Weekend Update for June 24th

The risk model that I use is still quite bearish; there are a number of indicators that are in pretty bad shape so I don't think that we'll be going long any time soon.    We may rebalance at the end of the month, and if we continue south, we may move some of our capital to equity funds.

C-Fund

The C-Fund is designed to mimic the S&P500; here's the latest chart ( as with all my charts, right click on the image to open in a new window or tab):

This chart is interesting for a couple of reasons:

1. The S&P500 has tested the 200d simple moving average (MA) twice intra day within the past two weeks, and has closed above it each time.  The 200d MA is the RED line.   The test is damaging if no recovery occurs, but the close above is bullish in general.  A penetration of the 200d MA and a subsequent close below it would be problematic -- although there is a weak support level shown by the shorter, horizontal blue line, which sits at 1249.05.   
2. If 1249 does not hold, it's Katie, bar the doors.  The next program support level most likely would be around 1173, which is another -7% below where we are presently.
3. The downward green line is the lower channel line formed by multiple touch points as the S&P500 has fallen.  If the 200d MA does not hold, I would expect that the falling trajectory would be aligned with this downward sloping line.
4. The horizontal yellow line is a weak resistance line, formed recently by two tests within the past two weeks, and slightly penetrated this past week.  For the bulls to be back in control, we need a close above this level, as no floor has yet been established.  
5. The 50d MA (blue) and 20d MA (green) are above the price and are converging towards the 200d MA.  This squeeze has to be resolved one way or another -- in general, prices do not like to remain in this squeeze pattern.  Either the prices will drop below the 200, pulling everything down, or a new bull will (aggressively) take the prices up, testing the 20d and the 50d.

In all, my GGT timing system has multiple timers indicating that we should NOT be holding the C-Fund; if you are, you are taking on a considerable amount of risk for uncertain gain potential at the present moment.

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F-Fund

The F-Fund is a bond fund.  Typically, I prefer not to be "in" a bond fund, as it simply takes away from all the other capital available for the equity funds, which is true when equity is rising. Right now, equity is falling, so bonds and cash make sense.  

I think we're in 46% in this fund, which is a large amount of our allowed capital percentage.  The ETF that is a proxy for the F-Fund is the AGG; the chart continues to look good:

What should catch your eye is the following:

1. We're still above the green 20d MA, although we saw some weakness over the past two weeks.  The fact that we recovered above the 20d MA suggests we should stay the course.  
2. The 20d MA, as well as the 50d MA, are pointing upward (positive slope).  On these time frames the F-Fund is making money.
3. The 50d is above the 200d MA, which occured on 6/16.  I anticipated this, but it took longer than I thought, but this is why I suggested moving long into the F-Fund the on June 6th.

I see no reason that we should not continue our position in the F-Fund for the immediate future.  Note that we may rebalance this amount on June 29th or June 30th; we'll see.  Put it on your calendar to check in with this blog.

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I-Fund

The I-Fund tracks the MSCI European Asian Far Eastern (EAFE) index, and the proxy for this index is the ETF called EFA.  This index is broken, and you should NOT be holding any funds in the I-Fund at the present time.  Here's the chart:

Unlike the C-Fund / S&P500 chart, there are numerous potential points for support within the I-Fund/EFA; the question is whether the markets will obey or whether they simply will collapse.

Of note on the chart above:

1. Prices have had a terrible time closing above the 20d MA.  Until this occurs, the I-Fund is an avoid.
2. We are nearing a relatively strong level of support.  If we hold here, then it's possible that the worse has passed.
3. If the upcoming level of support does not hold, expect another -3% drop in the I-Fund to the next possible support level.

The I-Fund gives us a view of what happens when prices do not behave the 200d MA and pierce through it, with falling 20d and 50d MAs above the prices.  Recall from above, this is the exact situation we have for the S&P500, so this I-Fund/EFA chart could help you visualize what could go wrong with the S&P500.

Again, if you're in either the C-Fund/S&P500 or I-Fund/EAFE Index, you're taking a beating (but you probably already know this ... )

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S-Fund

The S-Fund is supposed to be the entire market without the S&P500.  So, an equal-weighted investment in the S-Fund AND the C-Fund would represent two positions in the entire market.

The S-Fund is represented by the ETF VXF.  It looks alot like the C-Fund, e.g., it has a solid avoid rating:

I didn't bother drawing support lines for the simple reason that you should be able to do this yourself.

Of interest on the graph above is:

1. We are trading well below the 20d MA (Green) and the 50d MA (Blue).
2. The 20d and 50d are in a downtrend, and are converging to the 200d MA (red)
3. We've not yet hit the 200d MA in prices, nor have we tested the 200d MA.
4. We're having a difficult time closing above the 20d.  Until this occurs, we can't even consider entering the S-Fund.

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Since our reallocation signal on June 6th the entire portfolio is up +0.279% with the 46% F-Fund / 54% G-Fund allocation.  By reference, the C-Fund has fallen -1.259%, the I-Fund has fallen -3.805%, and the S-Fund has dropped -0.363%.    The G-Fund, which is a cash fund, has increased +0.124%.

Since the index peak on 5/2/11, the 3 equity funds, if equal weighted (33% in C-Fund, 33% in I-Fund, 33% in S-Fund) have fallen -8.8%.  We moved to CASH on 5/24, realizing a loss of -3.325%, gained +0.077% in the period 5/24 to 6/6, and as stated above, have incrementally added to our funds another +0.279%.

Market timing using trend following methods guarantees that you will always miss the top, and you'll always miss the bottom.  The intent here is to ensure that you do not experience a melt down and ride the markets down, finally realizing that you made a mistake, selling at the bottom, and nervous to get back in.

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Remember, you are responsible for your own investment decisions, and I am not.  Please do your diligence, and please take ownership for your actions.

Put a reminder on your calendar to check back in here the last two days of the month.  We most likely will be reallocating funds at that time, to take advantage of the unused transfer remaining for the month of June.

Regards,

pgd