Good Evening,
The market managed another day of small gains with the S&P closing at a new record. One thing I noticed was a rotation of capital into the larger cap more conservative/safer names ahead of Janet Yellen’s speech tomorrow. What speech is that you say? Janet Yellen, Chairman (or should I say Chairperson) of the Federal Reserve will be addressing the annual gathering of all economics people in Jackson Hole, Wyoming tomorrow morning at 10:00 AM EST. This speech is one of the single most important speeches that the FED Chairmen make all year. I would describe it as the “State of the Economy Address”. It is generally used as a platform to make any big FED announcements. For instance, Ben Bernanke, the former FED Chairman, announced the quantitative easing program there in 2009. This speech is always a market mover and promises to be so this year as well. Traders will be watching closely for any hints of when interest rates will be increased. My thought is that the more they talk about a rate increase and the sooner the talk is about putting one in place the more negatively the market will be impacted. That will effect bonds as well since increased interest rates cause the yields of bonds to rise and as bond yields rise, prices go down. So what she says can have a drastic effect on the market. Two things worth noting here: 1. Janet Yellen’s message so far has been that the FED will be very accommodating and are not make rate increase until well into 2015, and 2. It seems that everybody and his brother is expecting an eventual rate increase. So is any of this consideration priced into the market. In other words, if Janet Yellen talks about a rate increase, how much, if any of it, will the market shrug off??? That’s the million dollar question. All that said, my expectation is that she will pretty much continue with the same message and barring any big surprises, her speech will not have a negative effect on stocks and bonds. If there is a dip, I don’t expect it to be long in duration. One word of CAUTION though, as we get closer to the new year: Take the interest rate talk seriously, very seriously!
Our results were positive again today for TSP as we tacked on another +0.164% and AMP also returned to its winning ways with a gain of +0.178%. As I mentioned earlier, AMP is invested defensively, so it will be a little choppy while stocks are so strong. The goal with it is to preserve the nice gain that is already in place. The time to add to that gain will be when stocks head back down. That will be the time when the TSP allotment will look to the G and F funds for safety. Once that cycle is over, both programs will look to re-enter the equity market provided that the next correction is of any substance. As long as the market remains this extended, we will play it as safe as we can. I have already pointed out the difference in investments and why we are in the equity market in one program and not the other. You can refer to our newsletter posted a few days back for that information. Now on to the news….
How the Dow Jones Industrial Average Did Thursday
Stocks move higher; S&P 500 at record high
The day’s trading left us with the following signals: C-Buy, S-Buy, I-Neutral, F-Buy. We are currently invested at 40/C, 60/S. Our allocation is now -4.16% on the year, not including today’s results. Here are the latest posted results:
| 08/20/14 | |||||
| Fund | G Fund | F Fund | C Fund | S Fund | I Fund |
| Price | 14.5005 | 16.4943 | 26.0119 | 35.4474 | 26.1532 |
| $ Change | 0.0009 | -0.0137 | 0.0661 | 0.0087 | -0.0563 |
| % Change day | +0.01% | -0.08% | +0.25% | +0.02% | -0.21% |
| % Change week | +0.03% | -0.36% | +1.64% | +1.67% | +0.84% |
| % Change month | +0.13% | +0.58% | +3.07% | +3.66% | -0.69% |
| % Change year | +1.49% | +4.78% | +8.95% | +5.28% | +2.30% |
| L INC | L 2020 | L 2030 | L 2040 | L 2050 | |
| Price | 17.2837 | 22.731 | 24.6289 | 26.1876 | 14.8797 |
| $ Change | 0.0035 | 0.0087 | 0.0115 | 0.0138 | 0.0083 |
| % Change day | +0.02% | +0.04% | +0.05% | +0.05% | +0.06% |
| % Change week | +0.29% | +0.72% | +0.92% | +1.07% | +1.21% |
| % Change month | +0.57% | +1.13% | +1.44% | +1.67% | +1.82% |
| % Change year | +2.78% | +4.29% | +4.99% | +5.45% | +5.80% |
Here’s what the C Fund looked like today. All charts courtesy of Stockcharts.com
I may have been a little off, but once redrawn, I discovered that not only was the ascent parabolic, but it was also forming a bearish wedge. This pattern is considered bearish and normally breaks to the downside. There are rare occasions when it does not. However, taking into consideration the parabolic nature of the rise, it is extremely likely that this pattern will break down. I stick with my earlier analysis that there will be a dip some time close to or after Labor Day. I do not see this pattern breaking up. The PMO continues to look bullish and is breaking away nicely from its 20 EMA. The MAC D and Williams % R are getting a bit extended but can support a little more upside.
The bottom line is, if you’re in the C and/or S Funds then stay in and enjoy the ride. If you are not, then don’t chase. If you do, you are unlikely to make enough to cover what you will lose before you can get out. That’s all for tonight. God is blessing our group so be sure to give Him thanks and praise. May He continue to bless your trades! Have a nice evening.
God bless,
Scott
