It was another great week for the TSP stock funds. After closing solidly below the 10DMA (Day Moving Average) on Monday, the market reversed and finished the week at new all-time highs! For the week the C fund was up 1.25%, S fund up a whopping 3.69%, I fund up 1.66%, and F fund down 0.10.

If you’re following along with our allocations, you moved to the G fund effective the closing price on Tuesday. Because prices have continued higher throughout the week, many have been asking what would get us back into the stock funds. I’m going to answer that question toward the end of this post, in the Short Term section. First, let’s get a broader perspective…

Long Term

Below is a 15 year monthly chart of the S&P500 (C fund) with Elliott Wave pattern numbered. The pattern is very clear. We are in the 5th leg of the rally that began at the low in 2009. There is no way to know how high this 5th leg can go but, we are clearly closer to the top of the major rally than the bottom… Again, this is a LONG TERM perspective. It’s important to keep in mind but, it’s not the timeframe we use to make reallocation decisions.

Medium Term

To make reallocation decisions, we need to focus in on the 5th leg itself. The C fund chart below shows the larger 5th leg playing out in 5 sub-legs. If this Elliott Wave count is correct, the market should continue higher toward the top of the channel (III). This is the chart we are using right now for our “Dead Reckoning” as we described in last week’s Weekly Update Show. The upper and lower channel lines are our “left and right limits”. They are guidelines only! Price frequently shoots over or under these channel lines over time. For now we are in the center of the channel. Price is trending higher along the 10DMA, and a newly available trend line that we will discuss on the next chart.

Short Term

The 6 month chart of the C fund below is one tool we use to make day-of reallocation decisions. The short term trend line connects the low in November with this Monday’s low. We now have both the 10DMA and a trend line to provide support for price. As long as price remains above both the 10DMA and the trend line, we want to be in the stock funds. Friday’s price action is also important to observe. At 3:00PM on Friday afternoon, price was sitting on its 10DMA. If the market had closed at that price level, it would have been bearish. By the close at 4:00PM, price had reversed and recovered most of the day’s losses. This is a very BULLISH move.

The S fund continues its relentless drive higher! We have no way of knowing how high the S fund can go before correcting. However, the S fund price is currently 11.5% above its 50DMA. The next correction is likely to take price down to the 50DMA. I would not want to sustain that kind of loss in my TSP account… While there is no reason to sell the S fund at this point, I would certainly be selling on a close below its 10DMA.

The I fund took the biggest hit on Friday. Ideally, we want to see the I fund supported at its 10DMA (approximately 72). A close below 71 would be a serious problem…

PS. There is market lore known as the “Santa Clause Rally”. We will be discussing this phenomenon in detail on the Weekly Update Show next week. I’m giving you a preview here because it will impact my decision process this weekend. Here are the facts. First, December is a positive month 3 out of every 4 years. Second, the last 5 trading days of December and the first 2 trading days of January are the most profitable historically.

Bottom Line: Be looking for an Alert early Monday morning. Barring a major price collapse in the first hour of trading, I will be reallocating to 40%C, 30%S, 30%G. The S fund is just too over extended for my risk tolerance…

Have a great week and Merry Christmas!