Current Allocations: 50% C Fund, 50% G Fund
The market finished flat for the week but, Thursday and Friday MAY be the beginning of the end for a while… We’ll take a look at the significance of Thursday and Friday on the 6 Month Daily chart later in the post. First, let’s take a look at a 3 year daily chart of the S&P500 (C Fund) to get an idea of how overextended this current rally really is.
The market has been rising steadily since the early July bounce. At this point we are pretty extended above the 50DMA. A move down to this level is likely imminent. What we really want to see is a correction down to the 200DMA that will set us up for a run to new highs later this year and into early 2018.
We’re currently sitting 1.5% above the 50DMA. With the current allocation of 50% C / 50% G, we can comfortably absorb this move down. However, we are just over 6% above the 200DMA. I do not want to ride the market down to that level. Let’s look at the short term chart next and see what could generate the next ALERT.
We saw a pretty strong down day last Thursday before the market pulled back, finishing slightly down for the day. Importantly, Friday did not recover Thursday’s losses. The RSI, a leading indicator, has turned down and the MACD/Stochastic looks to be rolling over as well. One more strong down day, or a close below the 50DMA, will likely generate the next ALERT. This could be a pivotal week so, stay tuned…
The 2 year weekly chart below gives us a perspective that is a bit different than the daily chart. The MACD/Stochastic have been flat to down for the past 3 months even as the price chart has continued higher. Importantly, the RSI is now at elevated levels. This is a key indicator to watch over the next couple of weeks. When this indicator turns negative you will see the price chart come down along with the MACD and Stochastic.
The S fund weekly chart is similar to the C fund but we did see a weekly reversal on the S. If you look back in time in the chart below, each time you see a weekly reversal the market rolls over.
The I fund price chart is still powering higher but on light volume. Additionally, the RSI has been at elevated levels for the past few month. Once the RSI breaks down, the top will be in for the I fund.
The summer months can be very tough. The market can continue to dribble higher but I am clearly anticipating an imminent correction. We really need a relatively shallow, short term correction to set us up for new highs later in the year. This could be the week so, please be watching for a potential ALERT.
Have a great week!