Market Timing Brief for the 9-12-2014 Close: Stocks Headed Down. Gold Slipping More. Rates Rocketing.

A Market Timing Report based on the 9-12-2014 Close, published Sunday September 14th, 2014

The SP500 Index is slipping off a test of 2000.  The red arrows in the chart below show you a few of the support levels that could be tested in the next move.  The big news this week comes on Wednesday with the Fed meeting announcement and press conference, the latter always an extra chance for Dr. Yellen to screw things up by saying too much.  Let’s see what she’s not buying in the equity markets this month!   Last time it was social media stocks and biotech.  Instead of proclaiming bubbles, she should do something to prevent them.  The Fed is directly responsible for the big move in the stock markets since the March 2009 low and everyone but the Fed admits that.

What to do?  Have some cash, even if it’s just 10% or 20% of your usual allotment to stocks.  Then you’ll have something to add back if we get a deeper correction.  And if we don’t get it, you can always add that money back and pull it out still higher.  If you want to hold through a 4-10% correction or more, that’s fine too.  It’s just not my personal plan.

To find out what I’m going, including buys and sells, please follow me here: Follow Me on Twitter®.   Follow Me on StockTwits®   You don’t have to make comments yourself to read my messages.

SP500 Index (SPX, SPY):

sp500-index-market-timing-chart-2014-09-12-close

SP500 is failing off a top near 2000. How low do we go?

Meanwhile, this week the investor sentiment data is still unfolding as in the 7-10-2013 scenario I outlined two weeks ago (learn what the downside risk is):  Survey Says! What About Investor Sentiment?

U.S. Small Caps: Where are the small caps (RUT, IWM) at this point?  

A lower high has been formed as seen on the chart below and due to stretched valuations, we could see more downside soon.  Small caps continue to badly trail large caps as I suggest would happen much earlier this year.  We currently have no exposure to small cap U.S. stocks in our model portfolio.  Markets sometimes take a while to form tops, so we won’t attempt to calculate every potential blip up or down.  Simply recognizing that they are a poor bet from a valuation standpoint is enough.

The U.S. Small Cap Chart:

rut-small-cap-russell-2000-index-market-timing-chart-2014-09-12-close

Small caps are in consolidation off a lower high. Still overvalued.

Gold:  GLD, the gold ETF, has fallen through yet another level of support.  The first red line below the current level on the chart below is now our target, but the next chart reveals what could save gold from reaching that low.

The Gold ETF Chart (GLD; click to enlarge the chart):

gld-gold-etf-market-timing-chart-2014-09-12-close

Gold two days under important support headed back to the prior low. What could save it before it hits that bottom red line?

What could save gold is the 10 Year Treasury.  Rates shot up a bit too fast last week and that sort of stretch can do one of two things: 1. Snap and keep right on going UP or 2. Snap back and fall hard, thereby bringing the U.S. dollar back down and gold up.  I favor the latter as the world’s economy is slowing down significantly with an imminent recession in Euroland (not in the UK yet though; the Scottland independence issue has been weighing there – likely to fail).  China is slowing a bit as well, although their market may be favored over ours for some time due to its higher growth, and Japan seems to be in trouble despite their money printing adventures.  That’s why we have been raising some cash and favoring rates not getting out of control to the upside here.  They WILL eventually have to rise, but now is probably not the time.

What would mess up the above hypothesis?  If the Fed keeps pulling the plug on QE and shortening the time to raising rates, we’ll get the “snap UP” in yield scenario outlined above.

The 10 Year Treasury interest rate (TNX, tracked by TLT if Bullish; TBT if Bearish): 

tnx-10-year-treasury-note-market-timing-chart-2014-09-12-close

Now we have a reversal above 2.402% last week and kept on going this week. But is that about it?

Be sure to visit the website at: Sun and Storm Investing™

Standard Disclaimer: It’s your money and your decision as to how to invest it.

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, go to my “Other Resources” page here:  Other Resources   It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.  Check it out with a free trial at the link above.

Note that the newsletter is now closed to new subscriptions, but may be re-opened in the future.  Stay tuned here in the meantime and follow all the action via the Twitter® and StockTwits® links above.

Copyright © 2014 By Wall Street Sun and Storm Report, LLC All rights reserved.

Posted in Bonds, gold, investment, large cap stocks, S&P 500 Index, small cap stocks, Treasuries | Tagged , , , , , , , , , , , | Leave a comment

Market Timing Brief for the 9-05-2014 Close: Stocks Holding Gains. Gold Slipping with Rising Rates and Rising U.S. Dollar.

A Market Timing Report based on the 9-05-2014 Close, published Sunday September 7th, 2014

As I was nearing work on September 11th, 2001, the first plane struck 1 World Trade Center in Manhattan, just 1 1/2 hours away, instantly killing hundreds of people on impact, soon to lead to nearly 3000 deaths.  It is to them we owe a moment of silence this week.  Pause if you would and consider them for just one minute and then we’ll continue to the markets….

SP500 Index (SPX, SPY):

We are now 11 days past the first of two breakout attempts on the daily Sp500 chart.  The first breakout failed as you see below.  Now that we are at a new closing high, there is room above to about 2035 at the channel line if the Bulls want it.

sp500-index-market-timing-chart-2014-09-05-close

Eleven Days since the Last Breakout

Meanwhile, this week the investor sentiment data fits the 7-10-2013 scenario I outlined here (learn what the downside risk is):  Survey Says! What About Investor Sentiment?

U.S. Small Caps: Where are the small caps (RUT, IWM) at this point?  The small cap market is slowing down. We could see a dip here.  Is there room to run higher?  Yes, but as mentioned last week, valuations do NOT support such a movem although that has not always stopped rallies.

Let’s look at the small cap chart:

rut-small-cap-russell-2000-index-market-timing-chart-2014-09-05-close

Small Caps turning over for a fall?

For timely updates, including buys and sells, please follow me here: Follow Me on Twitter®.   Follow Me on StockTwits®   You don’t have to make comments yourself to read my messages.

Gold:  GLD, the gold ETF, has fallen through a level of support.  The first red line below the current level on the chart below is now our target.

The Gold ETF Chart (GLD; click to enlarge the chart):

gld-gold-etf-market-timing-chart-2014-09-05-close

Gold is slipping.

The 10 Year Treasury interest rate (TNX, tracked by TLT if Bullish; TBT if Bearish): Rates have made a reversal back above a prior breakdown point.  They’ll need to rise a bit more to break the obvious down trend on the daily chart below.  If rates collapse back once more and the U.S. dollar fails, the metals will be supported.

tnx-10-year-treasury-note-market-timing-chart-2014-09-05-close

Rates are reversing upward from a previous break.

Be sure to visit the website at: Sun and Storm Investing™

Standard Disclaimer: It’s your money and your decision as to how to invest it.

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, go to my “Other Resources” page here:  Other Resources   It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.  Check it out with a free trial at the link above.

Note that the newsletter is now closed to new subscriptions, but may be re-opened in the future.  Stay tuned here in the meantime and follow all the action via the Twitter® and StockTwits® links above.

Copyright © 2014 By Wall Street Sun and Storm Report, LLC All rights reserved.

Posted in Bonds, gold, investment, large cap stocks, S&P 500 Index, small cap stocks, Treasuries | Tagged , , , , , , , , , , , | Leave a comment

Market Timing Brief for the 8-29-2014 Close: We Have Another SP500 Index Breakout. Gold is Holding. Rates are Falling.

A Market Timing Report based on the 8-29-2014 Close, published Sunday August 31th, 2014

There has been yet another breakout in the SP500 Index (SPX, SPY).
Sometimes breakouts are reversed.  In fact, both the April and the July breakouts were reversed, so it’s not hard to see that the latest buyers could end up feeling disappointed by their purchases.  Before I get to the Bullish case, please examine the chart below.

U.S. Large Caps: Here’s the SP500 Index Chart (SPX, SPY; click to enlarge):

sp500-index-market-timing-chart-2014-08-29-close

SP500 with a Fresh Breakout

The Bull target is that upper yellow channel line in the chart above.  If we arrive there quickly, the odds of a reversal from that line would be significant.  If the rise is more hesitant, over time, the upper boundary of the channel rises, so an even higher high would be possible.

Meanwhile, this week the investor sentiment data presents a couple of alternatives.  You can read it here:  Survey Says! What About Investor Sentiment?

U.S. Small Caps: Where are the small caps (RUT, IWM) at this point?  Since the double two wave scenario was voided last week by the close above the prior daily high.

Let’s look at the chart first:

rut-small-cap-russell-2000-index-market-timing-chart-2014-08-29-close

Small caps break up through the potential double top

It’s unfortunate that markets are not more rational, but as the PE ratio of U.S. small caps rises, so do the stocks once again in the channel shown above, which peaked in March.  One has to wonder how unaware markets truly are.  Very unaware is the answer.  The trailing 12 month PE for the Russell 2000 small caps is 81.17 per Birinyi Associates via the Wall Street Journal: U.S. Market PEs It had fallen to the 60’s as I recall from past publications, but has risen back to the 80’s after the most recent earnings season reports.  That means that there were “special charges” and the like that ruined the improving numbers.

Corporate accounting is a form of organized lying at times.  It’s generally done legally too.  Companies are sometimes judged too easily based on operating earnings that exclude the corporate screw-ups.  If you repeatedly screw up in “special” ways that yield “special charges,” doesn’t that mean you are running the company poorly?  I’d say so.

It’s also interesting that analysts will lower earnings going into the actual earnings release and they then have supposedly “met” the earnings expectations.  Fortunately, you often will see stock prices fall as earnings estimates are trimmed.  That’s the way it’s supposed to work.  You can follow all that on various websites.  One that I like is Yahoo Finance!  This is the data for Gilead Sciences (GILD), a stock we bought back prior to the recent run: GILD Earnings Report and Estimates at Yahoo Finance!  You can see that Gilead has rising estimates, in part due to the new Hepatitis C treatment that is controversially expensive.  The morbidity caused by Hep C is even more expensive apparently.  Liver failure and liver cancer are big costs for those unfortunate enough to be infected.

I for one, do not like to buy a stock with falling estimates.   I’ll wait for the fall to stop and likely the stock to stop falling before considering a purchase.

For timely updates, including buys and sells please follow me here: Follow Me on Twitter®.   Follow Me on StockTwits®   You don’t have to make comments yourself to read my messages.

Gold:  GLD, the gold ETF, held support at the second red line from the bottom in the chart below, but it’s coming off that low slowly.
One would think that falling rates would be of more help to gold than they’ve been.  The problem for gold is that the U.S. dollar has been stronger of late. Gold has eased back from the beginning of the year rally beginning around mid-July as the U.S. dollar strengthened.  Why has the dollar been strong?  Likely because of the international unrest we are seeing particular in Europe, and, perhaps more importantly, because the European Central Bank (ECB) is driving down the Euro, which is a major component of the USD index.  Money running into the USD is driving the dollar up and gold in dollar terms down.  That’s how it works.

To understand the various scenarios, review the relationship between gold and currency movements here: Gold Price in Currencies

The Gold ETF Chart (GLD; click to enlarge the chart):

gld-gold-etf-market-timing-chart-2014-08-29-close

Gold holds for now.

 Gold is in a position to rally once the run in the USD is over.  If the Fed raises rates sooner than we think (less likely now that the world’s economy is slowing a bit), gold will be pressured as the dollar rises with U.S. Treasury rates.  That is why I always look at the 10 Year Treasury when I look at gold.

The 10 Year Treasury interest rate (TNX, tracked by TLT if Bullish; TBT if Bearish): Rates backed down once again to retest recent lows.  The fall in rates this year has been spectacular vs. most predictions.  This should support a strong gold rally IF the U.S. dollar stops strengthening due to Euro weakness.  Europeans should be buying lots of gold as their currency is trashed by the ECB’s actions.  Gold has formed higher lows vs. all four major currencies (USD, Euro, British pound, Japanese Yen).  That is Bullish for higher gold prices, but the prior major daily low must hold (bottom red line in the ABOVE chart).

tnx-10-year-treasury-note-market-timing-chart-2014-08-29-close

Rates are falling, not rising as so many thought they would in 2014.

Be sure to visit the website at: Sun and Storm Investing™

Standard Disclaimer: It’s your money and your decision as to how to invest it.

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, go to my “Other Resources” page here:  Other Resources   It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.  Check it out with a free trial at the link above.

Note that the newsletter is now closed to new subscriptions, but may be re-opened in the future.  Stay tuned here in the meantime and follow all the action via the Twitter® and StockTwits® links above.

Copyright © 2014 By Wall Street Sun and Storm Report, LLC All rights reserved.

Posted in Bonds, gold, investment, large cap stocks, S&P 500 Index, small cap stocks, Treasuries | Tagged , , , , , , , , , , , | Leave a comment

Market Timing Brief for the 8-22-2014 Close: Inflection Point Reached for Stocks? Or Is It Full Speed Ahead? And Will Gold Hold?

A Market Timing Report based on the 8-22-2014 Close, published Sunday August 24th, 2014

Stocks: We added back other U.S. exposure through individual stocks during the recent bounce and remain fully exposed to the markets.
The SP500 could pull back according to my recent sentiment analysis here:

 Survey Says! What About Investor Sentiment?

Right now, we’re at a high above the prior resistance of 1985.59, which was the first high of the four shown below in the daily chart.  Now that 1985.59 level is support.  A fall below there could bring the pullback that we are looking for.  Take a look at the chart and then I’ll go to the Bull case.

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Here’s the SP500 Index Chart (SPX, SPY; click to enlarge):

sp500-index-market-timing-chart-2014-08-22-close

Will the SP500 Index Hold the New High?

The SP500 could remain above the top red line.  If so, it has the room to rally further within the upward yellow channel lines shown in the chart above.  In fact, it could go well above 2000.

Where are the small caps (RUT, IWM) at this point in the bounce?  

Let’s look at the chart first:

rut-small-cap-russell-2000-index-market-timing-chart-2014-08-22-close

Small Caps Stuck at Resistance Line?

Although they are above the 50 day moving average, they are stuck at the aqua resistance line shown above.  That means this could be an ominous “double two” wave up.  It’s ominous if not overcome, because the 3rd wave down can be sizable according to Fibonacci wave theory.  A close above the aqua line would suggest the gains will continue.  But be sure it’s not a one day wonder, which sometimes happens in tests of resistance.

Gold:

The Gold ETF Chart (GLD; click to enlarge the chart):

gld-gold-etf-market-timing-chart-2014-08-22-close

Gold holding a major support line (day 2).

The minute the gold market feels that the Fed is on the war path to contain inflation, it will give up the current support level.  But the Fed notoriously falls behind inflation.  For now, gold remains a hedge against the Fed falling even further behind the curve.  Right now, the Fed IS behind the curve because real interest rates are negative (rates corrected for inflation).  If the market believes all is well in the world (esp. with the Russian/Ukraine situation) and that the worldwide economy is improving steadily (not happening at the moment with recessionary fears rising in the Euro-zone), gold could fall.  For now, gold is not likely to form a major new low (below the Dec. 2013 low).  If you buy here, plan on using a stop loss.

The 10 Year Treasury interest rate (TNX, tracked by TLT if Bullish; TBT if Bearish): Back Above Support, but Barely!

tnx-10-year-treasury-note-market-timing-chart-2014-08-22-close

10 Year Treasury Yield Recovers from a Swoon

The picture for the 10 Year Treasury Yield fits together with rates rising and gold on support.  My concern now is that rates rise too rapidly (not happening yet by any means) and drive gold through support (see gold ETF chart above).  Rates are just 0.001% above the prior major low of 2.402%.  That’s not a reversal of note at this point.  The best situation for gold would be rates that fall further below the red line shown above.

Standard Disclaimer: It’s your money and your decision as to how to invest it.

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, go to my “Other Resources” page here:  Other Resources   It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.  Check it out with a free trial at the link above.

Note that the newsletter is now closed to new subscriptions, but may be re-opened in the future.  Stay tuned here in the meantime and follow all the action via the Twitter® and StockTwits® links above.

Copyright © 2014 By Wall Street Sun and Storm Report, LLC All rights reserved.

Posted in Bonds, gold, investment, large cap stocks, S&P 500 Index, small cap stocks, Treasuries | Tagged , , , , , , , , , , , | Leave a comment

Market Timing Brief for the 8-15-2014 Close: Why We Sold Some U.S. Stocks

A Market Timing Report based on the 8-15-2014 Close, published Sunday August 17th, 2014

We sold some U.S. stock market exposure including mid and large caps at the end of the week after making a nice short term profit.  I like to do a quick seat-of-the-pants calculation of a simple annualized (no compounding) return taking into account the gain/loss and the number of days in the stock or index.  For the midcaps (MID, MDY, IJH) we bought and sold, the annualized gain was 80.1%, and for the SPX it was 29.49%, as we went in earlier in the case of the SPX (SPY).  The raw gains were 1.76% and 1.01% after 8 and 12.5 days on average in each of the respective trades.

We raised some cash and are waiting for lower prices, which likely will come.  The risk of being a bit less exposed to the market (by around 17% of max. equity exposure) is that we could miss out on what I call “resolution risk.”  Things are changing rapidly with wars starting and stopping each week!  Another negative?  Individual investor sentiment predicts lousy returns in the near term (see link at bottom of this article).

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Here’s the SP500 Index Chart (SPX, SPY; click to enlarge):

sp500-index-market-timing-chart-2014-08-15-close

SP500 Index could pause here and pull back again.

Last week I said the SPX could stop at the upper red line shown in the above chart.  It did.  We sold some exposure to both large and mid cap U.S. stocks based on that failure to rise above the resistance line or the 50 day moving average, which are almost coinciding now.  It could just be a pause on the way up, but geopolitics will probably influence the chart very directly, very quickly.  The SP500 Index could easily fall back and retest that lower yellow channel line in the chart above.

Meanwhile, what do the small caps show (RUT, IWM)?  They remained below the 200 day moving average.  The buying looks weak, but I must admit that a higher low has formed on the daily chart, which is a plus.  Small caps are still overvalued in my opinion, particularly given the slowing of worldwide economic growth.

rut-small-cap-russell-2000-index-market-timing-chart-2014-08-15-close

Small caps still look weak.

Gold FELL despite the drop in real interest rates that occurred when the 10 year Treasury yield plunged.  Inflation is just under 2% now with returns in banks close to zero.  People are losing money in the bank, which should cause gold to rally strongly.  I think some of the selling may have been a reflex move due to the moderation of tough talk by Russia.  The Ukraine government was able to demolish a Russian military deployment in their territory without igniting a world war.  That act alone was taken very badly by the market initially, but it then came back to flat.   This tells me there are still buyers of stocks.  You can see also that despite the earlier dive, GLD did recover part of its losses.  As long as it now moves up and does not make a lower low, gold may start to perform.

The Gold ETF Chart (GLD; click to enlarge the chart):

gld-gold-etf-market-timing-chart-2014-08-15-close

Gold takes a hit but is still strong enough for now. Needs to hold the low from Friday.

The 10 Year Treasury interest rate (TNX, tracked by TLT if Bullish; TBT if Bearish): Bottom Fell Apart On Friday

Rates are falling to new lows.  The recovery is in doubt!

Rates are falling to new lows. The recovery is in doubt!

It concerns me that gold did not rally on this fall in rates.  We’ll be prepared to exit as needed.

Before you leave, be sure to check out what individual investors are saying about the markets this week and its likely returns going forward: Survey Says! What Individual Investors Are Feeling

Standard Disclaimer: It’s your money and your decision as to how to invest it.

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, go to my “Other Resources” page here:  Other Resources   It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.  Check it out with a free trial at the link above.

Copyright © 2014 By Wall Street Sun and Storm Report, LLC All rights reserved.

Posted in Bonds, gold, investment, large cap stocks, S&P 500 Index, small cap stocks, Treasuries | Tagged , , , , , , , , , , , | Leave a comment

Market Timing Brief for the 8-08-2014 Close: Why We Bought, Selectively.

A Market Timing Report based on the 8-08-2014 Close, published Saturday August 10th, 2014

We started buying a bit early and then bought more aggressively in the U.S. large cap (SPX, SPY) and mid-cap markets (MID, IJH, MDY) as well as doing selective buying in the emerging markets (see my messages: Follow Me on Twitter®.   Follow Me on StockTwits®.).  I am still avoiding the U.S. small caps on valuation concerns (RUT, IWM), although I do expect them to bounce along with large and mid-caps.

Here’s the SP500 Index Chart (SPX, SPY; click to enlarge):

sp500-index-market-timing-chart-2014-08-08-close

SPS500 Index finding support now?

The SP500 bounced from a point very close to the up trend line shown in yellow in the chart above.  It rose above the range of the prior two days of trading and above the 5 day moving average, which is a measure of the short term trend.  It was claimed that the bounce was mainly due to what I have dubbed “Russian Resolution Risk,” which is simply the risk to the Bears that Putin backs off of taking over the Ukraine, or at least his perceived desire to do so.  Troops were moved from the border following the Tweet from the RIA about a quote from the chief of the Russian Security Council: Russian Tweet that Moved Markets.   Why should that matter?  Because the European economy is already faltering and adding the Russian mess to it just complicates things further.  I’m favoring the better markets around the world and leaving some of the generic indices that include trouble spots like Italy, which is back in a shallow recession, which could worsen.

Where could this rally fail?  We could see an SP500 Index failure at the top red line in the above chart.  It’s at the base of the prior top formation in the market, and it coincides with the 50 day moving average (mav) – at least it’s close to it.  I believe the SP500 will test the 200 day mav or thereabouts if the 50 day mav acts as a barrier.

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We have re-entered the gold market (subscribe above to see how much we put in; see “Access Page”).  We maintain a long term hold position, but trade a position in GLD as well.

 The Gold ETF Chart (GLD; click to enlarge the chart):

gld-gold-etf-market-timing-chart-2014-08-08-close

Gold is back in rally mode but with overhead resistance.

The chart above shows a downward wedge being broken to the upside, which is very Bullish.  The goal post for the first move is the horizontal aqua line, and the top aqua line would be very possible after that.  There could be some pressure on gold if the world settles down further and European banking fears abate.  But the simple key is real interest rates as I’ve explained multiple times, which is the difference between the current rate on 10 Year Treasury Notes, for example, and inflation.  As long as yields are as low as they are, gold is attractive because inflation is outrunning the return on the notes.  We need to closely monitor inflation going forward.  I suspect the U.S. Fed will remain behind the curve, which will help gold, but if it is perceived that the OPPOSITE is true, gold will suffer.  Rising rates makes dollars more sought after and can bring gold down for example.

The 10 Year Treasury interest rate (TNX, tracked by TLT if Bullish; TBT if Bearish): Bottom Reached?

It does look like the latest rally in rates may be over.  Time to lock in those rates!  There was a significant reversal above the May low after a test below it on Friday.  The line is in the sand.  Rising rates would help financials but hurt other interest rates sensitive areas of the market, such as REITs and utilities.

Here’s the chart (click to enlarge):

tnx-10-year-treasury-note-market-timing-chart-2014-08-08-close

Rates may have bottomed.

Standard Disclaimer: It’s your money and your decision as to how to invest it.

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, go to my “Other Resources” page here:  Other Resources   It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.  Check it out with a free trial at the link above.

Copyright © 2014 By Wall Street Sun and Storm Report, LLC All rights reserved.

Posted in Bonds, gold, investment, large cap stocks, S&P 500 Index, small cap stocks, Treasuries | Tagged , , , , , , , , , , , | Leave a comment

Market Timing Brief for the 8-01-2014 Close: The Selling Has Begun. Will It Stop Soon?

A Market Timing Report based on the 8-01-2014 Close, published Saturday August 3rd, 2014

Did earnings or the Fed bring small caps back down so dramatically? Both.  Small cap (RUT, IWM) valuations were stretched, and the bounce back was not warranted.  Add in the Fed lowering QE another notch with strong employment suggesting that rates will go up sooner rather than later and the market believes valuations could drop.  That’s done in two ways: earnings go up or stock prices go down.  With slower growth over the 1st half of the year, the prospects for rapidly growing earnings are low, so a falling stock market is the alternative.

rut-small-cap-russell-2000-index-market-timing-chart-2014-08-01-close

Small cap rally was cut short early after further QE tapering and strong employment.

You’ll note in the chart above that the small caps still have a 1-3 days of falling to do in order to reach obvious support. That lower red line is like a magnet for stock prices, although at times one index does find support before another and helps to rally the entire market.  There is a long term sell signal among the small caps that just emerged on a closing basis for the month of July.  Not good.

In the chart below, you can see that this could happen for the SP500 Index in just a day or two, or even be completed on one fine Monday morning in August.  Either the red support line shown or the yellow up channel line could provide support for a bounce.  We nibbled on Thursday’s fall, but may have been a bit early…

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Here’s the SP500 Index Chart (SPX, SPY; click to enlarge):

sp500-index-market-timing-chart-2014-08-01-close

SP500 Index failed at first support.

The Gold ETF Chart (GLD; click to enlarge the chart):

gld-gold-etf-market-timing-chart-2014-08-01-close

Gold is in a downward wedge, which is Bullish.

The 10 Year Treasury interest rate (TNX, tracked by TLT if Bullish; TBT if Bearish): Rates are still low despite the Fed’s tapering of QE.

Here’s the chart (click to enlarge):

tnx-10-year-treasury-note-market-timing-chart-2014-08-01-close

Rates land near the bottom of their range.

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Standard Disclaimer: It’s your money and your decision as to how to invest it.

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, go to my “Other Resources” page here:  Other Resources   It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.  Check it out with a free trial at the link above.

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