It was another classic week of price action in a Bear Market. A strong beginning to the week gave way to a complete collapse by the close on Friday. For the week the C fund was down 2.75%, S fund down 3.99%, I fund down 2.17%, and F fund down 0.98%.

For a little perspective on where we are as the first 1/3 of 2022 comes to an end. Year to date (taken from the Daily TSP App), the C fund is down 9.98%, S fund down 15.74%, I fund down 10.55%, F fund down 9.32%. The worst performing L fund (L 2065) is down 10.89%. The best performing L fund (L Income) is down 2.66%. GMTSP is down 4.87%.

Only the G fund is in the green for the year, up 0.59%.

Sentiment Extremes

“The time to buy is when there is blood in the streets!…”. We’ve all heard this saying, to the point that it’s folklore. It gets translated into TSP speak like, “Always buy on a Red Day”. The question is, how do we know there is blood in the streets vs a paper cut? We did a whole segment about this in the Weekly Update Show this weekend. You should definitely check it out.

The chart below is Canopy Growth Corporation (CGC). In April 2019 it was the largest cannabis company in the world! In an era when marijuana is quickly becoming legalized, you would think CGC would be moving in the other direction…

The point is this. CGC topped in February 2021 at about $60. When price came down to $40, it was on sale at 33% off! What a great deal! Now must be the time to buy it right?… How about when price fell to $30? That’s half off! There must be blood in the streets! Now has to be the time to buy right?… What about when the price fell to $6? That’s 90% off! This is getting stupid. Now has to be the time to buy!… If you bought CGC at $6, a 90% discount, you would be down 6.5% as of Friday’s price at $5.61.

Do not get sucked into holding on to a bad position because of folklore, feelings, or belief.

“Blood in the streets”, what does that mean, how can we measure it, and is it always accurate?

Below is a 20 year monthly chart of the C fund with the AAII Bull-Bear indicator below price. AAII is the American Association of Individual Investors. They survey thousands of investors to determine the percentage of those that think the market will go higher (Bullish) vs the percentage of those that think the market will go lower (Bearish).

Extreme readings of this indicator are significant (above 30 or below -30). This is a CONTRARIAN indicator. Not always but many times, extreme high readings indicate a market top while extreme low readings indicate a market bottom.

When the AAII indicator is extremely negative, there is blood in the streets! Everyone is bearish on the market. This is often (but not always) a significant market bottom. Extreme negative readings in 2009, 2010, and 2020 indicated market bottoms were in place. On the other hand, the extreme reading in 2008 came just at the beginning of the Great Financial Crisis.

At the end of January 2022 the AAII Bull-Bear indicator hit -30. That is the lowest reading since the bottom in 2009. Some analysts will point to this and declare that the bottom is in! It’s time to get back into the stock funds. To me, it looks much more like a 2008 high than a 2009 low…

Either way, an extreme price move in one direction or the other is happening.

One final chart on this. In the 5 year weekly chart of the C fund we see price with the NYSE High/Low indicator. It’s pretty obvious that for the price of the S&P500 index (C fund) to move higher, more companies need to be making new highs vs those making new lows. This is exactly what we see in the picture below.

The indicator put in a low in late January and then made several higher lows; a very bullish sign. This week the indicator broke down through the up trend line; a very bearish sign.

The bottom line is that the Hi/Low indicator needs to be in the black for the price of the C fund to begin a new sustainable rally.

The TSP Fund Charts

After a double bottom and break up through the down trend line, the C fund gave us about a 2 week rally in late March. The market corrected 50% of that rally, put in another double bottom and broke up through the down trend line. This time, the breakout failed… The retest of 4150 is the next major event for the C fund. It’ an important one!

Support at 1900 failed for the S fund. Next possible support level is 1800. A close below 1800 indicates a new down leg is beginning for the S fund.

Support at 71.50 failed for the I fund. The next support level is 67. On a percentage basis, that’s a long way down from here. But, there is no reason to believe that the 67 level will not be retested…

The F fund looks more like the CGC chart than a bond fund chart! Are we close to a bottom in the F fund? Who knows… The price chart isn’t even reflecting a slowdown in the decline!

Bottom Line

We are in a Bear Market. Now is not the time to be complacent or to be drawn into the realm of “What If”… Price is the only thing that matters! There will be tradable rallies during this Bear Market and we will attempt to take advantage of them. At some point this Bear Market will end and we will be ready to take full advantage when it does.

In the short term, if we lose support at 4150 on the S&P, things will get very ugly. It’s definitely a possibility so, be mentally prepared…

Have a great week!

Jerry