Well, we just ended the worst January since the financial crash of 2008! If you were following along with the Alerts, you got through the month with a relatively small 2.2% loss vs the C fund 7.6% or the S fund 13.39% loss. We still have 1 trading day left in the month so, these monthly numbers will change a bit.

A HUGE reversal during the final hour of trading on Friday pushed the C fund into the Green. For the week the C fund was up 0.77%, S fund down 0.95%, I fund down 2.11%, and the F fund down 0.37%.

In this post we’re going to hit the highlights of the Federal Register, Proposed Rules for the Mutual Fund Window, that just hit the street. We’ll cover the highlights and provide the contact info so you can submit comments to the Register.

In the TSP Weekly Update Show, we tear apart this Federal Register posting. We talk through the rules, fee structure, the good, bad, and unknowns… You definitely want to checkout the show this week!

Next we’ll do a deep dive analysis of the C fund, in multiple timeframes, to draw our lines in the sand for what is to come in February.

Finally, we’ll hit the charts for all 4 core TSP funds.

Federal Register

Here is the link to the Federal Register. We will cover the highlights below but, you definitely want to hit the link and read the Register for yourself!

Highlights are cut/paste from the Register:

“The Federal Retirement Thrift Investment Board (FRTIB) will make a mutual fund window available to participants in the Thrift Savings Plan (TSP), beginning in the summer of 2022. The FRTIB is proposing a fee designed to guarantee that the availability of the mutual fund window will not indirectly increase the share of TSP administrative expenses borne by participants who choose not to use the mutual fund window. The FRTIB is also proposing rules and procedures to govern fund transfers to and from the mutual fund window.”

“Participants who choose to invest through the mutual fund window will incur fees and expenses that do not apply to participants who invest only in the TSP core funds. These fees and expenses fall into four general categories: (1) An annual maintenance fee of $95, (2) a per trade fee of $28.75, (3) fees and expenses imposed by the specific mutual fund(s) in which the participant chooses to invest, and (4) a fee designed to guarantee that the availability of the mutual fund window will not indirectly increase the share of TSP administrative expenses borne by participants who choose not to use the mutual fund window. The scope of this proposed rule includes only the latter category of fees and expenses.”

“… the FRTIB is proposing to collect an annual fee of $55 from mutual fund window users to guarantee that the availability of the mutual fund window does not indirectly increase the share of TSP administrative expenses borne by participants who choose not to use the mutual fund window. The amount of the proposed fee was derived by multiplying an assumed average mutual fund window account balance of approximately $120,000 by an assumed TSP administrative expense ratio of 4.59 basis points. The FRTIB proposes to redetermine the annual fee every three years using the actual average mutual fund window account balance and expense ratio, as of the date of redetermination.”

“The mutual fund window will allow access to funds that are not as diversified as the TSP core funds and therefore may expose participants to greater market risk. The mutual fund window is intended for TSP participants who are experienced investors. It is not suitable for all TSP participants. While there may be legitimate reasons for a participant to invest in undiversified funds, such needs can be met through limited portfolio allocations. Because of the increased risk associated with the breadth of options offered through the mutual fund window, the FRTIB is proposing several restrictions on transfers and allocations between the TSP core funds and the mutual fund window.

First, the TSP is proposing to require an initial fund transfer of at least $10,000 to the mutual fund window. Second, this initial investment may not cause the portion of the participant’s TSP balance that is invested through the mutual fund window to exceed 25 percent of the participant’s total TSP balance. These two restrictions, taken together, would require a participant to have a minimum TSP balance of $40,000 before becoming eligible to invest through the mutual fund window. Third, subsequent transfers to the mutual fund window would be limited to amounts that do not cause the portion of the participant’s TSP balance that is invested through the mutual fund window to exceed 25 percent of their total TSP balance.”

“Currently, participants are allowed two interfund transfers in a calendar month. After that, they can only transfer money into the G Fund. Any transfer from the TSP core funds to a participant’s mutual fund window account, or vice versa, including a forced transfer, will count toward the existing monthly limit on interfund transfers. Consistent with current rules, a participant may always elect a fund transfer from his or her mutual fund window account to the G Fund.”

Again, above are just the highlights! Read the entire Register for yourself and watch the show this weekend! POC info is below to leave your comments for the Register.

C Fund

We use the C fund as our proxy for the overall market and because the C fund is the most common stock fund held by TSP investors. Throughout 2021 and into 2022, we’ve seen which components drive overall price movement. The C fund, dominated by high tech growth stocks, outperformed both the S and I funds throughout 2021. The S fund, comprised mostly of smaller tech companies, was under a tremendous amount of pressure since topping in February 2021. The I fund, less dominated by tech with exposure to Europe, Asia, and value companies, has outperformed since early January. All that being said, over time, all 3 of the stock funds generally go up and down together. The stock funds don’t move in opposite directions for long.

With the C fund as our proxy for the general market trend, let’s take a look at the 2 possible Elliott Wave counts and then an analysis of the short term price action of the C fund.

Elliott Wave Analysis

There are only 2 possibilities that will play out over the next several months. The first is that the entire 5 wave pattern that began at the CoVid low is complete. If that is the case, we are in for an extended correction. A close below 4200 AFTER WAVE B IS COMPLETE would indicate that this possibility is playing out.

In the short term, this is how that pattern would generally play out. Ideally, we will see another minor wave down to complete the pattern that began at the January high, though this is not necessary. What’s important is the price action on the next recovery rally as price approaches the 4550 level. If price plays out in a 3 wave CORRECTIVE pattern and hits resistance at the 4550 level, we are likely in for lower lows.

The second possibility is that the top in January 2022 was the top of wave III. If this possibility plays out, we are now in the wave IV correction with a strong run to new highs taking place later in 2022. What happens over the next several weeks will determine which of these possibilities is correct…

If possibility #2 is correct, we still may or may not see a final wave down to complete the January pattern. Once a bottom is in, we need to see price recover in an IMPULSE pattern. This is where the ability to see the Elliott Wave pattern emerge is extremely valuable. We know 4550 is a resistance area. If price blows through that resistance, on big volume, in an Impulse Pattern, then possibility #2 is most likely in play.

Short Term

2 major take aways from the 8 month daily chart of the C fund below.

First, the 10DMA (blue line) has been acting as resistance since 6 January. Price MUST close above the 10DMA before I would consider reallocating to the C fund. Second, when the Relative Strength Indicator (RSI) passes up through the 50 line, price USUALLY rallies higher. Is this true 100%? NO. But, look at the vertical dotted lines in the chart to see the value of watching for the RSI 50 cross over.

Even after Friday’s HUGE move higher, the RSI is still significantly below the 50 line, and price is significantly below the 10DMA line. I’m not jumping back into this new rally attempt just yet…

The TSP Fund Charts

The weekly chart of the C fund does not look encouraging. Last week was the first time that price closed below the 20 week EMA since getting back above that line in May 2020. Price found support at this line every time over the past 20 months until last week. This week, price took out the October lows and almost hit 4200 before recovering on Friday. It remains to be seen whether or not a significant low is in place. As we said above, it’s the next recovery rally that is really important! If the 20 Week EMA becomes resistance, we could see significantly more price decline.

The S fund has completely collapsed. In terms of technical analysis on a weekly basis, the next support level for the S fund is at 1700. The 20 Week EMA clearly acted as resistance during the December consolidation. Price opened the first week of January at the 20 Week EMA, reversed lower, and has steadily declined since. This is what we hope will NOT happen on the C fund in the coming weeks…

The I fund was holding up the best throughout January but has fallen below its support level at 75. This was the last best hope for the stock funds. At this point, all 3 TSP stock funds are now below long term support levels. Support levels are our friend when the market is moving higher. Support becomes resistance when the market is moving lower…

The FED announcement this week (and especially the Q&A following the announcement) did not help stocks or bonds. The FED chairman clarified that interest rate hikes will be the primary tool they will use to stop the rise of inflation. This told the market that inflation is the FED’s #1 priority; not good for stocks or bonds. As a result, stocks turned lower along with the F fund.

The F fund has put in a series of lower highs, and now lower lows. The F fund is not a safe alternative to the G fund at this point.

Bottom Line

The market is either in a significant correction OR entering into an extended Bear market. Either way, the charts are telling us that we do not want to be invested in the stock funds right now. I would have been more optimistic if the I fund had been able to hold on to support at 75. That was really the last hope for the stock funds. Losing that 75 support level for the I fund tells us that the collapse in price of the high tech, growth stocks is spilling over to other industry groups and value stocks.

Attempting to “time the market” during an overall down trend is extremely difficult under the best conditions. Given the 2 IFT moves per month and the Noon rules, attempting to make gains in this market is pretty much impossible for me. I would need to see the C fund price back above the 20 Week EMA and the I fund back above 75 before considering getting back into the stock funds in any way.

My primary focus for the next several weeks will be on identifying the pattern of the eventual recovery rally. If the recovery rally plays out in a CORRECTIVE pattern as price approaches resistance, that will tell me that scenario #1 is likely in play. If the recovery rally plays out in an IMPULSE pattern as price approaches resistance, that will tell me that scenario #2 is likely in play.

The next several weeks will tell us the market direction for the next several months.

Have a great week!

Jerry