Good Evening, Selloffs are never pleasant and this one is particularly viscous. The reason given for the sell off is still rising interest rates and that is what got the ball rolling, but what has made the selling so rapid is the unwinding of the computer algorithms that have been driving this market for the past several years. The other factor is the unwinding of several risky trading instruments that the so called experts were using to outsmart the market. I think the market outsmarted them! The combination of these two factors has been devastating. The drop has been so fast that traders have not had time to react. Perhaps this is the new normal when there is a sell off. I sure hope not!! All that said, the end game is still the same. It is to avoid a bear market at all costs but at the same time avoid selling and getting caught in a whipsaw. We’ve often talked about how patterns in the market repeat themselves until they are broken. Well several have been broken here to be sure but there is one that has not. Not for over two years has a selloff driven the 5 EMA through the 200 EMA (Exponential Moving Average) on the chart for the S&P 500. Prior to 2008 before quantitative easing I used a set of indicators that sold a lot faster than the ones I use now. I was forced to change to the ones I am currently using to avoid being whipsawed by the many the V Shaped bounces that were occurring as a result of the artificial market stimulation. In simple terms what worked prior to 2008 no longer worked after that. Prior to that time when the market sold off in generally continued to move in the same direction for a longer duration and practically never made an instant reversal. After 2008 almost all the pullbacks lasted only a few days and reversed after moving down only 3-5%. That resulted in us losing a lot of money when we sold the downturn and where left behind. Suffice to say it didn’t take us long to develop a new set of indicators and that’s the ones that we’re still using today. So now that the pattern of shallow dips has been broken we can consider returning to our old indicators. You see, market corrections are terrible but they also present an awesome opportunity to short the market and make money when it moves back up. That used to be how we made most of our money prior to 2008. We outperformed all the major indices almost every year. Since then we’ve been forced to sell a lot less and our performance has not been as good. So in a way I am excited to see things get back to the status quo. Skilled technicians can make the most money when there is volatility in the market. So why not sell now? Not so fast,only half he pattern has been broken! We still have the machines and when they start buying they could still turn the market on a dime and head straight up just as fast as they came down. For that reason we must be careful until we see how the machines react to this correction. It wouldn’t be such a big deal if we’d been using the old indicators and sold a day or two ago but if we sell now and the market indeed reverses we could lose a lot of ground quickly. For that reason we must hang in there as long as we can. Hopefully the market will put in a bottom before we have to sell and we can get a good look at how the machines start the buying. With that in mind my game plan still remains the same. I will consider selling if the 5 EMA passes down through the 200 EMA and if the SCTR drops below 40. Should the SCTR drop below 40 before the 5 EMA crosses down through the 200 EMA I will make a decision whether to sell or not after reviewing several additional indicators. As I mentioned earlier. The one pattern yet to be broken is that a selloff has not driven the 5 EMA through the 200 EMA for a long time. The market character has definitely changed, but we must be careful to see exactly how it has changed. Remember, Panic is not a strategy! It will always lose you money!!!
The days selloff left us with the following results: Our TSP allocation dropped -3.75%. For comparison, the Dow lost -4.15%, the Nasdaq -3.90%, and the S&P 500 -3.75%. Owe, that hurt!
| 02/07/18 | Prior Prices | ||||
| Fund | G Fund | F Fund | C Fund | S Fund | I Fund |
| Price | 15.5799 | 17.7877 | 37.7731 | 47.9809 | 30.7414 |
| $ Change | 0.0012 | -0.0630 | -0.1905 | 0.0093 | -0.1410 |
| % Change day | +0.01% | -0.35% | -0.50% | +0.02% | -0.46% |
| % Change week | +0.04% | +0.00% | -2.91% | -2.51% | -3.83% |
| % Change month | +0.05% | -0.67% | -5.00% | -4.20% | -5.11% |
| % Change year | +0.25% | -1.81% | +0.43% | -1.00% | -0.37% |
| L INC | L 2020 | L 2030 | L 2040 | L 2050 | |
| Price | 19.571 | 26.91 | 30.7325 | 33.4573 | 19.3779 |
| $ Change | -0.0195 | -0.0442 | -0.0838 | -0.1059 | -0.0679 |
| % Change day | -0.10% | -0.16% | -0.27% | -0.32% | -0.35% |
| % Change week | -0.59% | -1.06% | -1.89% | -2.24% | -2.56% |
| % Change month | -0.99% | -1.74% | -3.04% | -3.59% | -4.07% |
| % Change year | +0.10% | +0.07% | -0.01% | -0.06% | -0.10% |
