This rally is over-extended by any measure.  The long and medium term chart pattern and wave count project an imminent top.  The technical indicators are all at extreme highs.  Even the Fear & Greed Index is at extremes.  There is NO “reason” for the market to continue higher.  However, the market does not need a reason…

The fact is, we are in a melt up.  It could turn out to be short lived like Q3 2017, or much longer like mid-1998 to mid-1999.  Bottom line, we won’t know the top until we see it in the rearview mirror.  

The question is, how do we position our TSP allocation to take advantage of any further melt up while protecting against extreme losses over a couple of days?  Ordinarily, there are 2 possibilities depending on your risk tolerance.  You could sit it out in the G fund and wait for the next correction before reallocating to the stock funds, or you could allocate a percentage to the stock funds and the remainder in the safety of the G fund.  Fortunately, the current market environment is giving us a 3rd and better option.

As you can see in the C fund chart below, the C fund price is running above its 10DMA.  This is a Line Chart, meaning the daily closing prices are connected together to make the price chart line.  Since it connects the daily closing prices, this chart does not show daily volatility; keeping us focused on what’s important.  I will maintain 20% allocation in each of the TSP stock funds as long as the C fund line chart stays above its 10DMA.  

In order to minimize the risk of a severe/fast crash, I will maintain 40% in the F fund.  Having had a great run from November 2018 to September 2019, the F fund has been in a triangle consolidation for the past 4 and 1/2 months.  It is primed to move higher at this point.  A great alternative to the G fund right now.  Additionally, if the stock funds experience a significant crash quickly, the F fund is not likely to be significantly affected.  

Bottom Line: Market risk is very high.  Having said that, there is no telling how high this market can go before correcting.  My fear is not the long term correction as we will reallocate out of stocks.  My concern is the initial few days of the next major correction, i.e. Jan 2018, Oct 2018 and Dec 2018.  

I am confident the ratio of 60% stock funds and 40% F fund maximizes potential gains while minimizes potential losses.  

Please post questions to comments or email.

Jerry