Current Allocation: 50% C Fund, 50% G 

Folks, this is a tough one…  I’ve been writing about the importance of closing above the 2400 level.  On Thursday this week, the S&P500 (C fund) did close above 2400.  My problem is, we didn’t see an explosive move up that would indicate a strong new up trend.  There is still room for some upside but, the potential gain does not outweigh the downside risk at this point.  When taking both the long and short term charts and indicators into consideration, I am not comfortable enough to be fully invested in the stock funds.  I am staying 50% C, 50% G for the time being.

I’m introducing a new indicator in this week’s charts called the Relative Strength Indicator (RSI).  The RSI is a very popular momentum indicator that measures the speed and change of price movements.  A reading of 70 or above indicates overbought while a reading of 30 or below indicates oversold.  This is an early indicator that helps identify tops and bottoms.  It’s just one of the tools in the tool box but, it definitely helps to assess risk…

Short Term

In the short term, the C fund is looking pretty strong.  The price chart broke above the 2400 ceiling on Thursday and maintained the gains on Friday.  The MACD and Divergence indicators turned positive this week, and the RSI still has some room to move up before indicating an overbought condition.  On the downside, volume was mostly decreasing throughout the week as prices rose.  This is not a good sign, although the upcoming Memorial Day holiday could have effected the volume.  In the short term (daily chart) we are likely to go higher from here.  

Long Term

The long term charts are not as optimistic.  The weekly chart broke out of consolidation closing above 2400 for the week.  The problem is that the breakout volume was very low, MACD/Divergence indicators are still negative, and the RSI is almost at overbought levels.  There is room for more upside but, we are getting very close to the end…  

The S fund has not broken out of its consolidation.  The MACD and Divergence indicators continue downward and the RSI is almost dead center.  A strong breakout above the 1225 level on the weekly chart would be an indication of continued upside in the S fund.

The I fund continues to crush the C and S funds but, the RSI shows it is now very overbought.  The I fund is due for a pull back.  It doesn’t mean a major correction necessarily but, a pull back of some sort is not far off…   

Very Long Term

The chart below shows the C fund from the bottom in 2009 to present.  The RSI shows that, on a monthly basis, the C fund has been overbought for some time.  The RSI is a leading or early indicator.  The C can still move up from here but we are very close to being on borrowed time.  As the price continues to rise from here, I will be looking for a long term top and the most effective time to move to 100% G fund.  We may or may not make it up to the 5 wave target. This is not an exact science.  Now is the time to pay attention and be very cautious.

Please post questions to comments and have a great Memorial Day weekend!

Jerry