Sunday Update: 16 October 2016

Sunday Update: 100% G Fund

I have been 100% G fund since 12 September.  The market is a bit lower now than it was when I got into the G fund so, I’m in a better position to realize gains when getting back into the stock funds.  That’s great but, the real beauty of being in the G fund in September/October is avoiding market risk.  September and October are historically 2 of the most volatile months of the year.  The price chart can swing greatly in either direction.  We are also very likely in the 5th and final leg up of the bull rally that began at the low of 2009.  We are due for a significant correction.  I don’t know when it’ll happen but, we are due…

Having said that, there are a ton of contrarian indicators that imply we could go much higher from here.  The chart below is the S&P500 (C Fund) from 1986 to present.  Following the crash in October 1987, we saw a 6 year run up before a year long consolidation in 1994.  The economy was in recession and the prevailing wisdom was that the market was at a long term top and prime for a major correction.  In fact, the opposite happened.  The market exploded upward, gaining almost 400% over the next 5 years!  Similarly, we had a big run up from 2009 to 2015 and have been in consolidation since.  The current prevailing wisdom is that we are at a major top.  No one knows what will happen going forward but, we are likely at a significant inflection point.  If we are at a long term top, I will ride it down in the G fund.  If we break to the upside, I will be back in the stock funds.  The important thing is to see where we are, know the possibilities, and have a plan…

Short Term

The market gave back some gains this week but we are still mostly just trudging along.  Significantly, Thursday’s intra-day low cut below 2120 which was the prior low back in September.  This is not a good technical sign.  Additionally, the 50DMA line is rolling over.  As the 50DMA rolls over and continues to act as resistance, the price chart will continue to trend lower.  A close below 2120 would indicate significant weakness in the short term.

Long Term

All 3 stock funds dropped down to test the September lows and all finished below the mid-point of their weekly price range; not a good technical sign.  The Slow Stochastic for all 3 stock funds is at the 50 line and rolling over.  We want to see the Slow Stochastic get solidly below 25 before thinking about getting back into the stock funds.  Below 25 is an early indication of an over sold condition.  This is the time we start looking for a bottom and a possible entry point back into the stock funds.  All we can do right now is sit back and watch it play out…

2 Weeks remain in October.  Stand by to stand by…

Have a great week.

Jerry