New Allocation: 50% C Fund, 50% G Fund

This ALERT is going to be very specific as to why I completed a reallocation this morning.  A more comprehensive look at all the stock funds will come out this weekend in the Sunday Update.

This Monday the S&P500 (C Fund) put in a short term low at 2600.  On Tuesday, Wednesday and Thursday, the market rocketed up off this bottom.  This morning it looked like the rally would continue with futures high and the market running higher at the open.  Unfortunately, it looks like today is going to end much lower for the day.  We will discuss this reversal in the Sunday Update.  It does not effect my decision to reallocate funds.

Turning points in the market tend to happen at the 50DMA, the 200DMA, and Fibonacci Retracement Levels.  In the 6 month chart of the C fund below, you can see that the price jumped off the 2600 low and hit big time resistance at the 200DMA.  

Fibonacci Retracement Levels are a great tool, in addition to moving averages, in anticipating turning points in the market.  The most common retracement levels are 38%, 50%, and 62%.  The C fund dropped from a high of 2942 to a recent low of 2600.  We should expect to see a rally lose steam between the 38% and 62% levels.  In the 6 month chart of the C fund below, you can see yesterday’s close was just over the 38% level.  

In the 6 month chart of the S fund below, you can see that the price ran up to the 38% level today before reversing.  

We have taken some serious losses since this correction began at the beginning of October.  We made a good chunk of those losses back with this week’s rally.  By reallocating 50% to the C fund at this point, we are protecting against continued losses while still being 50% in the market if we do go higher in the short run.  This is a loss mitigation tactic that makes sense for my risk tolerance at this point.  

Ultimately we need to see a tradable pattern emerge.  I expect that will take several more weeks to happen.  In the mean time, my goal is to preserve funds while setting up for when a bottom pattern is confirmed.

Please post questions to comments and have a great weekend!

Jerry