New Allocations: 34% C Fund, 33% S Fund, 33% I Fund
The S&P500 (C Fund) gapped up this morning at the open. This gap up was a clear breakout from the triangle pattern formed by the lower, upward sloping trend line and the upper, downward sloping trend line. From a Market Risk perspective, buying into the stock funds on a breakout, from a defined consolidation pattern, is the Least Risky time to buy. The possible gains are unlimited and the downside risk is very quantifiable.
There are no guarantees. The breakout COULD fail and roll over. In that case, there are 2 primary resistance levels available that provide reallocation decision points. The first is the downward sloping upper trend line. The price SHOULD find support here. A daily close below this line would represent a failed breakout. Second is the 10DMA (blue moving average line). A daily close below this line would put the price solidly back into the pattern. The max downside risk in the C fund chart below is about 2.5% from the price at 3159 to the 10DMA at 3085.
The chart below is what I used to make the decision to reallocate to 100% stock funds. This chart represents the price at 9:34 in the morning, just after the open. The second chart shows the complete day and closing price.
By the end of the day, the C fund had rolled over and filled the morning gap. The fact that this happened in the last 30 minutes of the trading day is not surprising going into a long holiday weekend. The breakout is still in play and our downside risk actually decreased versus the chart above. At the end of the day, the C fund closed at 3130 with the 10DMA at 3087. That’s a downside risk of just under 1.5%.
Bottom Line: The breakout is still in play and our downside risk is only 1.5% We will discuss this more in the Weekly Update post and during the Weekly Update Show, Sunday night at 6:30PM on the FaceBook site.
Have a great 4th!