Good Evening,
A failed bounce? Now that has been a rarity for the past five years. It sure had the talking heads taking notice today. Three of the last four (can we use the word) “corrections” didn’t budge the major indices, and all the news commentators lauded how well the market was doing. Well, the pain was inflicted in the Dow and S&P 500, and that was the difference today! The major indices including the Nasdaq, which fared only a little better than the others, all dropped triple digits. With the exception of a few bond funds and the retail sector, not much on my screens were spared. Am I panicking? No. While the oil situation is the current excuse for the selling, the market was due for a pullback anyway and probably would have done so anyway. It is still my belief that this bout of selling is setting us up for a run into the new year. I’m not selling anything until my indicators say to sell. No anticipation here. That said, the hard indicators that I prefer use give up 1.5-3% before they will show a sell signal. That worked for years until all the cheap FED money started creating whipsaws. That forced us to use the softer indicators that we have in play right now, which will give up 2-4% before showing the exit signal. While it is difficult to watch the money I manage dip at all, it is a necessary evil of being in the trend to the end. I expect we will be able to switch back to our old set of indicators when some of this QE wears off, but it is doubtful that will take place as long as the interest rates remain at record lows. Also of note, the pattern of quick recoveries on shallow pullbacks in the 3-7% range is still in play as it has been the rule since 2009. Although the last pullback in October seemed a little more volatile, it still fell within this pattern, as approximately 16 pull backs before it did as well. The bottom line is that we must utilize our current set of indicators until this pattern is broken and that will mean giving up an extra 1-2% when the big one finally comes. As the old saying goes ‘That’s the price of doing business’. As most of you know I am not a fan of QE and I think that somewhere down the road we will pay a price for it. The day’s sell off resulted in our TSP allotment dropping back -1.47 % while the defensively minded AMP allocation fell back only -0.47%. It would be my most sincere desire that we never go through any valleys, but that is the nature of the market beast when it changes directions and if we are going to invest we must deal with it.
Crude slump slams stocks; safe-haven assets shine
The days action left us with the following signals: C-Neutral, S-Neutral (barely), I-Sell, F-Buy. We are currently invested at 80/C, 20/S, but are approaching sell signals in both funds if something doesn’t turn around soon. Our allocation is now -3.16% for the year not including today’s results. Here are the latest posted results:
| 12/12/14 | |||||
| Fund | G Fund | F Fund | C Fund | S Fund | I Fund |
| Price | 14.6013 | 16.8034 | 26.3973 | 34.8823 | 24.1017 |
| $ Change | 0.0008 | 0.0478 | -0.4342 | -0.4582 | -0.4413 |
| % Change day | +0.01% | +0.29% | -1.62% | -1.30% | -1.80% |
| % Change week | +0.04% | +0.73% | -3.47% | -3.07% | -4.20% |
| % Change month | +0.08% | +0.22% | -3.07% | -2.94% | -4.59% |
| % Change year | +2.20% | +6.75% | +10.56% | +3.60% | -5.72% |
| L INC | L 2020 | L 2030 | L 2040 | L 2050 | |
| Price | 17.3494 | 22.6106 | 24.4076 | 25.8869 | 14.6505 |
| $ Change | -0.0526 | -0.1849 | -0.2569 | -0.3133 | -0.2025 |
| % Change day | -0.30% | -0.81% | -1.04% | -1.20% | -1.36% |
| % Change week | -0.65% | -1.81% | -2.33% | -2.68% | -3.07% |
| % Change month | -0.62% | -1.75% | -2.27% | -2.61% | -2.98% |
| % Change year | +3.17% | +3.74% | +4.04% | +4.24% | +4.17% |
Here’s what the C Fund looked like today. (Chart courtesy of Stockcharts.com)
Price has now penetrated support at 2020. Next resistance is at around 1860. The only thing this chart needs to complete a total sell signal is for the 5 EMA, which is currently at 2031.71, to drop to the 50 EMA at 2020.21. If price remains below the 50 EMA and the other three indicators remain in negative territory, this sell signal will be generated. However, in the event that price reverses enough to bring the Williams %R out of negative territory (above -80) the sell signal will be avoided. That is the reason that we utilize the ultra-short WMS %R. It will give us every chance possible to avoid a whipsaw signal. For those of you who are new, by whipsaw, I am referring to a new signal reversing abruptly. As I mentioned yesterday, the S Fund is even closer to a sell signal than the C. It would be my expectation that without a price reversal in the next day or so that a sell signal will be generated by both Funds. We will see.
Based on what happened the past few years, I would not be surprised to see a price reversal on Monday and the above noted sell signals avoided. Even if the sell signals are generated, I would not be surprised to see yet another whipsaw. Nevertheless, I will rely on my indicators and not my emotions. Anytime you get a new signal in this FED fueled market, you run the risk of a reversal. If it happens, don’t be surprised; just be ready to react. That’s what we do. Keep praying! We need God’s guidance to navigate these difficult waters. Give Him all the praise! For He is worthy! That’s all for this week and thank God for that! Have a great weekend and I’ll see you for what will hopefully be a better week on Monday.
God bless,
Scott 
