Thrift Savings Plan Newsletter

December 2016

IRA & TSP Monitor


This month we have the S&P 500 closing ABOVE our trading signal

dec-2016

IRA System Subscribers:

  • Conservative Strategy – I am leaving 100% of my capital vested in SH and contributing ALL NEW capital into purchasing shares of SH as well.
  • Aggressive Strategy – I am leaving 100% of my capital vested in SDS and contributing ALL NEW capital into purchasing shares of SDS as well.

TSP Subscribers:

  • Conservative Strategy– I am leaving 100% of my capital in the G Fund and allocating ALL NEW capital into the G Fund as well.
  • Moderate StrategyI am leaving 100% of my capital in the G Fund and allocating ALL NEW capital into the G Fund as well.
  • Aggressive StrategyI am leaving 100% of my capital in the G Fund and allocating ALL NEW capital into the G Fund as well.

Current Market Conditions

In November we outlined four key price points to monitor in the stock market…

oct-2016-cmc-1

  • 2190 – Is our main resistance level, if the market breaks above this level and holds we will need to seriously consider reentering the market.
  • 2160 – A short term support level
  • 2150 – A short term support level
  • 2130 – Our main support level, if the market breaks below this level and holds we should see a significant move downwards which will confirm our overall fundamental analysis of the market.

Here is how the market looks today…

dec-2016-cmc-4

As you can see the market surpassed our main resistance level of 2190 and is now retesting that resistance level. If the 2190 price point holds then we should see a move higher surpassing 2210. If the market falls below 2190 then we should see a test of the short term support level 2150.

Update 12/19/2016

The market has been very busy since we published our newsletter and so have we. A number of you have written in with questions and we will dedicate this update to answering them. But before we do here is the current climate of the market.

The market surged past the major resistance level of 2210 early this month and hasn’t looked back since. Recent activity suggests the market is stalling a little bit. You also must remember the Federal Reserve has announced a .25% rate hike and promised three more in 2017. Only time will tell.

“Based on historical back testing of your objective methodology, what is the largest historical drawdown for the SDS position? right now I’m down over 30% and curious what I should expect in terms of recovery for this position.”  ~ John

For those of you unaware a drawdown is simply the decline which occurs from peak to trough in any given market. In regards to this specific question, this specific ETF was created in 2006 and therefore only allowed us to back test to that time period. To answer your question, the most significant drawdown is still occurring which from peak to trough is approximately 97%. We understand that may sound like horrible news but take a look at this 10 year chart of SDS…

Take notice at the peak price of 460 during the bottom of the bear market in 2009. We are not happy with our current position in SDS either but understand the risk/reward in maintaining our position.

“Marvin. Would you be able to share (simply) how your methodology faired with this last year market. I’m assuming your metodology did not align with the 2016 market. And if that is the case,does it mean you’re rethinking your methodology, or not. Nothing is stagnant and it would be helpful to have this information to move forward. Also could you share what are the consequences for my TSP if i re-enter the market when it’s this high, versus waiting for a fall of some kind. Thanks, more information is really helpful.”  ~ Cindy

To be direct, our system has performed subpar for the year of 2016. The market has continued to rise higher while we have stayed on the sidelines. We fully understand why this does not sit well with some people but our stance remains firm. We are not rethinking our methodology and it is our belief that investors entering the market now are setting themselves up for failure. Unfortunately it pays to be what we call a “Contrarian Investor” which basically means do the opposite of what everyone else is doing. Right now the stock market is a hot topic around dinner tables, water coolers, and coffee machines. But remember, sheep get slaughtered.

Our Service

This month’s newsletter will be shorter and a much different format than you’re typically use to. During one of our weekly updates last month we stated…

“It’s at this juncture where we need to seriously consider reentering this market. Although there are a lot of challenges when considering this avenue of approach.”

This newsletter will explain in detail our reasoning for not reentering this market.

Rule #1

Over the last 6 months we have described in great detail the fundamental and technical reasons for not reentering this market. But this is our number 1 reason for not reentering this market…

WE HAVE NO EXIT PLAN

When it comes to investing, it’s very easy to purchase a stock or buy into a market but very few people have any idea on how they plan to sell a stock or exit a market. This typically leads to people selling based on nothing but emotions which is a recipe for disaster. When we created our system and this newsletter one of the biggest requirements we had was ensuring emotion was taken out of our decision making process completely.

Right now the S&P 500 sits at the 2191 price point, based on our experience we don’t see it going much higher.

Let us put it another way…

dec-2016-cmc-1

We exited the market at the 1920 price point and as of this afternoon the market closed at 2191, leaving a 14% gain we did not enjoy. We understand this is frustrating but hindsight is 20/20. As we’ve always stated our goal with this newsletter is to protect capital while maximizing profits.

Furthermore, before exiting the market in September 2015 the previous high of the S&P 500 was 2130. We always knew we would never be able to exit at the market top and gladly exited without any regrets. You have to remember…

dec-2016-cmc-2

When we exited the market we already exited leaving 9.8% “on the table” so to speak. The 2130 price point in the middle of last year to the current 2191 price point has only resulted in a 2.8% gain from the previous high. In our professional opinions this is not a significant gain and certainly not worth risking your hard earned dollars.

Fragile

We understand more than ever your frustration but we have done everything within in our abilities to educate you on the current economic climate. So again the risk is not worth the reward.

We would like to point out the stock market activity that took place during election night back on November 8th. Most people are not aware that the “stock market” is always open for trading, it’s called the futures market. Without getting into too much detail just know that traders worldwide can buy and sell S&P 500 futures outside of the normal trading hours of 0930-1600 EST.

While the election was unfolding the S&P 500 was undergoing a significant selloff. It sold off so much that they had to initiate a halt on the entire market. Take a look…

nov-2016-sp-futures

On election day the S&P 500 closed at the 2139 price point, but during after hours trading the market plunged all the way down to the 2030 price point before trading was halted early Wednesday morning. Luckily the market recovered and went on to stage an amazing rally but we can’t help but notice how easy it was for the S&P 500 to tumble like a row of dominos.

Additionally, we must remember what happened after the BREXIT vote as well.

dec-2016-cmc-3

Over the course of a couple days the market tumbled a whopping 5.2% off of bad news, which is a hallmark sign of a fragile market. It’s becoming more and more evident that any negative economic news results in a plunge of the S&P 500. This is not a stable sign of a healthy market.

Truth

With great pride we are able to say our newsletter is one of integrity which looks out for the best interest of our clients 100% of the time. We do not manage your funds, we do not trap you into contracts, we simply publish financial information to help you make a decision. If you feel our newsletter is not worthy of your business we make it as simple as possible to cancel with no questions asked then we part ways as friends. We have had a lot of success with this newsletter simply publishing information we would want to know if our roles were reversed.

After reading this newsletter it’s highly likely a few of you will cancel and that’s absolutely fine. This newsletter and its strategy are not for everyone.

Yes, the market is higher now than when we exited.

Yes, we could have gotten back into the market and captured more gains. 

But that’s not what we did and we have done everything in our power to explain our reasoning. The market can go higher from here and we will likely come to the same conclusion…

THE RISK IS NOT WORTH THE REWARD!

Our Dividend Newsletter

Finding successful investments is really hard work. We believe stocks aren’t just a piece of electronic paper but view them as businesses. Therefore we conduct ourselves as business owners with investment capital at our disposal.

Our number one goal is to acquire a portfolio of successful businesses that will help increase our wealth over time.

We believe this addition to our overall newsletter will turn into a huge value. Investing in dividend stocks is one of the quickest ways to acquiring true wealth in the stock market. If you haven’t already read our introduction to dividend investing we highly recommend you take the time to do so.

Remember, it is imperative to have a plan before you invest in any business. Make sure you have proper asset allocation and an exit plan for each position you take.

Dividend Newsletter

As of Mar 2, 2017
Dividend CompanyBuy Up To PriceCurrent Price
Automatic Data Processing (ADP)$49$104.50
American Express (AXP)$33$79.88
Boeing (BA)$120$182.18
Becton Dickinson (BDX)$78$184.69
Colgate Palmolive (CL)$38$73.59
Cisco Systems (CSCO)$34$34.29
Dover (DOV)$63$80.39
Emerson Electric (EMR)$35$60.37
Genuine Parts (GPC)$66$94.70
Home Depot (HD)$76$147.81
Honeywell (HON)$78$126.21
Intel Corp (INTC)$37$35.90
Johnson & Johnson (JNJ)$80$123.79
Lancaster Colony (LANC)$64$133.20
Lockheed Martin (LMT)$199$267.76
Lowe's (LOW)$58$81.68
3M (MMM)$117$174.82
Altria Group (MO)$42$75.57
Microsoft Corp (MSFT)$43$64.25
Oracle (ORCL)$38$42.69
Paychex (PAYX)$33$62.50
Parker Hannifin (PH)$100$157.06
Philip Morris (PM)$55$110.21
Target (TGT)$62$57.35
Union Pacific (UNP)$50$109.02
United Parcel Service (UPS)$60$105.93
VF Corp (VFC)$47$52.59
Walgreens (WBA)$62$85.89
Walmart (WMT)$64$70.03

As we research and analyze more businesses we are starting to realize some of the popular dividend stocks are not worthy of our investment. We will continue to scan for great businesses and publish our individual analysis of the stocks throughout the month. We will send you updates when we have completed them.

Additionally, while we have and are currently invested in some of these stocks, we will not be purchasing anymore at this time. If a bear market is indeed on the horizon we’d much rather save our hard earned capital and purchase these companies and that beginning of the next bull market.

In Closing

We hope you enjoyed your Thanksgiving. Thank you for your continued business! As always please email us or leave comments below if you have any questions or concerns!

Here’s to our Wealth!

18 Comments

  • Ted

    Reply Reply December 2, 2016

    Hey, Marvin – I exited the market when the SPX was at around 1940. Yeah, it sucks – kind of. I’m still out, of course; because, every month you advise I continue to stay out. I’m not planning to go back in, until you and your boys suggest it’s the right time to do so. I’m with you, man… Now, I imagine by the somewhat apologetic tone of your update to TSP Subscribers this month, you’re receiving a lot of negative correspondence from some of the subscribers. My advice – shake it off; screw ’em, if they want to be a bunch of Nancys. Keep doing your detailed analysis on market conditions, free of emotion. A lot of us (probably a silent majority) are counting on you to keep a level head. We’re going to make it, together; and, it’s all good, Brother. -Ted

    • Curtis Gatterson

      Reply Reply December 7, 2016

      I second Ted’s statements. “It’s all good” my friend and I’m in for the long haul.

  • Rohn Wallace

    Reply Reply December 2, 2016

    Morning Marvin, I just want to say thanks for all the hard work and great advice you put out for us. I’m not great with investing. I definitely would have lost money had I been alone with all this. Even with the cost of your newsletter, I’m making plenty to meet my retirement goals. Thanks again for all you do for us! Sincerely, Rohn

    • Marvin

      Reply Reply December 2, 2016

      Thank you for the kind words!

  • NJ

    Reply Reply December 2, 2016

    Mighty Marvin! As always, I appreciate the calm, deliberate, and well-articulated analysis — no fluff or emotion, just facts. I’m holding steady in G, per your guidance, but am investing in some inverse, leverage European ETFs to diversify. I’m aiming for Euro to take a hit and for FTSE Developed Europe All Cap Index to dive over the weekend and into Monday, based on Italian Referendum vote and associated european/EU fallout. This is my first exposure to leveraged (both are 2x multiplier) ETFs, but I kept my investment small and will watch EPV & EUO tickers closely for the next couple days … my understanding is that leveraged ETFs aim to provide a 2x daily-inverse performance can diverge quickly due to compounding effects. My only concern that I don’t quite fully grasp is the impacts of different trading open/close with the US/European markets being separated by 6 hours (I’m sure that an opportunity/risk in and of itself, but I can’t study and grasp everything–at least not yet). Thanks for newsletter and great content. Your analysis is solid and deep, but your present it simply and straight-forward.

    • Marvin

      Reply Reply December 2, 2016

      Thank you for the kinds words. Not many people know about the Italian Referendum taking place December 4th but if it the vote is the same as the BREXIT we might see a shock through world markets. Only time will tell!

  • John Carpenter

    Reply Reply December 2, 2016

    Same here, Marv! I am sticking with you pal.

  • Mario Teixeira

    Reply Reply December 2, 2016

    We will hang in there!

  • john

    Reply Reply December 3, 2016

    thanks for all you do. its hard not to be convinced that the market is being propped up during downturns….which may make historically successful technical models unreliable going forward. There are relatively new ckt breakers for down markets but not up markets. would be interested in your thoughts on the impact of ckt breakers on market flow. I believe that a market that should go down from historical technical patterns may be likely to flatten with the up-biased controls currently in place. your thoughts?

    • Marvin

      Reply Reply December 6, 2016

      In our opinion the ckt breaker put in place are nothing more than cosmetic in the grand scheme of things. If people want to sale, then people are going to sell, the only thing we see them stopping are the emotional decisions investors make during a crisis.

  • Dave

    Reply Reply December 4, 2016

    I appreciate your analysis and will hang in there with the rest of us. Thanks for your advice. I always look forward to the newsletter to keep my head on straight.

    • Marvin

      Reply Reply December 6, 2016

      Thank you!

  • john

    Reply Reply December 9, 2016

    based on historical back testing of your objective methodology, what is the largest historical drawdown for the SDS position? right now I’m down over 30% and curious what I should expect in terms of recovery for this position.

    • Marvin

      Reply Reply December 12, 2016

      We will respond to this comment in this week’s update as it will be easier to explain using charts.

  • thuan ho

    Reply Reply December 17, 2016

    How do I allocate my fund in TSP .I think you give an advice to allocate the money in tsp funds. May you give me some advise

    • Marvin

      Reply Reply January 1, 2017

      We cannot give specific advice but our newsletter annotates which funds we are allocating our money to.

  • Cindy

    Reply Reply December 19, 2016

    Marvin. Would you be able to share (simply) how your methodology faired with this last year market. I’m assuming your metodology did not align with the 2016 market. And if that is the case,does it mean you’re rethinking your methodology, or not. Nothing is stagnant and it would be helpful to have this information to move forward. Also could you share what are the consequences for my TSP if i re-enter the market when it’s this high, versus waiting for a fall of some kind. Thanks, more information is really helpful.

  • john

    Reply Reply December 20, 2016

    Marvin, I believe s&p price was above indicator in April and ever since, (with a couple of in-month spike tests down). seems we would be a better off if we stuck to your indicator signal and flipped last April or May.

    here’s an interesting FAQ from your September 2015 monthly letter:

    “Am I going to lose out on the next bull market?

    Our indicator has a great track record of positively identifying bull markets and bear markets. We must simply wait until they are confirmed.”

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