New Allocations: 10% C Fund, 10% S Fund, 10% I Fund, 70% G Fund
The market has had an amazing run since bottoming on 23 March. The C fund is within striking distance of its February top, while the NASDAQ Composite Index ($COMP) ended the week at a new All Time High! So why reallocate mostly out of the stock funds now?? I have 3 primary reasons for making this reallocation.
First, rule #1 is Don’t Lose Money! The price of the C fund is extended 4.2% above its 10DMA, 5.9% above its 200DMA and 11% above its 50DMA. We’ve made significant gains over the past few weeks. I don’t want to give those gains back before support at one of the moving average lines. I want to see the price consolidate back, at least to the 10DMA, before reallocating more into the stock funds.
Second, it’s not about picking the top/bottom. It’s about Managing Risk! In addition to the price being over extended beyond the moving averages, the price is bumping up against a significant resistance zone. IF we are in a Bear Market Rally, the C fund will roll over at or before reaching 3400. A close above 3400 would be extremely Bullish but, until we get there, market risk is high.
Finally, Friday’s huge price gap COULD be an “exhaustion gap”. Often times prices gap at the beginning, middle or end of a major rally. The S and I funds gapped up as well but reversed and closed at the bottom of the day’s trading range (S and I charts will be shown on Weekly Update).
Taken together, I am happy to lock in the significant gains from the past several weeks and allow the moving averages to catch up to the current price level. This can happen by consolidation or correction in price; we shall see…
Have a great weekend!