Sunday Update: 09 April 2017
Current Allocation: 50% C Fund, 50% G Fund
It was an amazingly quiet week on the stock market given Thursday’s missile strike on Syria, the terrorist attack in Sweden, and President Trump’s hosting of the Chinese President, Xi Jinping, in Mar-A-Lago, FL. I point this out because conventional wisdom is that events drive the stock market. Media outlets always explain daily ups and downs in the market based on current events. Current events could be anything from military hostilities and terrorist events like we saw this week, or earnings reports, Federal Reserve meetings, etc. While events can drive big price swings in the futures market, events generally do not effect the trend of the market. If anything, the market leads the news. This is not an intuitive concept but it does play out if you watch the news and the big index charts (Dow Jones Industrial Average, S&P500, NASDAQ Composite Index) closely…
We are at a critical juncture for the markets. As you can see below, the S&P500 (C Fund) consolidated at the 50DMA (Day Moving Average) this week. The C Fund currently sits 1.9% below the all time high at 2400 and 5.7% above the 200DMA. The 50DMA is one of the most utilized technical analysis tools. Because the 50DMA is so widely utilized, a strong break down or up from here will be significant, likely confirming a new short term trend. The potential opportunity cost here is 1.9% but the likely risk is 5.7%. A big move up next week will likely put us back to 100% stock funds while a big down move will put us to 100% G fund. Either way, an alert is very likely next week so stay tuned…
The long term charts are looking very toppy at this point. The 2 year weekly chart of the S&P500 (C Fund) currently sits 6.6% above the 50WMA (Week Moving Average) and only 1.9% below the all time high of 2400. There is much more risk to the downside right now than potential gain to the up side. A weekly close below 2325 will confirm a new down trend.
The S fund is moving almost in lock-step with the C fund. The charts look very similar but the indicators on the S fund have already turned negative. A close below 1160 would confirm a down trend.
The I fund has hit some resistance at the upper channel line. It is possible that we could see some consolidation and then a break up but the odds are against that. If the C and S continue to roll over, the I is likely to follow.
This coming week is likely to be significant. Please be watching for an Alert! Post any questions to comments and have a great week!