It’s the Halloween Edition of the Weekly TSP Newsletter! We had a bit of a fright on Wednesday but, as is historically the case around Halloween week, the market put in some nice gains, taking us to new all-time highs! For the week the C fund was up 1.33%, S fund down 0.02%, I fund down 0.01% and F fund up 0.51%.

This week we’ll focus on a seasonality grid that I put out on Facebook early this week. The grid was created by LPL Research and put out on twitter by @RyanDetrick. This EXTREMELY valuable grid shows the 5 day average returns on a daily basis from 1950 – 2020. It’s color coded, making it very easy to see the times of the year when, ON AVERAGE, the S&P500 (C fund) goes up or down. We will look at how to combine the information on this grid with ongoing technical analysis to improve our rate of return in the TSP.

Next, we’ll take a look at the current Elliott Wave count and Fibonacci extension targets. We’ll finish up with the 1 year daily charts of all 4 TSP funds.

Technical Analysis with a Seasonality Backdrop

You’ll want to print out the grid below! This grid shows us the best HISTORICAL times of the year to be invested in the S&P500. We can see a lot from just a quick look. First, think about the adage, “Sell in May and go away. Come back after Labor Day”. The majority of the Red in the grid happens from May through mid-October. The majority of the Green is from mid-October through April. Second, the best 5 consecutive days to be in the C fund is the last week of October. Third, mid to late November and mid to late December are the best upcoming time frames to be in the C fund.

This is HISTORICAL DATA! There are no guarantees that 2021 will follow the historical pattern. For example, the C fund was down sharply on Wednesday, 27 October. This clearly bucked the trend as, historically, 27 October should have been the single best day of the year! So, how do we utilize this grid?

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The best way to utilize this chart is to use it as a backdrop to ongoing technical analysis. For example, September 2021 was the biggest correction since September 2020. Price exploded higher in early October, through a seasonally challenging time period. That’s a sign of strength. With late October and early November as a seasonally favorable time for stocks, we should expect price to keep rising. How does that match with the technical analysis?

The short term Elliott Wave count is calling for a couple of more days of consolidation before advancing into wave 5. We have wave 4 forming just above the 10DMA and just below the trend line that has become resistance. With November being a relatively strong month seasonally, our bias is that price breaks through resistance and completes wave 5. That’s our BIAS. A high volume close below the 10DMA would be a problem. If we were presented with this pattern going into early May, our bias would be different.

Wave Count and Fibonacci Extension Targets

Below is my current long term Elliott Wave count. If this count is correct, wave III should complete at the conclusion of wave 5 from the short term chart above. Once wave III is complete, we should see a longer wave IV develop before wave V takes us to new highs early next year. This is my Plan A. There are other possibilities but, I will continue forward with Plan A unless the market gives me a reason to adjust. Breaking thru resistance, and completing the shorter term pattern in the chart above, will be a great step toward validating Plan A and the larger scale pattern in the chart below.

The 1 Year Daily Charts

In the 1 year daily chart of the C fund we can see that the September correction was the first time price was below the 50DMA since last November. After the gap down through the 50DMA in mid-September, the 10DMA crossed down through the 50DMA and pushed prices lower. Once price found support back above the 10DMA it quickly regained the 50DMA. Price is now at new all-time highs with volume increasing along with price. The C fund is looking very strong at this point.

Below the price chart is the relative strength line of the C fund vs the S fund. Since the S fund topped in February 2021 and the C fund continued higher, the direction of the relative strength line makes intuitive sense. The line topped out in August. Since then, the S fund strengthened vs the C fund.

The S fund has progressed this year in two separate consolidation channels. We had a sideways consolidation from mid-February through the bottom in May. The second is an up-trending consolidation that began after the failed breakout in late June. The second consolidation is still in place until we get a clear break above the upper channel line. The relative strength line below the price chart shows that the S fund has been under-performing the C fund since February. This line has begun to level off since late August. If this line should turn up, we would consider reallocating some percent to the S fund.

The I fund has also been in a consolidation since June. If the I fund cannot remain above its 50DMA, it will likely come down to again test the lower channel line. The I fund is in a very clear down trend relative to the C fund.

The F fund found support at the 61.8% retracement line late last week. It rallied for several days and then rolled over this week. I would expect October’s sideways consolidation on the F fund to resolve to the downside. If the I fund closes below 113.75, it will likely test the lows of 112.

Bottom Line

The C fund is clearly out performing the other 4 TSP fund options. The Elliott Wave pattern is calling for the C fund to move higher from current levels which is supported by a seasonally favorable time of year for price movement. The S and I funds are near the upper boundaries of their respective channels but have not yet cleared resistance. For now, the C fund remains our best option for expected gains.

We will be watching the 10DMA on the C fund for any signs of weakness along with the upper channel lines on the S and I funds.

Have a great week!

Jerry