Weekly Update Newsletter : 19 September 2021

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2 consecutive down weeks for the C fund. The last time we saw 2 consecutive down weeks was back in February 2021. On the third week back then, the C fund hit a low at its 20WMA and then recovered. Will we see similar support this time? We’ll look at that in the charts below. For the week the C fund was down 0.57%, S fund down 0.23%, I fund down 0.81%, and F fund finished the week where it closed last week.

In the Weekly Update Show we do a very deep dive into the current Elliott Wave count from 2009 to present. We breakdown the individual waves, show the theoretical maximum decline for the current/next correction based on the guideline of Alternation, and look at the theoretical length of the next rally based on Elliott Wave rules. You definitely want to watch it!

In this post we’ll look at a few important short term data points, the weekly chart of the rally since the CoVid low, and a chart of likely support levels IF this current correction continues.

Short Term Data Points

On Friday, Investors Business Daily (IBD) Market Pulse section changed from Market in Confirmed Up-trend to Market Under Pressure. IBD uses a proprietary blend of indicators to describe the overall market direction in three ways: Confirmed Up-trend, Under Pressure, or Correction. For TSP investors, an easy way to use the Market Pulse is to be in the stock funds during a Confirmed Up-trend, 50% stock funds when Market Under Pressure, and 100% G fund when Market in Correction.

On Friday we saw 1 stock move higher on big volume for every 6 stocks that moved lower in big volume. This is an indication of significant selling across the board. The C fund is not declining on a few stocks that had a bad day…

Friday was Options Expiration Day. We discussed this in last week’s Weekly Update Newsletter. Options expiration happens on the third Friday of each month. Take a look at last weekend’s Newsletter for a deep dive into Options Expiration Effect.

The CNN Fear & Greed Index currently sits at 34. This is a contrarian indicator where a high number indicates Greed and a likely market top. A low number indicates Fear and a likely market bottom. 34 is relatively low but has not yet reached the point of Extreme Fear. A number below 25 indicates Extreme Fear and a likely short term market bottom. Based on this index, we should expect prices to continue lower.

The Put/Call Ratio is currently 0.71 according to IBD. The Put/Call Ratio is a measure of investor Fear. A Put is a bet that the market is moving lower in the future while a Call is a bet that the market is moving higher in the future. A Put/Call Ratio of above 1.15 indicates a short term bottom.

Elliott Wave and Moving Averages

The chart below is a detailed look at the current Elliott Wave count and possibilities for the current/next correction and subsequent rally. Based on this count, the C fund is currently in the V wave of the rally that began at the 2009 low. With wave IV ending at the CoVid low, the V wave of this rally is our focus.

Wave V is currently playing out in 5 sub-waves. IF we are at the top of wave 3 then wave 4 should be relatively short but deep. This is based on the guideline of Alternation. Again, we do a deep dive on this in the Weekly Update Show this weekend. Elliott Wave rules tell us that wave 4 cannot enter the price area of wave 1. Therefore, wave 4 cannot take price lower than 3600. Wave 3 cannot be the shortest wave in the pattern. Therefore, if we have seen the top of wave 3, then wave 5 is limited to about 1400 points from the low of wave 4.

The chart below gives us some possible support levels as this correction continues. We closed this Friday just below the 10WMA. The next support level is the 20WMA. We saw support at the 20WMA in September and October 2020, and again in late February 2021. If the 20WMA does not hold, the next support level is the 40WMA. A decline to the 40WMA is approximately 7% from Friday’s close.

The Daily TSP Charts

We have found support at the 50DMA on each test of that level throughout 2021. Will this time be different? The set-up certainly looks different. On past tests, price hit the 50DMA and reversed in a V shaped pattern. This time, price is consolidating on the 50DMA line. There is clearly a different Bull/Bear struggle going on in the market this time. Having said that, the technical indicators are all at levels where they bottomed in the past this year. A price close above the 10DMA on the C fund is the next positive indicator.

The S fund closed just above its 50DMA this week. The ascending triangle pattern in the S fund is still in play. We really want to see an explosive breakout to the upside to clear this long term sideways consolidation pattern.

The I fund had a rough day on Friday but found support at its 50DMA. The I fund breakout from 1 September has failed at this point. We want to see the I fund price stay above the August low. The technical indicators are not looking good…

The F fund is struggling to stay above its 50DMA. A significant breakdown from here would be a serious problem. If the F fund were to rally, it would soon hit resistance at the December 2020 high. Given the current inflation risk, the F fund is not a great alternative to the G fund right now.

Bottom Line

The 50DMA is a key support level for all 4 of the TSP funds. Each fund is struggling to find support. If the C fund continues lower, its next support level is the 20WMA; below that, the 40WMA. The 40WMA is a MAJOR short term support level. IF price gets that low, I would consider testing the waters at that level.

Next week is going to be extremely important. We should get a confirmation of whether of not the 4 wave has truly begun. If it has, it should be relatively short and deep. Keep a close eye on the 40WMA. It should provide at least an initial low in wave 4.

I expect the next few weeks to be very rough BUT, I don’t think we’ve seen the highs yet in 2021. When the bottom of the correction is confirmed, be ready to get back into the stock funds. That’s plan A. We’ll discuss plan B if the market gives us that set-up.

Have a great week!

Jerry