Weekly Update Newsletter: 31 January 2021

It was an exciting week on Wall Street! The mainstream financial media was completely fixated on a small group of Reddit followers that caused quite an uproar when they created a short squeeze on GameStop (GME) stock, causing at least one hedge fund to go bankrupt! We go into all the details of this spectacle, as well as explain what exactly it means to short a stock, in this weeks Weekly Update Show. You definitely want to tune-in for our take on this!

If you could look past GameStop, there was a ton of volatility from the major indexes and the TSP stock funds as well! For the week the C fund was down 3.31%, S fund down 4.14, I fund down 3.67% and F fund up 0.05. In this Newsletter, we’re going to focus on the volatility that effects our TSP account! It was a big move to the downside but, the primary up-trend is still in tact (for now)… We take a look at the 2 long term Elliott Wave possibilities as well as the short term charts.

Long Term Elliott Wave

The two charts of the S&P500 (C Fund) below show us the past 12 years where each tick is one month. The first chart shows an Elliot Wave pattern, beginning at the bottom in 2009, that may/may not be complete. The second chart shows a completed Elliott Wave pattern at the top in February 2020. The important take away here is this: whichever pattern ends up being correct, the next tradeable move from here is DOWN.

IF this count is correct, the rally off of the bottom in March 2020 began the 5th leg of the pattern. IF the 5 leg is complete, then we should expect an A-B-C correction that takes us back down to the 2500 +/- area.

IF the count below is correct, we should expect a shorter A-B-C correction down to 3000-3250, followed by an explosive move higher!

The 2 possibilities above are just that; the most likely possibilities. We will watch closely to identify the count as close to its ending as possible. The long term Elliott Wave count gives us a structure and left/right limits. However, monthly charts do not help with real-time TSP reallocation decisions…

Short Term Charts

The 6 month charts below are what we use to make day-of TSP reallocation decisions… After trudging higher since the beginning of November, the C fund broke down thru its 10DMA on Wednesday this week. Thursday’s move higher hit resistance at the 10DMA before rolling over. Friday’s move lower found support at the 50DMA. Next week will be very important. If we get a close below the 50DMA then the next support level will be the 200DMA. More to follow…

The S fund gapped down below its 10DMA on Wednesday and consolidate along the 2050 level. The next support area for the S fund is its 50DMA at 1950. We would really like to see price drop to the 50DMA and then stage a strong reversal day. Most importantly, we need to see the 50DMA hold as support for the S fund!

The I fund has broken down more than the other 2 TSP stock funds. While it looks bad, it is possible that the I fund has seen a bottom. The huge volume we saw on Friday, and the partial reversal at the 72 level, leaves open the possibility that the I fund has seen a bottom… We will know for sure this coming week!

Bottom Line: The market is breaking down. Where it will bottom is anyone’s guess! We will watch closely for any sign of reversal in price that is supported by the technical indicators. For now, I am very happy watching the show from the safety of the G fund!

Have a great week!

Jerry