It was a strong week for the TSP stock funds; particularly for the I fund. For the week the C fund was up 2.16%, S fund up 2.18%, I fund up a HUGE 4.77%, and the F fund down 0.14%. We will get to the daily charts at the end of the post. First I want to show the 2 possibilities for going forward in the long term. From there, we will look at a medium term chart for a little more detail. Finally, we’ll look at the short term, tactical charts. These are the charts that we use to make our final, day-of, reallocation decisions.

While you’re looking at these charts, keep in mind your own personal circumstances and risk tolerance. There is market risk at each of the 3 time frames. Understanding the long, medium and short term patterns, along with your personal circumstances, allows you to make reasoned decisions that make sense for you. The patterns and analysis is the same for everyone. How you apply the analysis to your personal circumstances is different for everyone…

Long Term

The same two possibilities exist that we discussed in the 01 November Weekly Update. Price is at the top of the long-term Megaphone Pattern. IF price breaks through the upper channel line, and finds support above it, then price is likely to continue much higher. This is the Bullish Scenario.

IF price rolls over at the upper channel line AND falls below the current lower consolidation level (3200), then odds of the Bearish scenario increase dramatically… Think about what these long-term pattern possibilities mean in terms of your personal circumstances and risk tolerance.

Medium Term

The chart below drills down a little closer. Here we can see that price has been consolidating for the past 2 months and currently sits right on the upper channel line. A weekly close up in the green circle (around 3700) would take us clearly out of the Megaphone pattern and make continued gains much more likely; the Bullish Scenario. A weekly close down in the red circle (below around 3200) would put us clearly back into the Megaphone pattern and the Bearish Scenario.

The important take-away from this chart is the range of the consolidation. From the current price of 3585 to the lower consolidation level at 3200 is just over 10%. This represents the downside market risk right now in the medium term. On the other hand, the upside risk is about 3%. If price were to move 3% higher to 3700 and take us out of the Megaphone pattern, odds greatly favor continued higher prices.

Apply this analysis to your personal circumstances and risk tolerance. Are you a more conservative investor? Maybe you want to stay in the G fund until we are clear of the pattern, understanding that you will give up a 3% gain. Are you more aggressive? Maybe you would stay in the stock funds hoping to get the 3% AND willing to risk the 10% potential loss. Maybe you’re somewhere in the middle… These are the Medium Term decisions you need to make for yourself. The next chart will help us make a final decision on allocations and lines in the sand if the market goes against us.

Short Term

If we understand the context of the Long-Term and Medium-Term charts with respect to our personal circumstances and risk tolerance, then the Short-Term chart below can be extremely valuable. The S&P gapped above the short term trend line on Monday and consolidated sideways for the remainder of the week. As the 10DMA is catching up to price, we see a TON of short term support at around 3500. IF you are conservative and currently in the stock funds, a close below 3500 might be your line in the sand. If you are more aggressive, a close below the 50DMA at 3400 might be your line in the sand. If you are really aggressive, you could move to the G fund on a close below 3500 and back to the stock funds at the lower consolidation range (around 3300), expecting support there. There are NO right and wrong answers. What matters is your understanding of the market risk and how it applies to your personal circumstances.

The short term S fund chart is quite a bit different than the C fund. While the C fund has been in a clear consolidation since the early September high, the S fund is in a clear up-trend; higher highs and higher lows. The S fund consolidated this week and its 10DMA is catching up to price BUT, resistance looms at the trend line…

The I fund exploded out of its sideways consolidation this week, on MONSTER volume! A gap up like this, out of a relatively long consolidation, on this kind of volume, ALMOST always guarantees higher prices going forward. Before we get too excited, where is the next upside resistance for the I fund?? Let’s pull back the time frame on the next chart…

The Long Term chart of the I fund below shows us that we are pushing up against a Triple Top at 70. Once 70 becomes a floor rather than a ceiling, the skies the limit. Until a weekly price close above 70, continued price advance is suspect…

Bottom Line: There is a lot of reason to be Bullish BUT, there is still market risk at all 3 time frames. This risk will be resolved over the next month or two but, we’re not there yet! Stay Alert!

Have a great week!

Jerry