Only 3 trading days ago, the S&P500 (C fund) was at a new All-Time high and up over 5% in 2020.  As of today’s close, the S&P500 stands at a loss of 0.15% year to date.  If you’ve been following the Sunday Update, these wild market swings should come as no surprise.  

We’ve been talking about the market being over-valued for months.  This  didn’t push us out of the stock funds, but did lead to the 10DMA being the critical guard-rail.  The “reason” for todays collapse (Coronavirus or other) is inconsequential.  Increased and ongoing market risk has been identified for several months.  

Last Friday, the market gapped down below the 10DMA at the open.  That morning site Members received an ALERT before I reallocated to 67% G fund, 33% F fund in my personal TSP account.  Anyone who acted on that ALERT saw their TSP account go up today…  If you were paying attention and allocating accordingly, you got most of the 2020 gains to date and absorbed little if any of its losses.  The BIG question is, “What do we do NOW?”..  Today is a new day!  Given today’s sell off, what’s the best allocation going forward?  First the short term, then the longer term view…

Short Term

Today’s sell-off was massive, taking us from the 10DMA to a close significantly below the 50DMA.  For some perspective, the S&P500 has not closed below its 50DMA since October 2019.  Not surprising, today’s volume was very high and the technical indicators rolled over hard…  In the short term, we need to see the S&P500 get back above its 50DMA to keep the rally alive.  Continued selling is a serious problem for the rally.

 

Long Term

In the long term, there are 2 possibilities; both are dependent on last Wednesday’s All-Time High.  

IF the Bullish Scenario below comes to pass, we will know it when 2 things happen.  First, heavy selling does NOT continue.  Second, the market rallies higher than Wednesday’s high.

IF the Bearish Scenario comes to pass, we will know it by continued selling down to the 200DMA and a rebound that does NOT exceed last Wednesday’s high.

Bottom Line:  NO ONE has a crystal ball!  Do NOT get sucked into the financial news pundits!  Watch closely over the next couple of days.  IF the selling stops, I expect to be back in the stock funds in early March.  IF the selling continues, I will not think about the stock funds until the S&P500 hits its 200DMA.

Those are the guard rails.  Make your reallocation decisions based on your personal risk tolerance…

Have a great week.  It’s getting very interesting!

Jerry