It was a wild day for the TSP stock funds! These are the days when understanding the big picture really matters…. As we explained in the Weekly Update Show on Sunday, the market is in the 5th and final leg of the rally that began back in 2009. 5th legs tend to be extremely volatile and today was a great example of that! I know lots of you were expecting an Alert this morning. I’m going to lay out my thoughts as the day progressed, why I decided NOT to reallocate to the G fund, and what we are looking for going forward.

An Agonizing Morning

Monday closed with the C and S funds just slightly below their respective 10DMA lines and the I fund just above its 10DMA line. If you were extremely risk averse, this would have been a reasonable sign to move to the safety of the G fund. Since any move after the close on Monday would give us Tuesday’s closing price, I decided to wait and see what the market did this morning before making a final reallocation decision. The futures were down sharply and the C and S funds both gapped down at the open. As I watched, my stomach dropped to see price plummet before finding support at the 50DMA. By 10:15AM I had made the decision NOT to reallocate to the G fund based on the chart below.

The C fund has been rolling over for several days on relatively low volume. This morning the C fund gapped down, hit the 50DMA and began an immediate reversal. When I combined these two facts with my current Elliott Wave count and bullish bias, I decided to maintain my position in the C and S funds. Additionally, I only have 1 reallocation remaining for February. If I used that reallocation today, I would lock in losses and miss any potential gains for the remainder of the month. The decision process was agonizing but, the day worked out in my favor…

With a little help from a statement made by the Chairman of the Federal Reserve this afternoon, the market continued its reversal throughout the day and the C fund actually finished positive for the day. What we are left with is a huge positive reversal day, with bigger volume than the previous day, and a close just below the 10DMA.

We are not out of the woods yet! We need the C fund to get back above its 10DMA but, today’s shakeout should clear the way for price to continue higher. As you can see in the chart below, we are still well within the channel of how we expect this 5th leg to play out.

With today’s reversal following support at the 50DMA our current up-trend remains intact. We still have higher highs and higher lows but, any further downward pressure could set us up for a significant topping pattern. If this happens we will see it in the chart over the next several days.

In the big picture, we are approaching a SIGNIFICANT long term top. This will be the top of the rally that began at the low in 2009! My reading of the chart is that the top in not YET in place. Having said that, there is nothing wrong with taking some money off the table if you are risk averse or do not like the volatility.

Have a great week!