It was another grueling and volatile week for the TSP. By the close on Friday the C fund down 5.68%, S fund down 7.58%, I fund down 3.37%, and F fund up 0.05%.
We’re going to cover a ton of technical analysis in this post, over multiple timeframes. All this to get a good operating picture and then drill down to possible decision points.
The game has changed. We are no longer looking at a “buy the dip” mentality. Buying the dip happens at support levels, and some very important support levels have been taken out. Those support levels now become resistance…
*If you’re only reading the Newsletter, you’re only getting a part of the weekly analysis! You definitely want to watch the TSP Weekly Update Show. The Newsletter provides much more granular and time sensitive analysis but, the Show covers a wide array of topics in a conversational format. You definitely want to check out both!*
Long Term Elliott Wave Count
While the TSP funds have endured some serious losses over the past few weeks, it’s important to keep things in perspective. The long term Bull Market that we have enjoyed since the 2009 low has increased the value of the C fund 7 fold. While price dipped significantly below the long term trend line due to the CoVid crash, this trend line is a great long term guide. Even with losses over the past few weeks, price is extended above the trend line more than any time during this Bull Market. From Friday’s closing price, a decline to the trend line represents a 20% loss in value. Even with that 20% loss from here, if price found support at the trend line, the long term up trend would still be in place!
In terms of the long term Elliott Wave count, we are nearing the end of wave V. We will look at the short term Elliott Wave count below but, in the big picture, we are either at a major top or very close to it.
Long Term Support at the 200DMA
We looked at the long term Elliott Wave count and the trend line above. Now let’s look at support at the 200DMA (day moving average) over the past 10 years. The C fund broke down below the 200DMA only 3 times in the past 10 years. Every other time price tested the 200DMA, it found support and moved higher. The 200DMA is clearly an important support level. On Friday, the C fund closed just slightly below its 200DMA line.
The 200DMA is a GUIDE. It is not an exact science. You can see multiple examples over the past 10 years where price dipped briefly below the 200DMA and then reversed higher. We need to give price a little wiggle room but, what happens at this line is extremely important.
Short Term Elliott Wave Counts
The first chart above showed the Elliott Wave count for entire Bull Market since the low in 2009. Wave IV ended at the bottom of the CoVid low. Wave V is playing out in 5 sub waves. There are 2 possible counts for this final V wave (March 2020 to Present). The first possibility is that wave III ended at the top in December 2021 and we are now in wave IV. If price moves in a corrective pattern, finds support at or above 4200, and rallies above 4800, then we should expect prices in the 5000s later in 2022.
The second possibility is that wave V completed at the top in December 2021. If price moves in an impulse pattern down, does not find support at 4200, and does not rally back above 4800, then we should expect a prolonged Bear Market.
Like the 200DMA line in the 10 year chart above, the 20 week moving average line has provided support since the CoVid low. That support was broken this week. Price needs to get back above this line for the Bull Market to continue.
Andrew’s Pitchfork is another great tool, provided by StockCharts.com, to view the on-going trend. The tool uses a swing high, swing low, and median point to project out an expected trend. In the C fund chart below we use the swing high and low points from the first correction after the CoVid low to project the trend. Price generally oscillated along the median line for the past 16 months. This week, the lower channel line was violated. Price is now clearly outside of the channel and the lower channel line now represents resistance.
The TSP Fund Charts
In the short term, this week the C fund broke down below its 100EMA line and closed just below its 200DMA. The biggest concern with this chart is the impulse wave that seems to be forming since the beginning of January. We should expect some kind of a recovery rally over the next few days. How high that rally gets, and what happens if/when that recovery rally rolls over, will provide a guide for how this correction will play out.
We’ve talked about the 2100 level being critical support for the S fund for the past several months. That support level failed spectacularly this week! The S fund is over-sold in the short term and I would expect a recovery rally in the very near future. If price were to get back up to 2100, how it acts there would be critical. I would expect 2100 to now act as resistance.
The I fund has the less exposure to growth stocks (tech) than the C and S funds. That’s why the I fund is out performing the C and S funds over the past several weeks. If price deterioration continues and spreads from growth stocks to value stocks, the I fund will continue lower with the C and S funds. Long term support for the I fund is 75. We are watching that level closely.
The F fund has been in a long term declining channel. Early in January, price broke below the lower channel line, recovered back to resistance at that line, and continued lower. The F fund has a lot of work to do before being a viable alternative to the G fund at this point. A close above 112.75 would be the first glimmer of hope…
We started with the big picture, secular Bull Market that began at the low in 2009. We then dialed in from the post CoVid low to present. In the big picture, price is very extended from the long term trend line and is testing critical support levels at the 200DMA. In the short term, the C and S funds are over-sold and due for a relief rally.
Attempting to catch relief rallies during a down trend is extremely risky! If you are following our current allocations, you know that we are doing just that right now… I would expect a relief rally to happen over the coming week. At that point, I expect to reallocate to the G fund as we approach resistance/prior support levels.
By far, the safest place to be right now for TSP investors is the G fund.
Buckle up! It’s going to be a very exciting year for TSP!