Weekly Update: 16 August 2020

The TSP stock funds continue to press higher as we close out the week just below the All-Time High of the S&P500 (C Fund).  For the week, the C fund was up 0.64%, S fund up 0.54%, I fund up 1.84%, and F fund down 1.03%.  

The biggest percentage move this week came from the I fund, up 1.84%.  Importantly, the breakout cleared resistance at 64, something we’ve been talking about for several weeks.  We’ll look at the I fund chart in detail last.  First, we’ll take a look at the 2 most likely scenarios for the C fund going forward.

Bullish Scenario

Elliott Wave Theory describes/observes price movement, ebb and flow, of stock prices.  The basic theory is that price moves in 5 legs in the direction of the primary trend.  Legs 1,3 and 5 are impulse (expansive) while legs 2 and 4 are corrective.  The Bullish Scenario below shows leg I beginning at the March lows and ending at the early June high.  Leg II corrected this move by the end of June, and then leg III began.   IF this scenario plays out, we will see prices move significantly higher from here before topping at V sometime in 2021.  With RSI trending higher, this is certainly a possibility and will be bolstered IF we can get past 3400-3500.

Bearish Scenario

The Bearish Scenario shows a slightly different Elliott Wave count which makes all the difference.  IF we are currently in leg 5, the correction to the overall move since the March low should take prices back down to approximately 3000 before resuming the up-trend.  This scenario will play out IF price can’t break through the 3400-3500 level AND we get a major break down through the 10DMA line.

The S fund chart looks very similar to the C fund chart above.  Both Elliott Wave possibilities exist here as well.  The S fund has a little further to go before hitting its All-Time High but, the pattern will play out the same as the C fund.  

A better descriptive pattern for the I fund is the triangular consolidation that can be seen from the early June high at 64 to the breakout this week.  The I fund hit 64 in early June then several times throughout July.  The 64 price level was a serious ceiling for price until it finally broke through this week.  Now, the 64 level and the 10DMA line should act as support for price.  We should see price find support at the 10DMA next week and continue higher.  A daily close below 64 would put the breakout in jeopardy.

Bottom Line: A breakout to new All-Time Highs for the C fund would really push this rally into high gear again.  If the Bullish Scenario plays out, it won’t go up in a straight line.  If the Bearish Scenario plays out, it could certainly go down in a straight line…  There are LOTS of reasons for this market to roll over (CoVid as schools reopen, the next PPP relief bill currently stalled, the upcoming election…)  However, this market has defied the intuitively obvious since the low in March.  Whichever way it goes, the media will produce plenty of data to support that direction once it happens… Watch the charts.  At the end of the day, price direction is what matters.  The “Why” is just good for conversation…

Have a great week!

Jerry