Memorial Weekend Update

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Status:

F-Fund / AGG:  sustained up trend
I-Fund / EFA:  avoid
C-Fund/ SPY:  avoid
S-Fund / VXF: avoid

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Last week I informed you of my decision to move some monies LONG out of the G-Fund / cash, simply because the market had fallen.

Here, at 1-week plus, are the actual allocations in my TSP are as follows:

• G-Fund: 73.78%
• F-Fund: 0%
• C-Fund: 9.98%
• S-Fund: 14.25%
• I-Fund: 1.99%

To save you from looking back, the target allocations are:

• G-Fund: 74%
• F-Fund: 0%
• C-Fund: 10%
• S-Fund: 14%
• I-Fund: 2%

Not that one week makes a success, but we do have significant gains in the S-Fund, relative to the losses in the other funds, so I'm pleased.

I intend to keep this allocation for now.  Let's run down the ETF equivalents of these funds:

AGG / F-Fund

Overall, the AGG / F-Fund looks relatively strong.  Here's the chart (as with all my charts, click on the image for a larger view):

Focus on the lines in the "65d EMA Slope" window.  This graph is constructed by:

1. Take the 65d EMA of the price series
2. Take the slope of this 65d EMA 
3. Smooth the slopes using a 2d EMA (red), 8d (blue), 13d (green), 21d (black), and 34d (purple)

Here's what I'm looking for as a continuation of the trend:

• All the trend lines are pointing upward.  This is true for all but the 2d & 8d.  The 2d is showing a bit of a pullback, which is okay as long as it remains above the 34d EMA, and the 8d just started trending downward, showing some short-term weakness.  I'm not in the F-Fund/AGG, but if I were, I would not be overly concerned at the present time.  This is a strong up-trend.
• All the EMAs are positive.  This *is* the case and indicates that for *all* the EMAs, prices are appreciating for AGG

If you take a look at the lower pane which contains the price series, you'll see the 50d MA (blue) and the 200d MA (red).  

• Both are in an uptrend (e.g., sloped upwards -- bullish)
• The 50d > 200d -- bullish

Given the data that we see here, we can only conclude that AGG is bullish and there is no reason not to hold this fund / ETF.

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C-Fund / SPY

The graphic above shows the ETF SPY, which is a proxy for the C-Fund.  We're seeing very new bullish behavior in the 2d and 8d 65d slopes, but overall, we are in a significant downtrend on the SPY and aside from our target 10% position due to a 10% pullback (coincidence that these values are the same), we should avoid this equity.

Note that the 50d MA (blue) is in a downtrend, and that the prices are trading below their 200d MA.  Both of these latter indications are intermediate-term bearish.

I also note that with the exception of the 34d EMA of the slope line, all the other slope EMAs are well below 0, which is very bearish.

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S-Fund / VXF



















The 65d slope lines look very close to the SPY and the conclusions are equivalent -- VXF / S-Fund, except for our l4% target, should be avoided.

I note that the 50d MA is also pointing downward, which is bearish.

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I-Fund / EFA

EFA / I-Fund is very weak on numerous fronts:

• the 50d MA (blue) is in a downtrend
• the 200d MA (red) just started a downtrend
• all the 65d MAs are less than 0 and with the exception of the 8d, are all heading lower

I am avoiding the I-Fund except for the 2% position that I have at the present time.

I note that the high on 4/14, coupled with the low on 5/25, saw the EFA with a -21% change.  IF we see any weakness in EFA I will add to the 2% position in EFA / I-Fund from the G-Fund, and perhaps will perform a rebalance.  Stay tuned.

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Remember, you are responsible for your own trading decisions.  Please do your homework.

Regards,

pgd

Allocation Change to Portfolio

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I've been doing some testing with the ETFs that correspond to the Funds of this portfolio, and there is a significant performance gain if we scale into the drop of the overall markets.  This is because instead of waiting for the LONG signal to be generated, we will be purchasing shares at increasingly cheaper prices, ensuring that we participate in a reversal, when it occurs.

THIS METHOD RELIES ON YOUR BELIEF THAT OVER THE LONG TERM, MARKETS WILL RECOVER AND MOVE HIGHER.

Here are the rules that I am playing with:

1. If ETF has a LONG recommendation, invest according to the last calculated allocation.  For example, AGG / F-Fund is presently considered a LONG, hence for the 4-ETF/fund portfolio, your allocation would be 48%.
2. If the ETF has a CASH recommendation, AND
3. If the ETF has fallen 0 - 10%, then DO NOTHING (keep funds in cash),
   
4. ELSE IF the ETF has a CASH recommendation, AND
5. If the ETF has fallen -10% or less (e.g., more negative), the transfer from cash 2x the amount from the most recent high to the present low, in terms of percentage decrease.
   
   For example, the EFA / I-Fund has fallen about 19%, hence the scale amount is 2x19% = 38%.  Because the recommended allocation of EFA is 3% for the 4-ETF/fund portfolio, and 6% for the 3-ETF/fund portfolio, you would transfer 38%*3% = ~1% and 38%*6% = ~2%.
   
   The SPY/C-Fund has fallen about -11.5%, hence the scale amount is 23%.  The recommended allocation for SPY is 23% for the 4-ETF/fund portfolio, and 44% for the 3-ETF/fund portfolio, you would transfer 23%*23% = ~5% and 23%*44% = ~10%.
   
   The VXF/S-Fund has fallen about -14%, hence the scale amount is 28%.  The recommended allocation for VXF is 26% for the 4-ETF/fund portfolio, and 50% for the 3-ETF/fund portfolio, you would transfer 28%*26% = ~7% and 28%*50% = ~14%.
   
6. If the ETF has a CASH recommendation, AND
7. If the market continues to decline after Step 5 is performed, for every -10% decline in the market, reallocate at the next scale amount.
   
   For example, the VXF has fallen about -14% to date.  When it falls -20% total decline, we would ensure that a 40% scale of the present allocated amount (26% if using today's recommended allocation for the 4-ETF/fund portfolio, e.g. 40%*26% = 10%, and 50% if using today's recommended allocation for the 3-ETF/fund portfolio, e.g. 40%*50% = 20%).
   
8. Continue steps 6 and 7 as the market moves down.  After the market transitions to a 50% loss, you will be 100% invested (no monies in cash).  The likelihood of the market continuing below 50% is very low, but as we saw in early 2009, it certainly can happen.
   
9. Once the ETFs signal a LONG call, reallocate the individual ETF/Fund as per the recommended amounts.  Do NOT disturb the ETFs/Funds that continue to have a CASH recommendation, e.g., keep their present allocations.

In accordance with the preceding rules, I have affected the following portfolio transfer, which will most likely occur Friday, May 21st:

4-ETF / Fund Portfolio

• AGG / F-Fund:  48%
• EFA / I-Fund: 1%
• SPY / C-Fund: 5%
• VXF / S-Fund: 7%

3-ETF / Fund Portfolio

• EFA / I-Fund: 2%
• SPY / C-Fund: 10%
• VXF / S-Fund: 14%

As always, you are responsible for your own trading decisions, not me.  Please do your homework.

Regards,

pgd

Update for May 15th Weekend

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Lest you think I'm not paying attention to this portfolio, I am.  I have 100% of my wife's monies in cash, as I do not play the F-Fund.

If you play the 4-ETF/fund route, the F-Fund is still long, and has been for some time (since 4/16).  All the other ETFs / funds are in cash / G-Fund.

If you play the 3-ETF/fund game, you are sitting 100% in cash / G-Fund.

• EFA, which is my proxy for the I-Fund, is just barely showing signs of life.  I intend to avoid it for now.
• SPY, which is my proxy for the C-Fund, is looking better than the EFA, but not enough so that we should move into it.
• The VXF, which is my proxy for the S-Fund, looks the best of the lot, but again, not enough to move into it today.

If you feel that you need to play these ETFs because the market has pulled back, representative allocations are as follows:

• 4-ETF / Fund Plan:
  AGG / F-Fund: 44%
  EFA / I-Fund: 3%
  SPY / C-Fund: 25%
  VXF / S-Fund: 28%
  
  
• 3-ETF / Fund Plan:
  EFA / I-Fund: 5%
  SPY / C-Fund: 44%
  VXF / S-Fund: 51%

The coloring represents whether you should be in the ETFs/Funds going into the upcoming week.  Red means that I suggest you wait, but do whatever you feel is prudent for your situation.
 
Remember, you are responsible for your own trading decisions, not me.  Please do your diligence.
 
Regards,
 
pgd