New Allocation: 30% C Fund, 70% G Fund
The C fund was up 2.14% on Tuesday. After 4 consecutive weeks of declining prices the market was due for a rally. A 2+% up day is significant and needs to be respected in its own right but, the reason I’m easing back into the C fund is due to the technical analysis of this up day.
In the long term C fund chart below, we can see an attempt to find support at the 50WMA. Over the past 11 years, more often than not, the C fund has found support at its 50WMA and gone on to make higher highs. There are several long term possibilities that we have discussed in the last few Sunday Updates. Most of these possibilities lead to higher highs following support at the 50WMA. The odds favor higher highs from this level and the market risk is easily quantified. A weekly close below the 50WMA would mean the market is headed lower. That gives us a risk of about a 3%. The risk/reward is in our favor at this level.
In the daily chart below we see the C fund made an A-B-C pattern down to the 38.2% Fibonacci retracement level, and then popped today. A reversal at the 38.2% retracement level can be extremely bullish. We could see prices rise quickly from here and test the prior high of 2950. Alternatively, we could see the rally fail at the 50DMA and roll back over. I would consider further increasing my position in the C fund if we get a strong close above the 50DMA.
Bottom Line: The risk / reward ratio is in our favor at this level but the larger pattern is still in question. Easing back into the C fund at this point allows me some upside gains while minimizing risk until the larger pattern is confirmed. I am moving to 30% C fund, 70% G fund. This ratio works for my personal risk tolerance. You should decide whether or not to reallocate into the C (or other stock funds) at this level based on your personal risk tolerance. The potential upside is significant. The potential downside is about 3% from the current price.