Current Allocations: 50% C Fund, 50% G Fund
It was another low volume, lazy week for the stock market with the S&P500 (C fund) gaining 0.5%. While the market drifts higher, we’re looking for a short term top followed by several months of consolidation before a final run up thru the end of 2017. The timeline isn’t as important as the look of the chart. We still have more room for prices to move a bit higher from here before a final short term high is in place. The longer prices trickle higher, the more likely we won’t see a long term high until sometime in early 2018. Regardless of the actual timing, we have a pretty good road map of what will happen over the next 6 months. (See last weekend’s post for these details).
In the short run, the market still has some room to move higher within the price channel below. The RSI is a leading indicator and is just approaching over bought levels. MACD/Divergence look to be topping out so I would not expect to see prices get significantly higher from here (2500 maybe..).
On a weekly basis, the S&P500 (C fund) is just getting into overbought levels. As you can see from the RSI indicator in the chart below, prices can continue higher for some time while overbought. In February 2017, prices continued to rise as the RSI maintained an overbought level for almost 6 weeks before turning down followed by 6 weeks of price decline. Once the consolidation process begins, we would expect it to last several months and take us down to the 2350 area.
The S fund chart below seems to be lagging the C fund a bit. The price chart is not as extended and the RSI has not yet hit overbought levels. We could see the S continue to rise as the C levels off and begins to consolidate over the next few months.
The I fund has been overbought for the past several months and is traditionally more volatile than the C fund. When the I fund rolls over, we could see a more significant correction than we expect to see in the C or S funds.
For the time being, it’s steady as she goes… The summer and early fall are historically times of the year when we see significant market declines and this year is likely to be no different. Please stay alert!
Have a great week!