Wow!  It’s been a heck of an October for the market and we’re not even 2 weeks into it…  This post is an update to give everyone an understanding of where we are and my strategy for going forward.  I have to reiterate, this post is not intended as personal advice for anyone who is subscribed to this service.  We all have different circumstances and risk tolerances.  You need to make your own decisions with regard to reallocations.  I’m passing along what I am doing in my personal TSP account.  

My allocation was 75% S fund, 25% G fund from 21 August thru the close on 9 October.  On 9 October I reallocated to 50% S fund, 50% I fund.  This was a very tactical move in anticipation of seeing support at the 2 year trend line on the S fund and the lower channel line on the I fund.  As of today, both of those support levels were violated.  

Here’s the strategic issue.  These levels, having been support in the past, SHOULD act as resistance going forward.  This means that when prices reverse and move higher, it will be difficult to break thru these levels.  Ideally I would reallocate the the G fund when these long term support levels are violated.  I am not moving to the G fund yet due to the tactical issue below.

Here’s the tactical issue.  Having completed one reallocation in October into the stock funds, I have one remaining reallocation until the beginning of November.  If I reallocate to the G fund now and the market recovers, I cannot get those gains.  The market has been going down almost daily for the past 2 weeks.  It is very over sold in the short term and due for a recovery rally.  I intend to allow for that recovery rally before possibly reallocating to the G fund.

When you look at the S and I fund charts above, the technical indicators tell the story.  In each chart, the technical indicators are at levels where recovery rallies have taken place each time over the past 3 years.  I expect the recovery rally to take prices back up to the resistance lines.  When the indicators show over bought levels during the recovery rally, that will be the point to make reallocation decisions.  Ideally that will happen by the end of October.  

The market has basically fallen off a cliff during the past 2 weeks.  As we know, the market does not move in a straight line (either up or down)!  Because we have seen a structural breakdown, it is possible that a long term down pattern will emerge.  This would take several months to form with many opportunities to reallocate to the G fund if necessary.  Now is not the time to run for the exit…

The beauty of technical analysis is that it takes away the emotion of investing.  I would suggest that you watch the charts closely with a focus on the indicators, and the 50DMA and 200DMA.  I would NOT focus on the dollar value of your account.  A recovery rally will provide an opportunity to reallocate to the G fund at a much more favorable level IF necessary.

Please post questions to comments.

Jerry