New Allocation: 34% C Fund, 33% S Fund, 33% I Fund

January was a volatile month in terms of price.  The C fund gained about 2.8% during the first 2 and 1/2 weeks, only to give it all back in the last week and a half of the month.  By contrast, the F fund had a very strong January, rising 2.0% for the month.  The 2 recommended reallocations in January minimized market risk of the the stock funds and maximized gains through significant exposure to the F fund.  That all changed on the huge gap up on the morning of 4 February.

This reallocation is based primarily on the C fund in 2 time frames.  The intra-day chart of the C fund below shows a consolidation pattern forming from the top on 21 January thru the low on 31 January.  During these 9 trading days, the C fund corrected in 3 legs with a-b-c sub-waves within legs 1 and 3.  This is a consolidation pattern as opposed to an impulse pattern.  An impulse pattern plays out in 5 legs where prices tend to continue in that direction.  A corrective pattern plays out in 3 legs where prices tend to reverse and continue the in the former direction.  Tuesday morning’s gap up thru the down trend line shown below was likely the continuation of the larger price advance (for now). 

The second important time frame is the daily chart of the C fund below.  The C fund closed just below its 10DMA on 23 January then gapped lower on the morning of 24 January, triggering the last ALERT.  After finding support at its 50DMA last Friday, the C fund moved modestly higher on Monday and exploded higher on Tuesday morning, ultimately closing above its 10DMA and triggering the current ALERT.  As you can see in the chart below, prices have been riding the 10DMA higher since early October.  On a daily basis, it pays to be in the stock funds when the C fund is above its 10DMA and in the G (or F) fund when below its 10DMA.  This is the best way to maximize potential gains in this ongoing rally while guarding agains extreme losses when this rally finally comes to an end.

Bottom Line: The combination of a monster gap up thru the down trend line on an intra-day basis, and closing above the 10DMA on a daily basis, make continued higher prices likely.  The 10DMA line is the key…

Unfortunately this upside reversal happened very early in the month, forcing the use of the first IFT for the month.  This is not the best tactical position given the 2 reallocation per month rule, however, we must make decisions based on what the market is giving us today.  With some luck, the market drives higher for the next couple of weeks causing our tactical position to drastically improve…  

Please post questions to comments or email.   

Jerry