Weekly TSP Newsletter: 25 September 2022

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It was yet another brutal week for the C, S, I and F funds. What’s so painful about this Bear Market is that the stock funds and the F fund are falling in tandem. USUALLY when stocks are falling, bonds are moving higher as capital moves from stocks to bonds. That has not been the case since the beginning of 2022. The only safety for TSP investors has been the G fund.

For the week the C fund was down 4.65%, S fund down 7.04%, I fund down 6.03%, and the F fund down 1.65%.

Last weekend’s Newsletter focused on seasonality analysis by Larry Williams. This was a bullish argument as Q4 in years ending in 2 tend to be very bullish. This week’s Newsletter is pretty much the opposite and will be difficult for some to read…

It is NOT a prediction! It is simply an analysis of historical price action, given the Elliott Wave rules, extrapolated into the future. It gives us a picture of an Elliott Wave count that goes back for centuries so, timing and accuracy going forward could get a little tricky… Enjoy!

“Ideal” Elliott Waves and the Grand Super Cycle

The ideal Elliott Wave pattern is based on an ever expanding market. The market moves higher in 5 waves then contracts in 3 waves. From this perspective, “The market always goes up” and that’s the good news. The bad news is that, depending on the time frame of the pattern you’re observing, corrective waves can last a very long time.

One important take away for our purposes is the location of the completion of corrective waves. Corrective patterns are labeled A-B-C. The completion of wave C ends at wave 4 of the previous degree. This will become critically important as we apply the ideal pattern to the on-going Grand Super Cycle.

The Grand Super Cycle is the longest Elliott Wave count contemplated by Robert Prechter at Elliott Wave International. The principles were first observed by R.N Elliott, an American accountant, in the 1930s. Elliott published his findings in a book called The Wave Principle in 1938. Prechter carries on in Elliott’s tradition.

The Grand Super Cycle began sometime in the 1600s, with wave I completing at the top of the South Sea Bubble in 1720. The South China Sea Bubble has been called the world’s first financial crash…

It took over 60 years for the A-B-C correction to complete wave II in about 1783. From there the market roared higher for about 150 years, culminating at the completion of a 3 wave of Super Cycle degree in 1929. The stock market crash from 1929 to 1932 completed the wave 4 of Super Cycle degree, correcting price back to the 4 wave of the previous Cycle degree.

Since the low in 1932, we have been in the 5th wave of Super Cycle degree. The completion of this wave also completes wave III of Grand Super Cycle degree. This implication of this is too painful to comprehend… IF wave 5 of Super Cycle degree completed at the top in 2022 then THEORETICALLY, the A-B-C corrective pattern should bring price down to the 4 wave of Cycle degree which is the 1974 low.

A solid understanding of counting Elliott Waves is critical. Wave counts are probabilities, not an exact science. This is Prechter’s primary wave count. An alternate count would put Cycle degree wave 4 completing at the 2009 low. Either way, the market has a long way to fall if either of those counts is correct.

The good news, on a very long time horizon, is that Grand Super Cycle degree wave IV will be corrective. This likely long and drawn out correction will set up our kids / grandkids for a Grand Super Cycle degree wave V that will likely last for close to a century.

How could Grand Super Cycle wave IV play out?

Below are 3 possibilities for the Grand Super Cycle wave IV correction. Each assumes Prechter’s primary count where price in the correction should bottom near the 1974 low. This primary count is supported by the long term price channel. On every time frame, wave 4s tend to play out in flat or triangle corrective patterns. These aren’t the only possible corrective patterns but, some version of this is likely IF the overall Grand Super Cycle pattern is correct.

Wave II of Grand Super Cycle degree took over 60 years to complete. Wave IV of the same degree should take a commensurate amount of time. IF the Grand Super Cycle is accurate, 2022 was the top in the market for a very long time…

IF this pattern is going to play out, how will it look to us in real time? First, the 2020 Covid low must be taken out. A close below 2250 would correct the 5 wave move that began at the 2009 low. If price continued lower from there, the next target would be the 2009 low at 665.

Scary as this chart is, it would be the early stages of a very long term corrective pattern.

Bottom Line

What is the point of this post? The Grand Super Cycle theory is by far the most extreme, bearish, long term forecast that you will find on the internet. I put it in the category of the theory of Global Warming. It’s a model that will adjust over time as it is either validated or invalidated.

The first validation point would be an acceleration of price decline through the Covid low. IF we get that, the theory will gain some serious validity. A close above the January 2022 highs would invalidate the current primary count but not necessarily the overall Grand Super Cycle theory. Either way, the next couple of years are going to be extremely volatile.

The Grand Super Cycle theory is a very long term analysis of historical price movement extrapolated into the future. What’s most concerning to me is that the charts comport with the macro views of both Ray Dalio (A Changing World Order) and Simon Hunt (Wealthion Interview). Both are great videos and well worth your time to watch!

Have a great week!

Jerry