It was a mixed week for the TSP funds with the I fund leading the way for the 3rd consecutive week. For the week the C fund was up 0.71%, S fund down 0.54%, I fund up 1.38%, and F fund up 0.16%.

This week we’re doing a deep dive into Fibonacci retracements and extensions with the F fund as an excellent example. We’ll take a look at using basic technical analysis with the Elliott Wave count and moving average lines. Then we’ll look at applying the Fibonacci drawing tool to show support levels and extension targets.

We did many more examples of applied EW and Fibonacci during the August Members Only webinar on Thursday. If you missed it, the recording is posted at the bottom of the Member Dashboard.

Finally we’ll take a look at the 6 month daily charts of the 4 core TSP funds.

Elliott Wave and Moving Average Lines

The first chart in this series is the basic Elliott Wave count with the 10DMA and 50DMA shown on the chart. We see price progressing in a classic Elliott Wave pattern. From the mid-March low, price has moved in 4 waves. After 5 consecutive down days from the wave 3 top, the F fund found support at its 50DMA. This SHOULD be the end of wave 4 with wave 5 just beginning.

The next several charts will show how to use Fibonacci retracements to find support and Fibonacci extensions to find target tops.

Fibonacci

The chart below shows support at the Fibonacci retracement level of 61.8%. The distance from the starting point at the mid-March low to the top of wave 1 was retraced 61.8% by the bottom of wave 2. This is a classic target for wave 2 support.

The next chart shows the Fibonacci extension of wave 1, projected from the low of wave 2. This gives us our wave 3 top target. In this case, the target was hit almost exactly! In simple terms, the length of wave 1 x 1.618 = the target length of wave 3. The Fibonacci retracement tool in StockCharts does the math for us and puts the extension target line on the chart.

The next chart shows the Fibonacci retracement of wave 3. This 38.2% retracement is a classic wave 4 corrective pattern. Wave 4 SHOULD be complete as of Thursday, with wave 5 just beginning.

Elliott Wave Theory tells us that, when wave 3 is extended, wave 1 and 5 tend to be of equal length. With that in mind, wave 5 SHOULD complete consistent with the chart below.

The TSP Fund Charts

The C fund continues to ride its 10DMA and 50DMA higher. RSI is still not over bought and the indicators are basically flat. I would have a very hard time reallocating into the C fund at this point but, since I’ve been in the C fund since July, I will hold tight.

The S fund is still in its long term sideways consolidation. Price is holding above the 10DMA and 50DMA. I expect this pattern to resolve to the upside but, only time will tell… For now I will hold my current position in the S fund.

The I fund has been the big out-performer for the past 3 weeks. After a month long A-B-C correction, the I fund has exploded higher and looks very strong at this point. I will hold my current position in the I fund.

As we discussed above, the F fund found support at its 50DMA and exploded higher on Friday. This SHOULD be the beginning of an extended move higher for the F fund. In terms of the chart, this would be a great time to reallocate into the F fund. If the stock funds were breaking down, I would absolutely be reallocating into the F fund here. Since the stock funds are not yet rolling over, I will continue with my current allocations in the stock funds.

Bottom Line

It’s steady as she goes in the stock funds right now. Having said that, there are a ton of conflicting possibilities going on in the charts. The C fund needs a consolidation/correction at some point. We would expect this to occur in the August/September/October timeframe. The S fund SHOULD eventually resolve its sideways consolidation to the upside. The I fund is in a new rally mode, and the F fund looks to be just starting its wave 5 higher. We need to let these divergences play out. In the meantime, I’m comfortable with my current position, fully invested in the stock funds.

The next couple of months could be very rocky. Don’t take your eye off the ball!

Have a great week!

Jerry