Folks, we are in a Melt Up.  It could be just the beginning, the middle or the end.  There is no way to know how high the market will go near term but, melt ups generally end badly (i.e. Dec 2017-Jan2018)…  For the week the C fund was up 1.65%, S fund up 2.16%, and the I fund up 0.43%.

This week we will look at the long term, medium term, short term and very short term perspectives.  The goal is to set some guides to help us make reallocation decisions.  We want to get all the gains the market will give us, THEN seek cover in the G fund.

Long Term

We have been talking about 2 possibilities for the long term direction of the market since the 05 May Sunday Update.  At this point, odds are very high that Possibility B is playing out.  This is great news for the 2020 market!  IF Possibility B plays out, the Medium Term chart below is what early 2020 COULD look like…    

Medium Term

The 3 year weekly chart of the C fund below shows the upper channel line acting as a ceiling from Jan 2018 thru October 2019.  The price finally closed above the channel line in early November, briefly tested the line in early December, and has moved higher ever since.  A new medium term pattern is taking shape and it looks great for near term stock prices.

Short Term

All 3 TSP stock fund charts below are very similar.  Beginning at the December 2018 low, all 3 funds made very strong gains during the first three to four months of 2019.  After that, all 3 funds developed a consolidation pattern that lasted until the early October breakout.  Since early October, prices have moved higher with very little interruption.  All 3 funds are at or near all-time highs with the ascent angle steepening as prices move higher.  In the short term, this angle is becoming unsustainable…  

In the Very Short Term section below, we will look at some ideas on how to play this steeply ascending market to maximize gains with defined downside risk.

Very Short Term

As you can see in the 3 month chart of the C fund below, the 10DMA is an excellent short term guide.  GENERALLY, when the price breaks below the 10DMA, it continues lower and the moving average line acts as a ceiling.  Once the price breaks thru the 10DMA to the upside, GENERALLY, the price moves higher and the moving average line becomes a floor.  The same principle can be applied to the 50DMA or the 200DMA.  The only difference is how frequently you want to trade and how high the price is above or below the moving average line.  Right now the price of the C fund is 1.5% above its 10DMA.  This is your current risk.  If you plan to reallocate out of the C fund on a close below the 10DMA, then you are accepting a 1.5+% downside risk.  That’s not bad given the 12% gain on the C fund since the early October low.

Bottom Line: We are PROBABLY in the middle of wave 5 of the rally that began at the 2009 low of 666 on the S&P500 (C Fund).  The 5th wave is always tricky.  While 5th waves USUALLY progress in 5 smaller waves, it is NOT necessary!  The only requirement for a complete 5th wave is that the price exceeds the prior wave 3.  WE HAVE ALREADY MET THAT REQUIREMENT!

When wave 5 completes, the fall will be swift and drastic.  We could see some very big gains over the next few months BUT, once the top is in, the next long term move is down drastically…  Now is ABSOLUTELY NOT the time to be complacent.  Watch that 10DMA closely.  

Have a great week and a Very Merry Christmas!

Jerry


The Sunday Updates are designed to provide all the tools necessary for you to make your own TSP reallocation decisions.  If you want to validate those decisions, or just follow along with the moves I make in my personal TSP account, sign-up to be a Member of the Site here.  At $120 per year or $12 per month, it’s a NO-BRAINER.