16%, F fund up 0.63%, and G fund up 0.056%.

PSA! The TSP.gov site goes dark this coming Thursday, 26 May, at 12:00PM east coast time. It is scheduled to come back online “during the first week of June”. June 1st is a Wednesday. The end of the first full week is Saturday, 11 June. This means that the site could be down for over 2 weeks! You have 3 days left to decide your allocations during this outage. Remember, you will have no way to change allocations from 26 May until the site comes back online…

In this newsletter, I want to compare the 2008 top with the 2022 top. The similarities might surprise you! Next, we’ll look at Fibonacci retracements as levels where we should expect some support. Finally, we’ll take a look at an indicator that COULD help get us into the stock funds on the next tradable rally…

2008 vs 2022

They say that history does not repeat but it does rhyme… The similarities of the charts below are undeniable. The first is the topping process in 2008. The second is the topping process in 2022.

What came next in 2008, and will the charts continue to rhyme??

IF the pattern does continue to rhyme, we could have a very long way to go in the current Bear Market, in terms of both price AND time… One important take-away from the chart below is the VIX. There has been a lot of talk about VIX at 36 to identify market bottoms. A VIX at 36 level helped to identify several short term bottoms early in the 2008-2009 bear market. Once fear really settled in VIX spiked above 80 twice, long before the final bottom in price!

Fibonacci

Fibonacci retracement levels are a very useful tool for anticipating areas of likely price support or resistance. Fibonacci’s are just ONE TOOL. They show us levels of POSSIBLE support. They are also time frame dependent.

IF the current bear market only corrects the post Covid rally, then the Fibonacci retracement levels in the chart below represent likely bottom areas.

EVERYONE was/is watching the 3800 level on the S&P500. We hit that level on Friday and rallied. Did price hit a short term bottom on Friday? Possibly. Now is the time to watch how price acts going forward, along with the other indicators. If 3800 does not hold, the next levels are approximately 3500 and 3200.

That’s the good news…

Great, so what’s the bad news?… What if the current Bear Market ultimately corrects for the entire bull run that began in 2009? A 38% Fibonacci retracement of this broader time frame would take price down to the 3200 level. 50% would be about 2750 and 62% about 2250.

Fibonacci retracements are relative to a prior significant low. Another common bottom is roughly the 50% drawdown level. From 2000 to 2003, the S&P500 lost 50% of its total value. From 2007 to 2009, it lost 55% of its value. The S&P500 topped out at about 4800 in January 2022. If it loses 50% of its value in this correction, price would hit 2400.

Short Term

Now that we know what price levels to watch for potential support, what indicator can we use to get us back into the stock funds to take advantage of a tradable rally? One of our subscribers introduced me to the Commodity Channel Index (CCI). You can learn the details of this index here.

In the 1 year daily chart of the C fund below, we can see the value of the CCI in identifying early market rallies. When combined with RSI, it becomes even more useful! Wen CCI hits 100 AND RSI breaks up above the 50 line, a new tradable rally has begun.

It’s not perfect. The new rally identified in December 2021 was very short lived.

To get back into the stock funds, at least temporarily, I’m looking for a spike in the VIX, 100+ on the CCI and 50+ on the RSI.

Bottom Line

Bear Markets are long, grueling events that take months or years to complete. Our goal is not to attempt to guess the bottom! Our goal is to identify a tradable bottom as early as possible. Fibonacci retracement levels can help us focus in on price areas that represent likely support levels. How price and the indicators respond at those levels will tell us whether or not to change reallocations.

TSP.gov is going dark this week but we’re not! There will not be any Alerts until TSP.gov gets back online but, we will post Market Updates if things change significantly during the outage.

Have a great week!

Jerry