Weekly Update: 18 October 2020

The market pulled back a bit this week but, an important support level held across all 3 TSP stock funds.  For the week the C fund was up 0.19%, S fund up 0.11%, I fund down 1.43%, and F fund up 0.14%. 

We are 2 and 1/2 weeks out from the election.  Both campaigns are in full swing (to the extent possible) but the market seems to barely notice…  Does the market care about this election?  Is the fix already in??  Next weekend’s Weekly Update and Weekly Update Show will focus on election charts.  We will take a look at what the S&P 500 (C fund) chart looked like in the year running up to the elections of Presidents Reagan, HW Bush, Clinton, GW Bush, Obama and Trump; 1980-2020. You don’t want to miss it!… In the mean time:

Long Term Perspective

On 6 March 2009, the S&P500 bottomed at a price of 666.79.  Since then, the S&P has exploded 540%!  This did not happen in a straight line.  There have been many minor and several major corrections over the past 12 years.  Most importantly, since the early 2018 high, each major high has been higher.  Also, since the 2018 high, each major low has been lower.  This creates a long term megaphone pattern that is still in play.  Currently we are at the top of this pattern.  The next major move in the pattern SHOULD be down.  The big question is, will the next correction take us to new lows again OR find support at a retracement level or trend line, and ultimately resolve the pattern higher? 

So IF the market does roll over, AND it finds support before hitting a new low, where could this support level be?  The first likely support level is the 50WMA in the chart below.  (The 50WMA roughly corresponds to the 200DMA on a daily chart).  The 50WMA has held as support every time price has tested it, except twice, since 2016.  IF the 50WMA does not hold, the Fibonacci retracement levels are the next tool in the kit.  We would expect support at either the 38%, 50% or 62% retracement levels as can be seen on the chart below.  All of these support levels would represent a significant percentage decline from current price levels BUT, support at one of these levels would be very bullish for the long term.  It would indicate a likely end to this long term mega-phone pattern. 

In the short term, the C fund has pulled back to its 10DMA and closed the week above it.  Friday’s reversal day is not encouraging but, as long as price stays above the 10DMA, the short term trend is up.

The S fund has had a nice run since gapping above resistance at its 10DMA and 50DMA back in late September.  It pulled back a bit on Thursday but closed out the week firmly above its 10DMA.  RSI is over-bought and appears to be rolling over.  Do not be surprised to see the 10DMA tested again this week…

The I fund is right in the middle of its trading range.  The horizontal consolidation has been going on now since the June high.  At some point, the I fund will make a decisive move above 66 or below 62.  At that point we will know the presumptive next long term direction for the I fund.

Bottom Line: The market is almost at the top of a long term mega-phone pattern.  The next significant move from here is most likely down but, there are no guarantees.  The short term charts indicate nothing out of the ordinary.  With less than a month out from the elections, you would think there would be more volatility, higher volume, SOMETHING that indicates the market cares about this election… We’re just not seeing it in the chart.  Is this unusual?  Do the charts barely move going into Presidential elections?  We’ll find out next week on a Deep Dive into Presidential Election Charts!

Have a great week!

Jerry