New Allocation: 30% C Fund, 30% S Fund, 40% I Fund

There is a lot to discuss with respect to both this Alert and the previous Alert on 30 July.  Please read the previous Alert first to get perspective, then read this one.  This is a longer Alert than usual.  Please read all the way through.  There is a ton of info here…

 ** I HIGHLY recommend you watch the Weekly Update Show this Sunday night at 6:30 on the FaceBook page.  I will be going into much more detail on both Alerts this weekend. **

First we will look at the 3 major US indexes and then the I fund chart.  The I fund was pivotal in the decision making process  for both the 30 July Alert and this Alert…

There are 3 major indexes that cover the vast majority of the U.S. equity market.  These indexes are the Nasdaq Composite Index (Tech), the Dow Jones Industrial Average (Industrials), and the S&P500 (500 largest publicly traded U.S. companies).  The 9 month daily chart of each of these indexes is shown below.   

The NASDAQ made new all-time highs in early June and then consolidated before breaking higher in early July.  The consolidation at the 9850 level was the market working through resistance at the prior high in February.  By early July the NASDAQ had fully cleared resistance and was off to new highs.  The 9850 level now represents major support.  The NASDAQ is the first of the 3 major indexes to make new highs since February.  After breaking to new highs, the NASDAQ has been consolidating along its 10DMA and moving higher.  Over the last several trading days, the NASDAQ edged lower and rallied off its 10DMA again today.  Bottom line, the NASDAQ (tech) continues to drive the market higher… (Until it doesn’t).  

The Dow Jones Industrial Average (DOW) hit 27,000 on its first recovery attempt in early March.  It barely poked above 27,000 in early June before rolling over.  Hit 27,000 twice in July before finally breaking clear of this resistance level in early August.  27,000 is now a major support level for the DOW.  While it may not move in a straight line, the DOW should hit all-time highs before hitting 27,000 again…  

The S&P500 (C fund) is almost at its prior all-time high.  While the S&P is very extended from the low in March, it has consistently been finding support at its 10DMA.  Until we get a strong CLOSING PRICE below the 10DMA, it pays to be in the stock funds… 

Each of the 3 major indexes are above their respective 10DMA lines.  The trend is clearly up but the market is also extended.  For me, the decision to make this reallocation came down to the I fund.  In the 9 month daily chart of the I fund below, we can see a well defined triangular consolidation pattern and a clear breakout to the upside.  The breakout comes on relatively big volume with the MACD and RSI both turning higher.  There are NO guarantees but, this is a great looking chart.  We should expect the I fund to move higher from here.  IF it rolls over, a close below 62 would be a failure of this pattern.  If that happened, we would see other problems in the C and S funds…

Bottom Line: The market is over-extended BUT, the fresh breakout of the I fund indicates that there is still room for prices to move higher.  As always, there is market risk.  We are approaching the all-time high on the C and S funds.  We can see the churning that happened on the NASDAQ as it broke through to new highs.  Things are going to get very dicey as we go into September, back to school with CoVid, the election, etc…  IF YOU ARE RISK AVERSE, THERE IS NOTHING WRONG WITH MOVING TO THE G FUND AND WATCHING THE SHOW.  I’m expecting a very volatile Fall!

Definitely tune in to the Weekly Update Show!  We will be talking about all of this.  It’s much easier for me to explain on video than in writing…

Jerry