Market Timing Brief for the 7-02-2015 Close: U.S. Stock Markets On Pause. Gold On Its Knees As Rates Peak.

A Market Timing Report based on the 7-02-2015 Close, published Sunday July 5th, 2015

I deliver focused comments on the markets.  These are supplemented with “Tweets/StockTwits” (see links below).

1. The Greek default (that already happened this week with the added current threat of a NO vote of the Eurozone offer in the referendum today) has our markets on edge, but what really has them on edge are the soft earnings to come in the next few weeks starting this Wednesday, July 8th.  Realize that Greece is just a distraction to the U.S., as even the European banks do not have most of the exposure to their debt default.  The big institutions have taken on the bad debt to insulate the banks at the expense of others.  This does not say that everything will be find and dandy if Greece goes fully belly up.

The U.S. large and small caps are at support levels, which may only hold for temporary relief bounces, followed by a deeper correction.  The employment figures were moderately strong and the consumer is still fairly happy, so the Bulls say the market has further to go to the upside this year.  (I am fully invested at the moment, but less leveraged to cash than previously, meaning I sell some higher as a practice, and deploy excess cash when the market pulls back to provide a discount – buy lower, sell higher.  You  cannot always catch the exact low, because guessing at that can be dangerous.  It’s also best not to chase markets on strong days; instead, buy them on pullbacks in the Bull move.  We are now getting such a pullback.  How deep it will go is unknown.  I suggest saving some cash for lower lows than the Thursday close.

2.   Gold did NOT respond to Greece and the potential trouble for the Euro, which is negative.  We are on the sidelines as far as a gold trade goes.  If you have no exposure to gold (we are using it as insurance against the U.S. dollar and our Fed’s demonstrated intention to debase our currency in support of “full employment” of course), the best set-up is to add GLD here and toward the deeper lows (109.67-109.77) and sell if there is a significant breach of that low.

3. Interest rates should remain range bound for a while longer given the slowing of Europe and China in recent numbers as well as in the slowing of U.S. profitability.  You could buy near this low in TLT for example, and sell it if it does not hold.  If our economy starts to pick up more strongly, stocks will resume their rally, rates will rise, and gold will be under pressure.

Now view the charts below…

The Current SP500 Index Chart (SPX, SPX; click to enlarge):

sp500-index-market-timing-chart-2015-07-02-close

Summer High In?

Russell 2000 U.S. Small Cap Index (RUT, IWM; click to enlarge):  Nope. They broke down along with the large caps that led the selling. On some support as you see below.

rut-small-cap-index-market-timing-chart-2015-07-02-close

Small caps do NOT maintain their breakout and fall with large caps.

Gold ETF (GLD): Holding as currency insurance only.  No trade at the moment (see comment above).

gld-gold-etf-market-timing-chart-2015-07-02-close

Gold slumps as rates form a peak and oil eases from high.

U.S. 10 Year Treasury Note (TNX,TYX,TLT,TBF): A rate top COULD be in, so now we descend into the range of 1.65% to 2.5%.  What would change this?  A stronger economic recovery.  That could push us to 3% again.

(see my messages on Twitter®Follow Me on Twitter®.   Follow Me on StockTwits®).

tnx-10-year-treasury-note-market-timing-chart-2015-07-02-close

Have rates peaked? Will they now move back toward the lower end of the range?

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.

Note that the newsletter is now CLOSED to new subscriptions: Join the Wait List to Join the Newsletter as a Loyal Subscriber, Opening again for the October 4th issue.  If you join and don’t read the newsletter, you will be deleted.  Why?  I don’t publish to non-readers as other newsletters do.  I surround myself with committed people who value what we are doing.  Stay tuned here in the meantime and follow all the action via the Twitter® and StockTwits® links above.

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 © 2015 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 6-19-2015 Close with UPDATE: SP500 Fails At Resistance, but Small Caps Hold Up. Gold and Treasuries Like the Fed Comments.

A Market Timing Report based on the 6-19-2015 Close, published Sunday June 21st, 2015

I deliver focused comments on the markets.  These are supplemented with “Tweets/StockTwits” (see links below).

UPDATE 6-28-2015 (10:58 p.m.):  The U.S. future markets are down 1.23% or so vs. fair value per CNBC.com due to failure of the Greek government to work out a deal with the Eurozone and IMF, which will lead to a Greek default.  The Europeans will have to clean this up within a few hours on Monday morning or the SP500 will be testing one of the lower red lines on the chart below:

sp500-index-market-timing-chart-2015-06-26-close

SP500 Under Greek Threat Tonight Going Into Monday. Buying Opportunity Coming?

The Russell 2000 is back testing the last breakout line on the chart below, and is down 1.13% vs. fair value per CNBC.com.  Gold is testing a higher low on the chart, and bounced a bit to $1182/oz. on Greece, and rates re-topped last week but fell after the Greek news.  The U.S. 10 Year Treasury is at 2.3206% per CNBC.com at the moment.  This too shall pass, so be prepared to buy more at better prices, unless the Europeans clean it up before we are fully awake.  Greece will hurt the Euro longer term, but commerce won’t stop because of it.   The Euro is selling off further: Read More

There will be a new monthly issue out next weekend, available only to those who subscribe at the link below…for loyal subscribers only.  ; )

…And now back to my summary from last week, which still gives you the lay of the land for the U.S. 

Please read my Twitter comments to the right.

1. The Fed became more dovish during their meeting this week.  Because of that the Fed will likely raise rates in December, not in September as many are guessing.  They will not raise in September, because earnings look lousy through the end of the year.  They may not wait until 2016, simply to save face.  The Fed has raised rates simply by scaring the market and then not raising them.  Very cute.

2. The Fed will then only raise rates once or twice and stop.  More would tank the economy.  Earnings will be awful through the end of the year.

3. Inflation will be tame, so although gold will hold up based on central banking abuses, it will not go to the moon either.  We keep gold as currency insurance only at the moment.  Real rates have to fall further for gold to flourish.  As rates decline, gold should benefit if you are trading it and willing to sell higher.

4. Rates will continue down a bit, but they will also remain range bound, due to the Fed’s insistence that the economy is recovering.  We’ll probably do better trading the range than simply holding Treasuries into 2016.  Beyond that, no one knows and if they say they know, ignore them.  They are liars.  It’s ALL guesswork, even what I just wrote.  Short term guesses are generally more valuable than long term guesses.  Long term guesses cause market players to do stupid things like “sell everything now!”  The newsletters that preach those things are users who simply seek to make money off of the average investor’s fears.

5. Please read my comments from the update under last week’s blog post.  The SPX is now below the green line and the small caps are still levitated.  The Russell 2000 must reverse at the high as well for the market to go into a steeper pullback.

SP500 Index Chart (SPX, SPY): (Please click to enlarge it)

Coming down?

sp500-index-market-timing-chart-2015-06-19-close

Russell 2000 U.S. Small Cap Index (RUT, IWM; click to enlarge):  If they don’t break, large caps will recover to new highs as well.

rut-small-cap-index-market-timing-chart-2015-06-19-close

Small caps are beating large caps at the moment. If they keep rallying, large caps will follow.

Gold ETF (GLD): Holding as currency insurance only.  No trade currently.

gld-gold-etf-market-timing-chart-2015-06-19-close

Gold pops on Fed comments that they will raise rates slowly and later than they had planned.

U.S. 10 Year Treasury Note (TNX,TYX,TLT,TBF): Treasuries did get a further bid based on Fed dovishness this week.  Good news for the housing market.

(see my messages on Twitter®Follow Me on Twitter®.   Follow Me on StockTwits®).

tnx-10-year-treasury-note-market-timing-chart-2015-06-19-close

Rates keep falling post-dovish Fed comments.

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.

Note that the newsletter is now closed again to new subscriptions: Join the Wait List to Join the Newsletter as a Loyal Subscriber, Opening again for the July 5th issue.  If you join and don’t read the newsletter, you will be deleted.  I don’t publish to non-readers as other newsletters do.  Stay tuned here in the meantime and follow all the action via the Twitter® and StockTwits® links above.

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 © 2015 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 6-12-2015 Close: Weakness in Stocks and Gold. Rates Finally Ease a Bit.

A Market Timing Report based on the 6-12-2015 Close, published Sunday June 14th, 2015

I deliver focused comments on the markets.  These are supplemented with “Tweets/StockTwits” (see links below).

UPDATE 6-18-2015 11:40 am

The Fed held interest rates steady this week, but Dr. Yellen indicated that a rate increase was likely in the second half of the year (see my Twitter comments to right).  The economy has clearly slowed in the U.S. with a negative GDP, which means negative growth, in Q1 and Q2 is not looking good either.  The Fed expects the second half of the year to save GDP for the year, seeing it now 0.5% lower than before at 1.8-2.0% (central tendency as they call it).

I think we’ll be trading up and down until the data tell us which way the economy is going and when we see if there is any response by the Fed.  If the Fed simply raises rates despite extreme sluggishness in the economy, the SP500 will sell off significantly (at least a 10% correction for a Fed error).  The Fed acts as though it won’t matter when they raise interest rates off zero, because the trajectory of rates will be slow, but the bond market is not as certain of that.  The U.S. stock market (plus Europe mainly) is strong following the Fed meeting, but just above resistance as the chart shows.  The current economic data are not strong enough to warrant new highs in the SP500 Index, but if market participants believe the Fed’s 2015 recovery scenario for the second half, the stock market may lead the economy to the upside and pull off another strong year.  Growth had better appear stronger by September (end of Q3):

sp500-index-market-timing-chart-2015-06-18-1139am

Up and over or do we pause here?

And now back to the prior blog post with details on recent economic figures:

Retail sales minus gas/autos were just slightly better than the 0.5% expected at 0.7% month over month, and 1.2% vs. 1.3% expected with gas/autos included (per Bloomberg News).  Investor sentiment showed Bears climbing in numbers with only 20.04% Bulls, 47.38% Neutral, and 32.58% Bears, with a spread of -12.54% (Bulls-Bears; from AAII.com).  That spread number does not auger well for gains, even if they come.  They are likely to be given back into or during the next earnings season, unless forward guidance is strongly positive to make up for the slow start to this fiscal year.  Be advised that sometimes strong rallies appear at the current Bull-Bear spread, but the gains vanish over a period of months after achieved.  The high neutral readings we’ve been seeing for weeks are positive for a point 6 months out as I’ve explained HERE.

The short term looks “iffy,” but the Bulls will likely prevail in time as the world muddles through the current slowdown.  Fed uncertainty continues to be a cloud over the market.  Will they raise in September or not?  How much?  Once and done or will there be a series of raises that might force the economy into recession?  Markets despise uncertainty and often reflect it with sloppy, more volatile trading (ups and downs).

SP500 Index Chart (SPX, SPY): (Please click to enlarge it)  Weak with a lower high below the green line shown.  If the market can recover back above the green line quickly, there’s much more hope for a rally, lasting at least a few weeks or months.

SP500 Coming Back Down

SP500 Coming Back Down

Russell 2000 U.S. Small Cap Index (RUT, IWM): Small caps just below a significant high too (please click to enlarge).  Moving back above the green line would be very Bullish.

rut-small-cap-index-market-timing-chart-2015-06-12-close

Small caps topped out too for a bit?

Gold ETF (GLD): Holding as currency insurance only.  No trade currently.

gld-gold-etf-market-timing-chart-2015-06-12-close

Gold remains in range, going no where for now, but with technical and fundamental support.

U.S. 10 Year Treasury Note (TNX,TYX,TLT,TBF): Treasuries finally caught a bid, but we need more follow-through this week!  Needs to stay below that April high of 2.407% (24.00 on the chart below = 2.400%).

(see my messages on Twitter®Follow Me on Twitter®.   Follow Me on StockTwits®).

tnx-10-year-treasury-note-market-timing-chart-2015-06-12-close

Rates finally ease after a long fear driven run up.

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.

Note that the newsletter is now closed again to new subscriptions: Join the Wait List to Join the Newsletter as a Loyal Subscriber, Opening again for the July 5th issue.  If you join and don’t read the newsletter, you will be deleted.  I don’t publish to non-readers as other newsletters do.  Stay tuned here in the meantime and follow all the action via the Twitter® and StockTwits® links above.

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 © 2015 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 6-05-2015 Close: Stay with the Innovators. Dollar Surges Helping Small Caps. Gold Falls As Rates Shoot Up.

A Market Timing Report based on the 6-05-2015 Close, published Sunday June 7th, 2015

I deliver focused comments on the markets.  These are supplemented with “Tweets/StockTwits” (see links below).

The SP500 Index dropped just a bit on Friday after the employment number hit 280,000 vs. the 220-225K expected.  Recovery should be good for the markets.  Earnings go up and stock prices rise in step with them.  That’s a healthy recovery.  If the market does not go up over the next few weeks, something is wrong with this recovery.

The Federal Reserve induced excesses may be to blame.  Raising interest rates this cycle may cause greater volatility than we’ve experienced before as market participants including stockholders and companies themselves have become addicted to cheap loans.  Just consider the billions of buybacks that companies have undertaken with cheaply borrowed dollars.  These purchases have raised stock prices in an unnatural way.

Normally innovation leads to strong earnings which in turn lead to the rising stock price of a great company.  At least that is the best sort of company to lead in a market.  Cheap money twists the game and distorts the system from the ideal.  The consequence will be that some companies that have been using funny money instead of innovation to advance their stock such as IBM will be major victims of Federal Reserve tightening.  Here is the key to successful investing over the next few years (it will always keep you ahead, but it’s now more important than ever as Fed interest rates rise off zero): Stay with the true innovators.

sp500-index-market-timing-chart-2015-06-05-close

Small dip or something more?

Russell 2000 U.S. Small Cap Index (RUT, IWM): Small caps are holding up well despite being vastly overvalued.  Got a boost from US dollar strength after the employment numbers.

rut-small-cap-index-market-timing-chart-2015-06-05-close

Small caps get a boost on Friday from a dollar move UP.

Gold ETF (GLD): Gold is slipping on the big boost in interest rates this week.  Hold as insurance only.

gld-gold-etf-market-timing-chart-2015-06-05-close

Gold falls with rates rising this past week.

U.S. 10 Year Treasury Note (TNX,TYX,TLT,TBF): Employment was strong over the past month, so rates shot up.  They are right at resistance and unless the economy is going straight up from here, rates should decline.  For bond holders, NOW would be nice, or the selling will accelerate further.  (see my messages on Twitter®Follow Me on Twitter®.   Follow Me on StockTwits®).

tnx-10-year-treasury-note-market-timing-chart-2015-06-05-close

Rates blast off. Have they stopped at the prior high?

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.

Note that the newsletter is now closed again to new subscriptions: Join the Wait List to Join the Newsletter as a Loyal Subscriber, Opening again for the July 5th issue.  If you join and don’t read the newsletter, you will be deleted.  I don’t publish to non-readers as other newsletters do.  Stay tuned here in the meantime and follow all the action via the Twitter® and StockTwits® links above.

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 © 2015 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 5-29-2015 Close: SP500 and Small Caps Correcting. Gold in Range. Rates Falling.

A Market Timing Report based on the 5-29-2015 Close, published Sunday May 31st, 2015

I deliver focused comments on the markets.  These are supplemented with “Tweets/StockTwits” (see links below).

6-03-2015 MARKET UPDATE: Rates UP-Dollar DOWN-Gold DOWN-Stocks UP says to me market thinks: “Slow recovery continues despite Fed plans to tighten. No inflation issue.”

That interest rates are shooting up makes little sense unless government hiring drives the employment number on Friday to very high levels, but we’ll explore the possibilities below.  ADP came in at 201,000 new jobs in the private sector.  Only 225,000 total non-farm payroll jobs are expected on Friday when the “employment situation” is reported. That means 24000 government jobs are expected.

Rates go up and keep going up when A) the economic recovery is strong and B) wages are rising and consumption is rising.  When there is slow or no growth and buying is weak by consumers, there is no upward pressure on rates.  The Fed eases policy or at least does not raise rates in a soft economy.

Consumption has been weak and wage increases have also lagged.  The economy registered a negative number for Q1, which many economists are saying “just isn’t true” as you cannot have 200,000 new jobs being created in a month in a recession, which means 2 quarters of GDP negative growth.  The truth is probably somewhere in between.

Are rates going up simply because the bond market is panicking?  They are supposed to be smarter than that.  Normally when the Fed raises rates following a loosening cycle, the yield curve flattens, meaning long rates go DOWN, while Fed rates and other shorter rates go UP, because rising Fed rates slow the economy to keep it from getting too hot, and inflation fears are diminished.

So why is the 30 Year Treasury Bond acting as it is and selling off (long rates rising)?  Either market participants expect inflation to rear its head, even while it’s now under control OR there is something else at work.

This is a DOLLAR DOWN, RATES UP combination.  Why?  There are several reasons: 1. Some countries are dumping U.S. dollars.   Why?  Some speculate this is happening ahead of a decision to allow China to take on a reserve currency role.  2. Europe is getting stronger economically, despite the ECB’s QE program.  That can cause the Euro to counter-rally for a period at least until the ECB does it’s next fit of bond buying.  It’s not coming from Japan, that is for sure!  The yen is at lows, not counter-rallying.  3. If U.S. citizens and non-U.S. non-Euro carrying citizens buy European stocks unhedged, they are buying Euros and selling dollars to do so.  If foreigners see the same greater opportunties in Europe, China and Japan, then money leaves the dollar and moves into these other currencies driving down the dollar.

In contrast to Europe, the U.S. economy is slowing somewhat at least in part due to the oil price collapse and its effect on that previously high growth industry.  That pressures the dollar.  If you own dollars and then sell Treasuries to get rid of dollars, rates rise.  Selling then begets more selling as it snowballs.

So what happens now?  If the Fed raises rates “one and done” in Sept. or Dec., we could see the resumption of our stock market rally as we work through temporary ups and downs.  If they raise rates too fast, they could either slow the economy, bringing down the stock market or tank the stock market with a recession.  I believe they’ll error on the side of doing too little vs. the inflation risk rather than getting far ahead of the curve. 

Rates have risen ahead of any Fed action so they should fall again IF it becomes clear the Fed is barely going to raise rates. 

In the above scenario: 1. Stocks make further gains and will be up 6 months from these levels.  2. Rates should stay relatively low for at least 6 months as well.  3. Eventually the Fed will be behind inflation with a slowly growing economy at best, and gold will rally.  Gold could have a floor in if this scenario is valid.  But, and it’s a big but, IF the economy becomes extremely strong, gold will sell off as higher returns are chased and the U.S. dollar strengthens.

What do we really want as a nation in the U.S.?  As all nations do, we want a strong economy with rising productivity and with that will generally come wage and spending growth.  Those entail a stronger U.S. dollar and relatively low interest rates if inflation is under control.

And now for this past Sunday’s review of the markets…

SP500 and Russell 2000 Small Cap Indices:  Both are coming off tops and may correct some more.   Now that rates are falling once again (see TNX chart below), the dollar may weaken from here again and that would mean the advantage small caps had vs. large would disappear. 

For the SP500, there are two failed breakouts now off the Feb. high.  On the other hand AAII Investor sentiment implies that within 6 months the market will likely be higher.  So when the market eases back, we’ll most likely be buying, not selling.  The thing that would interfere with this scenario?  A recession.  GDP was revised to negative for Q1, but is not expected to be negative for Q2, but if it is, that would be the beginning of a recession by standard definitions.

sp500-index-market-timing-chart-2015-05-29-close

Coming down?

Russell 2000 U.S. Small Cap Index (RUT, IWM): A lower high has formed on the daily chart shown below.

rut-small-cap-index-market-timing-chart-2015-05-29-close

Small caps form lower high.

Gold ETF (GLD): Gold may be aided by falling interest rates, but not if inflation falls faster.  (see prior article on buying gold).  It is NOT a good sign that gold is not rallying with falling rates this week.  We have no trading position currently, only a long term hold as currency insurance.  That 112ish level (2nd red line from bottom) needs to hold in this pullback.

gld-gold-etf-market-timing-chart-2015-05-29-close

Gold is stuck in a range.

U.S. 10 Year Treasury Note (TNX,TYX, TLT, UBT, TBT): This breakdown in yields came with the softer economic data (see my messages on Twitter®Follow Me on Twitter®.   Follow Me on StockTwits®).

tnx-10-year-treasury-note-market-timing-chart-2015-05-29-close

Rates are falling.

CONCLUSIONS:

1. The U.S. stock markets are in correction. If the recovery muddles on, it will be a buying opportunity.

2. Gold is not progressing.  It is gyrating within a range.

3. Rates are falling again.

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.

Copyright © 2015 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 , , , , , , , , , , , , , , | 2 Comments

Market Timing Brief for the 5-15-2015 Close: SP500 Testing Above a Top. Small Caps Weaker. Gold Testing Above a Top. Interest Rates Fail a Breakout.

A Market Timing Report based on the 5-15-2015 Close, published Sunday May 17th, 2015

I deliver extremely focused comments on the markets.  These are supplemented with “Tweets/StockTwits” (see links below).

SP500 Index: Testing just above a prior important top.  Frankly, these new highs can fail, but they can also lead to new highs.  They are possible turning points.  It’s far better to buy lower than to buy once the breakout is happening.  We’ve already bought and hedged a bit, and we’ll let the market show us the way. 

The chart overall is more positive than negative now, as it is an ascending triangle (higher lows with a flat top).  We are now seeing an attempted breakout above the top of the triangle, to which this Bullish formation is supposed to commonly lead.  The SPX is actually just below the prior intraday all time high of 2125.92. 

sp500-index-market-timing-chart-2015-05-15-close

Testing above a prior high. Looking for a new breakout.

US Small Cap Index (RUT, IWM): Has been lagging the small caps due to recent dollar strength, which may be reversing now.  But they are overvalued if the economy is in fact slowing, which recent data suggests.

rut-small-cap-index-market-timing-chart-2015-05-15-close

Small caps are lagging large caps. And they’re overvalued.

Gold ETF (GLD): Gold investors will be happier if rates keep falling and lean toward creating negative real rates as discussed.   If you have not read my recent article on gold investment, please do and save yourself a fortune in bad gold bets: Gold Investing Secrets

gld-gold-etf-market-timing-chart-2015-05-15-close

Gold needs to keep moving up. Watch for a stall.

U.S. 10 Year Treasury Note (TNX,TYX, TLT, UBT, TBT).: The last breakout to new highs in yields failed, so the Bulls have the edge here.  I added more exposure recently to TLT.  A bit early.  Lower rates will help gold too.  This breakdown in yields came with the softer economic data this week (see my messages on Twitter®Follow Me on Twitter®.   Follow Me on StockTwits®).

tnx-10-year-treasury-note-market-timing-chart-2015-05-15-close

Rates are falling again.

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.

Copyright © 2015 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

Why the World is Selling US Dollars and Treasuries: The Relativity Game

The US dollar (USDX, EURUSD) has been in decline despite rising interest rates (the dollar is up slightly today, but it looks like a blip compared to 10 Year Treasury yields that are banging UP against major resistance; TNX, TYX, TLT, TBT, UBT), which leads me to conclude that some of the selling is foreigners moving out of dollars by selling U.S. Treasuries to buy foreign debt and foreign stocks that have been rallying.

Why they are selling U.S. Treasuries does not matter, but let’s play anyway.  In Europe, investors may have sold U.S. Treasuries to ride the “Draghi train” to sub-zero rates.  That would cause U.S. rates to rise, and Euro rates to fall.  And they are also using the proceeds to buy European stocks that have been rallying. It could also be that the Chinese are already selling or will sell U.S. Treasuries to pressure the U.S. into allowing the IMF to declare the yuan a reserve currency in October.  I favor that the prior influence is much greater, and the latter is obviously highly speculative.

Recently the dollar HAD BEEN getting stronger based on the notion of higher Fed rates (not necessarily a correct assumption, because higher short rates can flatten the curve by causing long rates to fall while short rates rise).
Short dated Treasury yields should rise in that circumstance, while long dated Treasuries like 10 and 30 year issues should decline in yield, all else staying equal.

Or is it the threat of a weakening U.S. economy or the Fear of the Fed driving longer rates higher?  Many would disagree with this notion, but again, let’s play with this a bit.  What has changed could be that 1. the U.S. economy is not as strong as hoped, which depresses interest in U.S. stocks by foreigners, who are already running to their own stock markets due to falling rates, resulting in less dollar demand and hence, less demand for U.S. Treasuries.  2. Rates are rising due to Fed threats to lower the Fed Funds rate off zero, which could ironically tank the U.S. economy and force it into recession, which is always a big negative for stocks.  A bad economy means a weaker dollar in the end too.  A weaker dollar means higher borrowing costs and yields eventually.  Investors don’t want their money in a country with a failing or slowing economy, as then their debts may not be paid off.  If rates were rising because the U.S. economy is actually strong, then the dollar would be rising.  It’s now weakening.

In the end, I believe the main influence on Treasury yields has been the higher demand for central bank debt outside the U.S.  U.S. rates became low enough that the remaining returns seemed too low compared to other options, despite already LOWER yields in some of those foreign locations.

A lot of this could be short term speculation driven by Dr. Draghi of the European Central Bank (ECB) in the Eurozone, where German Bunds were recently showing negative yields out EIGHT years on the curve.  That means you had to PAY to hold an 8 year German bond.  German Bunds are now “only” negative out for 4 years today after Bill Gross said on April 21st that they were the “short of a lifetime”  Not talking his book was he?  Naaaaaaaah.  ; )  (I like Bill anyway.  ; )  He says what he believes to be true and is often right.)

In the end, as long as the Federal Reserve is not behind on preventing >2% inflation, higher short Fed rates should push longer term interest rates DOWN, flattening the yield curve, and causing Treasuries/Bonds to rally, not sell off as they’ve been doing.  The recent moves seem most likely to have been motivated by better prospects outside the U.S.

But guess what?  As it’s nearly impossible to sort out which headwinds vs. tailwinds will win, we follow the market timing charts for our final call.

So far, the recent charts say dollar weaker, gold up weakly, stocks up a bit without making new bold highs, and rates rising but nearing resistance.

If too much inflation does show up eventually, the bond market will drag the Fed into raising rates whether they want to or not, as they have a dual mandate of adequate employment (which they have no clue as to how to determine) PLUS 2% inflation.  Until then as the world fights off slower economic growth, that does not appear to be an imminent threat.

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Posted in Bonds, investment, Treasuries, US Dollar Index | Tagged , , , , , , , , , , , , | 2 Comments