Good Morning,
Yesterday was a busy day for me both personally and in the market. I took my car to a benefit show for cancer yesterday afternoon and got back late last night, so I am posting this morning. The market continued its seemingly endless plod upward on the back of a better than expected jobs report. Bonds showed another day of slight improvement, but still have a little way to go to repair recent damage. Lets take a look:
Stock market starts weekend off right
The week’s action left us with the following signals: C-Buy, S-Buy, I-Buy, F-Neutral. We are currently invested at 08/G, 92/F. I am aware of the fact that stocks are going up and the bond market has deteriorated somewhat and if stocks had truly corrected I would be prepared to embrace it. However, I still look at the charts for the overall market and find them extended with the cheap FED money drying up a little more each month. I have the experts telling me that the S&P 500 still has room to run in that as of last week it was 10% of its year 2000 highs when adjusted for inflation. By my Kentucky calculating we still have about 8% to run before we encounter that “inflation adjusted” resistance. We must also take into account the fact that the S&P and Dow never corrected as small caps did earlier this spring. One has only to look at the historical charts to see that the Dow and the S&P always eventually correct. So that leaves us with a question. Why not chase the market up another 8%??? Say the market does rise another 8% then corrects… Unless you are awfully lucky, you will lose a minimum of 5% before you can retreat to safety. As we all know too well, that loss can occur in a day or so before you can react. The truth be told, your personal fallback will probably be more in the 7% range. Ok. That’s good… We’re still making a profit of 3-5% right? Lets take a look at bonds, for us in TSP that means the F Fund. The F fund has gained 1.5% in the past three months. It has found resistance and is not losing any more ground at this point so we can assume that it will probably recover the recent 1% loss along with an additional 1.5%. That would be a gain in the next three months in the 2.5 -3% range. So when all is said and done, we would be sitting in about the same position as if we had been in stocks. The only thing is that there is a whole lot more room for error in bonds than there is in stocks. Let’s consider that the market does head down, say in September, and everyone realizes that the real correction is finally here. It’ll be like the WHO concert in which so many people were trampled to death heading to the exits. If that happens, the chance for a rapid drop is high. I would much rather be positioned in defensive bonds than trying to head to the “EXIT” in the equity market during such a rush. The bottom line is this: Do you think this market will correct? And if it does, how do you want to be positioned? If we all had a crystal ball and could predict the top, we would be in great shape. But no one can do that. And if they say they can, you’d better stay way from them. We are playing with retirement money not casino chips. There is a time to safely make money and a time when the risk is a little higher. For me personally, the risk level is too high for my liking at this time. The F fund chart is extended to the down side and could give us a sell signal sometime this week, but that is far from a done deal. For now, I will stay in bonds until I get that sell signal. If and when it comes, I will deal with it. I have laid it out for you plain and simple. There are two paths to take; you’ll just have to decide which one is right for you.
Our allocation is now -3.10% on the year. Here are the latest posted results:
| 06/06/14 | |||||
| Fund | G Fund | F Fund | C Fund | S Fund | I Fund |
| Price | 14.4326 | 16.3229 | 25.4208 | 35.0596 | 26.8382 |
| $ Change | 0.0008 | -0.0074 | 0.1207 | 0.2417 | 0.1608 |
| % Change day | +0.01% | -0.05% | +0.48% | +0.69% | +0.60% |
| % Change week | +0.04% | -0.51% | +1.40% | +2.40% | +0.91% |
| % Change month | +0.04% | -0.51% | +1.40% | +2.40% | +0.91% |
| % Change year | +1.02% | +3.69% | +6.47% | +4.13% | +4.98% |
| L INC | L 2020 | L 2030 | L 2040 | L 2050 | |
| Price | 17.1801 | 22.592 | 24.4704 | 26.0122 | 14.7874 |
| $ Change | 0.0189 | 0.0646 | 0.0896 | 0.1103 | 0.0711 |
| % Change day | +0.11% | +0.29% | +0.37% | +0.43% | +0.48% |
| % Change week | +0.28% | +0.73% | +0.94% | +1.11% | +1.25% |
| % Change month | +0.28% | +0.73% | +0.94% | +1.11% | +1.25% |
| % Change year | +2.16% | +3.65% | +4.31% | +4.74% | +5.15% |
Here’s the latest chart talk:
Thanks go out to StockCharts.com for all the charts we post in our messages.
The follow-through on yesterday’s breakout was impressive as price gapped up. For the breakout to be considered ‘decisive’, we need it to move up 3% from the point of the breakout. That would put price around 199, certainly achievable, but will require serious propulsion from a market that has been running on very low volume. I’ve annotated the area of overbought readings for the PMO. It is just now entering that territory.
Notice on the weekly chart that price hit right on overhead resistance at the top of the rising trend channel today. The weekly PMO has reached its EMA, because the values are equal, we don’t know if this was a positive crossover this week. Price hitting the top of the channel is important, The rally may find it too difficult to breakout from this intermediate-term resistance.
Bonds:
TLT recovered and moved back up and into the rising trend channel. The PMO has me believing that this will not continue because momentum is so negative right now, but we’ve seen similar areas of negative momentum where price turned itself around and continued back to the top of the trend channel.
The weekly chart shows that price has moved back below the declining tops line which takes the shine of off last week’s breakout. The PMO still looks positive and has lots of room to move higher before becoming overbought.
Conclusion:
Today saw price follow-through on yesterday’s breakout which is very positive. Given overbought ultra-short-term indicators, we could see a pullback early next week to the point of the breakout. Short- and intermediate-term indicators convey market strength, so once the digestion or pullback concludes, the rally should continue resume.
That’s all for this morning. Have a nice weekend. Get out of the house and have some fun and don’t forget to give thanks to our Lord and Savior Jesus Christ for all His provision.
God bless,
Scott
