asset allocation vs asset diversification

Work just changed our 401k options and has made lifecycle funds the default contribution. They also took away Asset Allocation funds (Conservative, Moderate, Aggressive) and replaced them with Lifecycle funds. So I am thinking about what the right strategy is and how to do the transition. There doesn't seem to be much information on how to handle single events. Everyone says that allocation is important and that you should re-allocate periodically but doesn't give any advice on the nuts and bolts of doing so. There isn't anything that says "I have decided to change my strategy here's some things to consider". I get that I can't know for sure what will happen over the next few months but all of the sources that I have found don't seem to say anything about what do differently if you assume that the market (and the US economy as a whole) is generally doing well or generally doing poorly. I realize that the whole point of long term investing is that you need to find a strategy and stick to it but given that I have a whole bunch more information about what is going on this month and this year should I make different tactical decisions about how to implement the strategy?

Anyhow that lead me to flip through Living and Learning by Robert Keebler and Daniel Pinkerton and something struck me which I hadn't grasped before. They make a distinction between asset allocation and asset diversification. They define asset allocation as the choice of which asset classes to own and define 4 asset classes: cash equivalents, fixed-income investments, equity investments (including real estate), and tangibles (precious metals, commodities, collectibles). They define asset diversification as the selection of investments within those asset classes. This is a slightly different way to slice things than what Quicken presents. Quicken gives 7 asset classes (8 if you count no class) that divide Keebler and Pinkerton's classes further by separating equities into US Large Cap, US Small Cap, and International Stocks and fixed income into US and Global Bonds. It gets to the same point I suppose but the way Living and Learning presented made it simpler to me.