IF you have not read this week’s Weekly Update, please read that first.  It lays out the current general market conditions and does a deeper dive into the Fear & Greed Index.  The market had a huge week and we have made some significant gains since the 12 August Alert to 100% stock funds.  Since Rule # 1 is Don’t Lose Money, I’m taking some money off the table for the following reasons:

  • The Fear & Greed Index is presently at an Extreme Greed level.  While the index can move higher, a reading of 80 generally corresponds to market tops.  This does NOT mean that the market will roll over.  We could see a consolidation similar to 2019, or we could see a serious correction like early 2020…

  • The C fund is almost 7% above its 10WMA (Week Moving Average).  We have not seen the C fund this extended since May 2020.  IF the market corrects down to the 10WMA, we will take a 7% hit before possible support.  This is too much of a loss for MY PERSONAL RISK TOLERANCE.  If the C fund consolidates sideways, giving the 10WMA a chance to catch up, that could be an opportunity to increase my position in the stock funds.  Ideally we would see a sideways consolidation, on low volume, down to the 10WMA at around 3300 or 3400.  This would be the best set-up for prices to move higher.  

  • Finally, this Alert will take effect on 31 August.  This is a tactical decision with respect to the TSP rules.  We will still have 2 reallocation opportunities for the month of September if necessary.

Bottom Line: I’m not calling for a top here.  The current trend is definitely up.  What I am doing is decreasing my risk exposure / managing downside risk.  Taking into consideration how far prices have come since the March lows, the Extreme reading on the Fear & Greed Index, the amount we are extended beyond the 10DMA, and MY personal risk tolerance, I am very comfortable with this new allocation.

As always, this is NOT a recommendation.  This is the allocation that works for my personal risk tolerance and observation of the market.  Feel free to follow along, give it another day, or disregard completely…

This level on the Fear and Greed Index is yet another example of how disassociated the stock market is from the underlying economy, CoVid, and election risks.  Stay Alert…

Jerry