I always hear, from the mainstream financial news media, that “the market doesn’t like uncertainty”. While this axiom makes intuitive sense, I’m just not seeing it play out in the real world. There is ALWAYS uncertainty. In 2016, conventional wisdom was that Hillary Clinton would win the election by a landslide. Her loss and the subsequent Trump presidency created HUGE uncertainty. But, what happened? The market rocketed higher from November 2016 through early 2018. Until the Electoral College comes back, there is still uncertainty surrounding the 2020 election and HUGE uncertainty concerning the run-off in Georgia (Extremely important in determining the direction of the country under a President Biden). To say nothing of the uncertainty surrounding CoVid and vaccines… Yet, what is the market doing?? It has exploded higher since the beginning of November! Attempting to anticipate/time the market based on the news, current events, etc… is just not effective. What IS effective is following the patterns, moving averages and trend lines. Rather than anticipate, take what the market gives you, execute the best decision you can, and have a plan B…
The market continued higher this week with the C fund gaining 1.67%, the S fund up 2.01%, I fund up 1.16% and the F fund down 0.39%. Before getting into the 6 month daily charts, we’re going to take a look at 2 possible Elliott Wave counts for the near term. The first is my current count. The second is the count of my good friend and mentor. Full disclosure, he is a genius at pattern recognition and technical analysis. You can find his work at www.BartsCharts.com.
We’ve posted quite a bit about Elliott Waves in the past. For a deep dive, click here. These are the 2 most likely possibilities going forward in the near term. Both indicate a higher market from here… IF possibility 1 is correct, the market will continue higher well into 2021 without a major correction. IF possibility 2 is correct, we could see a significant correction sooner rather than later.
This Week’s Charts
Regardless of which, if either, Elliott Wave pattern plays out, the 6 month daily charts below are what we use to make real-time TSP reallocation decisions. Generally speaking, as long as the price of the S&P500 (C Fund) is above the 10DMA, I am very comfortable being allocated in the C fund.
The S fund has been on an absolute tear! Having said that, there is no way of knowing how much further the S fund can go before correcting. There is NO doubt that it will correct at some point. The problem is allowing price to run higher and cutting it off from going lower as soon as it rolls over. Watch the 10DMA! As the price stays above the 10DMA, I will maintain my allocation in the S fund. A close below the 10DMA, corroborated by the C fund, will PROBABLY generate an Alert back to the G and/or F fund.
Much like the S fund, the I fund is very extended beyond its 50DMA and somewhat beyond its 10DMA. I do not currently have a stake in the I fund but, if I did, I would stay with that position until a close below the 10DMA that is corroborated by a move lower in the C fund. While price looks very extended now, there is no way to anticipate how much higher it can go before rolling over. Watch its 10DMA!
Bottom Line: My line in the sand right now is the 10DMA on each of the TSP stock fund charts. It’s not the only indicator but, it is an important one!
Stay alert! Volatility is likely to continue until some of the election issues are resolved; specifically the make up of the next Congress…
Have a great week!