Weekly Update: 01 November 2020

NOTE: Starting in mid-November this Weekly Update Newsletter will only be available to paid subscribers of the GrowMyTSP.com website. The intent is to add MORE technical analysis of the market and TSP to this weekly newsletter, and provide even more value to our paid subscribers. The Weekly Update Show will still be available to the public each week and will be emailed to everyone on our email list (members and non-members), as well as our YoutTube channel and Facebook.

It was a rough week for the TSP stock funds going into the election. We saw red across the board with the C fund down 5.64%, S fund down 6.26%, I fund down 5.52%, and the F fund down 0.23%. The question on everyone’s mind, with respect to TSP and/or your 401k, is how will the election effect my retirement account?? Just since the beginning of September, the S&P500 (C fund) has been down 10%, gained back 9%, and then fell another 8%. Is this volatility due to the election? CoVid? The economy being shut down? Civil unrest?… Yes, the volatility that we have seen for the past 2 months is due to all of those circumstances and more. We also know that none of those issues are going away anytime soon… So, we are back to the question, “What will happen with my TSP?”. The answer lies in the chart; not on the news!

The Megaphone Pattern

The C fund has been in a long term Megaphone Pattern since 2018, as we have discussed in past newsletters. Below is an infographic courtesy of elearnmarkets.com. Look closely at Factors 1 and 5. These 2 Factors represent the only 2 possibilities for the C fund going forward over the next 6 months.

Bullish Scenario

Factor 1 represents the Bullish Scenario. In this case, the price has pushed thru the upper trend line, consolidated to test the line, and will move higher from there. The chart below is very close to what this scenario would look like, in real life, over the next several months.

Bearish Scenario

Factor 5 represents a failure of the Megaphone pattern and is our Bearish Scenario. The chart below shows us what this scenario would look like over the next several months…

Making Decisions

So, how will we know which scenario is playing out to maximize gains and minimize downside risk? To answer this question, let’s narrow our time frame and overlay some Technical Analysis tools… The 3 year weekly chart below gives us a TON of information, that each of us needs to add to our own personal risk tolerance, to make reallocation decisions going forward.

On this chart we see the 50WMA (Week Moving Average) in Blue, the 200WMA in Red, and the Fibonacci Retracement levels also in Red. Any of these areas CAN be support for price. The first area of possible support is the 50WMA at about 3140. This is close to the 38% retracement level. Support here followed by an explosive move higher would be very Bullish. The next support level is the 200WMA which would likely intersect the 50% retracement level when price got there at about 2900. The final support possibility is the 62% retracement level at 2727. A close below this level means that the Bearish Scenario is playing out with price likely to fall to the lower trend line, below 2200. The technical indicators, RSI and MACD, have clearly rolled over and turned negative on a weekly basis. The direction of the indicators is more in line with the Bearish Scenario.

Bottom Line

There are only 2 possibilities going forward, regardless of who wins the election. The charts show us the big picture of the 2 possibilities and, by applying some technical analysis tools, we can draw our personal lines in the sand and make reasoned reallocation decisions.

Buckle up! It’s going to be an exciting week!

Jerry