It was a quite a roller-coaster ride this week for the TSP stock funds! In the end, we finished the week mixed. The C fund gained 0.51%, S fund up 0.47%, I fund down 0.25%, and F fund down 0.40%. You can’t see it in these numbers but, if you were watching day to day, the market had some big swing

I use the Facebook group questions and comments as a guide of TSP investor sentiment. Since this week we saw the first close below the 50DMA in almost a year, there was a little bit of fear in the group. After a 3 day recovery rally, the fear is gone and greed is back… Making reallocation decisions based on fear and greed is absolutely normal. It’s how the VAST majority of people respond to the market. It’s also the reason that people get crushed in Bear markets or miss Bull markets. The blip we saw this week was just a taste of the volatility that is coming. With solid guidelines, you can keep emotion in check and make reallocation decisions that will maximize gains and minimize downside risk, even in extremely volatile market environments.

Day Trading, Trend Trading, and the TSP Rules

“The market gapped down today. Should I move to 100% G?”, “The futures are Green this morning, should I move to 100% S?”… These are the extremes of the questions I got this week that I would categorize as Day Trading questions. The first question is based on fear of loss. The second on greed (Fear of Missing Out – FOMO). The TSP is not a day trading platform. If you make reallocation decisions based on a single day’s price movement, you will almost certainly lose in both directions. Given that we have 2 or 3 IFTs per month AND the noon rule, day trading the TSP is simply not possible. We posted a short Market Update on Monday after the gap down. It put this one day drop in perspective and explained what to think about going forward. It’s 5 minutes long so, go back and watch it!

If day trading isn’t the answer then how do we do it? The best way to actively manage your TSP account, given the TSP rules, is Trend Trading. Rather than making reallocation decisions based on one days price action, following the overall price trend keeps us in the stock funds when the market is trending up and protecting against losses when the market is trending down. The key here is understanding Trend. At GrowMyTSP.com we focus on both the long-term trend (Months to Years) and the short term trend (Days to Weeks).

Below is how the trends have played out over the past 10 years. By connecting the major lows, we build the Up trend line. By connecting the major highs, we build the Down trend lines. Decision points happen when price crosses the established trend line; either up or down. Trend line analysis, along with Elliott Waves, Fibonacci Retracements, Moving Averages, and pattern recognition, help us to stay on the “right” side of the trends.

All of these tools can be applied to long term trends like the 10 year monthly chart below, or shorter term trends. The trick, as TSP investors, is to use multiple timeframes and keep in mind the tactics of managing the 2 IFT per month rule and the Noon Rule.

The TSP gives us 2 IFTs per month. Any additional IFTs can only increase your holdings in the G fund. Additionally, an IFT must be requested by 1200PM East Coast Time to get that day’s closing price. These 2 rules play a big part in determining which time frames of trend we can reasonably follow. The best case scenario is to enter a new calendar month fully invested in the stock funds. In that case, your first move can be to the G fund, second move into the stock funds, and third move back to the G fund if necessary.

If you use up all your moves early in the month then you lose all potential gains until the beginning of the next month. At that point, you would need to decide whether or not to get back into the stock funds given price action at the time.

The bottom line is this. TSP management is a marathon, not a sprint. An emotionally based day trading mentality simply does not work for effective TSP account growth. We want to be in the stock funds when the trend is up, and protecting those gains against downside risk when the trend is down.

The Big Picture

Below is the current C fund daily chart from the CoVid low in March 2020 to present. Price has been developing along in a standard Elliot Wave 5 leg pattern. At this point, we cannot be certain that the 3 leg is complete. We will know that the 3 leg has completed when the 4 is clearly established.

We would expect the 4 leg to pull price down to at least the area of 4000 to 4200. There needs to be enough of a retracement in leg 4 to correct some of the gains we’ve seen in leg 3. Legs 1 and 2 are very clear on the chart. The conclusion of legs 3 and 4 should be just as clear when complete.

IF the C fund continues to new highs next week leg 3 has not completed. The minimal correction we’ve seen over the past 3 weeks is not enough to be considered a leg 4.

The TSP Charts

The C fund gapped down thru its 50DMA last Monday and the 10DMA has crossed down thru the 50DMA; both bearish signs. Additionally, the C fund closed below its 50DMA for the first time since March 2021. While price did recover by the end of the week, I am not convinced that support above the 50DMA is established enough to get back into the stock funds fully. I need to see how price responds early next week before making any possible reallocation decisions.

The S fund is back in its trading range. As long as the S fund remains above its lower trend line (green), it is still in a bullish triangle pattern. We need to see a powerful break above 2300 or below 2150 to be sure that we are out of this pattern.

The I fund has a pretty well established support/resistance level at 81.50. The attempted breakout in early September has clearly failed at this point and the I fund is back in its trading range. We need to see support back above 81.50 before reallocating to the I fund.

The F fund chart is interesting. We featured it as the Bonus Chart on this week’s Weekly Update Show. Since its March low, the F fund price has played out in a standard Elliott Wave 5 count. There is no rule that says 5 must exceed 3. This is called a Truncated 5 leg. The F fund has had strong support at its 50DMA since April. With Thursday’s collapse below the 50DMA, the F fund chart is in very bad shape. If I were to reallocate out of the stock funds, I would not reallocate into the F fund given this chart pattern.

Bottom Line

There is a lot going on in the charts right now. Using a day trading or buy the dip mindset, you might be persuaded to reallocate back into the stock funds based on the last 3 days of price recovery in the C fund. While it is absolutely possible that the market moves on to new highs from here, I am not yet convinced that this correction is over.

Based on the Big Picture chart above, I clearly do not think that the overall rally is complete. Having said that, we do need to see a significant leg 4 correction before clearing the way for leg 5 to begin. The question is, will the market roll over this week and give us that leg 4? No crystal ball here. We are watching very closely to see how this plays out.

Have a great week!

Jerry