Sunday Update: 19 January 2020

The rally continues with no end in sight.  There is absolutely no way to predict when this rally will come to an end but, we can make some observations that will help us manage the top when it gets here.  First, we are entering the 11th year of expansion (the longest in U.S. history).  Second, we have hit a clear 5 wave advance since 2009.  Once the top is in, the next significant trend will be down.  Finally, as can be seen in the 12 year monthly chart of the C fund below, the rate of price ascent has increased over the advance since 2009.  We are now at an angle that is absolutely unsustainable.  These kinds of blow-off tops tend to reverse as dramatically as they rose…  Having said that, the shape of the next consolidation/correction will be extremely important.  A shallow (sideways) consolidation will indicate that the overall rally is likely to continue.  A deep and fast correction will likely indicate an end to the rally that began in 2009.

It’s going to be very exciting to watch how this plays out!  In the meantime, for the week the C fund gained 1.97%, S fund gained 2.33%, I gained 1.34%, and the F fund gained 0.06%.

The C fund is getting over extended in the short run and needs to consolidate if its rally is to continue.  A consolidation  or correction is inevitable but, if the price finds support at its 50DMA, the longer rally would likely still be intact.  It’s about a 5% decline from the current price to the 50DMA.  Personally, I would not wait that long to exit the C fund.  I’m watching the 10DMA very closely…  

The S fund had a stronger week than the C fund.  Investors are buying small companies which is a very good sign for the strength of the rally in general. One indication of a potential top is when investors move money from risky tech companies (S fund) to more stable S&P500 companies (C fund).  

The I fund is progressing steadily upward along its 10DMA.  This is a very healthy chart as each move higher follows a sideways consolidation.

The F fund is close to completing a 4+ month bullish triangle consolidation.  Once complete, the I fund should move higher for the coming months. 

Bottom Line: There is both fear and excitement in the market.  In the short term, the market is very extended and is due for a pause.  The shape of that pause will be telling and set us up for the remainder of 2020.

Have a great week!

Jerry