Market Timing Brief for the 10-17-2014 Close: Did Stocks Bottom? Could Rates Go Lower? Will Gold Keep Rising?

A Market Timing Report based on the 10-17-2014 Close, published Sunday October 19th, 2014

The SP500 Index took another dive this past week, but seems to have found more significant support after the Fed and ECB came to the rescue.  Dr. Draghi, the leader of the ECB, who has been draggy and NOT leading well, finally decided to buy the ABS that he promised to buy.  The way he has rolled out this program is a stunning example of how NOT to lead.  If you are going to do something, do it!  Don’t simply yap about it.  Bullard gave some added help to the markets by suggesting that the Fed might need to reverse the decision to end QE.  The current QE is likely to end this month as planned, but QE4 could appear.

Before that extra help, the SPX slipped to the next lower level of support and bounced.  As I pointed out real time on Twitter, the small caps led the way up.  They provided the clue that a turn was imminent.  You see, the indices don’t all bottom at the same time during a pullback.  The Russell 2000 small caps held the level they hit on the 13th, while the large caps continued to test lower.  My suspicion was that the SPX would recover rather than break to a still lower low, because the small caps had held the previous low.  I’ve been right so far.

Realize that once a major low forms, it can be tested more than once, even if it holds.  We are still at risk for that sort of move.  So the people who are benefitting most are those who trade the volatility up and down.  The same opportunity occurred in 2011, when I was able to trade Bershire Hathaway (BRKA/BRKB) stock up and down a few times.  But it’s when you stick with a stock off a low that counts.  Those decisions yield the big gains if you give them room.  Not re-buying when a stock truly has re-bottomed is a big mistake.  Luckily I was conscious around my Berkshire Hathaway trades and therefore own it from around the 68ish level since 2011.

I have a stop in mind if it breaks down too much.  I will NOT ride that pony back to 68 from 137.09.  You shouldn’t do that either.  Set up all your stops now mentally (so the market makers don’t know them).  And if you are wrong?  Get back in if the story is still good for the company.  Admit when you are wrong and move on. Sometimes moving on means buying the stock back.

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; click the chart to enlarge it):

sp500-index-market-timing-chart-2014-10-17-close

A bottom in place for another rally or more volatility ahead?

Meanwhile, this week investors did not run for the exits into the Weds. night AAII survey close (moving up to a spread of percent Bulls minus Bears of 9.0% up from 8.9% last week), which I discovered can actually be Bullish as explained here: AAII Survey Says!

The U.S. Small Cap Chart (RUT, IWM): The small caps bounced from the low this week up to just below the 2-5-14 low of 1082.72.  Initially, they led the large cap stocks up, but then lagged on Friday.  If the RUT drops to a new low, the SPX will likely follow.  A deep retest will occur in both in my opinion if one breaks down.

Russell 2000 U.S. Small Caps (click the chart to enlarge it):

rut-small-cap-russell-2000-index-market-timing-chart-2014-10-17-close

Small caps rebound. Just a bounce?

Gold continued to hold up as the stock markets fell apart last week.  Yields tested very low levels as the second chart below shows and that should help support gold.  Low rates will prevail due to a Fed that remains dovish against the backdrop of a weakening world economy.  That pressures the US dollar and supports gold.  Keep your gold for now.

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

gld-gold-etf-market-timing-chart-2014-10-17-close

Gold bottomed and is holding up in the recent rally.

The 10 Year Treasury interest rate (TNX, tracked by TLT if Bullish; TBT if Bearish) was swooning profoundly in what looked like a capitulation move to me.  Rates could continue to move down lower after the bump up after stocks recovered.  Why?  Because the Fed will have to keep rates low to support our economy as the entire world is showing signs of slowing.  For that reason, I chose to start a TLT position on Friday.  It goes up if yields fall further.  I am contending by taking this position that both stocks and bonds can do well over the next several months.

Please Click the TNX Chart to enlarge it:

tnx-10-year-treasury-note-market-timing-chart-2014-10-17-close

Rates should stay low and could move lower still as the Fed gets back to work

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 10-10-2014 Close: Stocks and Rates Both Hit Bottom as Gold Rises from a Major Low!

A Market Timing Report based on the 10-10-2014 Close, published Sunday October 12th, 2014

The SP500 Index fell to my 1905ish target on Friday.  That COULD be it for this swoon.  The script is that bounces occur even during the beginning of a Bear market. Is this a Bear?  No one can tell you except after the fact, so don’t concern yourself with that speculation.  Protect profits where you have them (unless we do in fact bounce Monday) and protect capital by removing some from the markets ONLY if you are willing to rebuy higher if you are dead wrong and end up selling at a low.  I would buy this level only if I were willing to sell it below the next level of support shown on the chart below.  Otherwise why bother?

If you believe the U.S. economy is on the mend still, then this is a buying opportunity and you should be adding more exposure as we head lower.  If you followed my advice throughout this year, you have stayed out of small cap stocks and have stayed in large cap stocks until now.  But now our allocation even to large cap U.S. stocks is now lower as I said on Twitter (see links just below here). We may add back exposure soon however.

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; click the chart to enlarge it):

sp500-index-market-timing-chart-2014-10-10-close

SP500 Index Hits Bottom

Meanwhile, this week investors became more Bullish into the Weds. night AAII survey close (moving up to a spread of percent Bulls minus Bears of 8.9% up from 4.5% last week), because the market went UP on the news that there was no Fed news.  Yes, it was just about that stupid.  What the non-thinking crowd did not get was that the Fed not doing anything special as QE ends this month is a negative.  The Fed saying that it’s still waiting to raise interest rates is not enough when the economy is visibly slowing worldwide.  Take a look at the IMF’s dim forecasts for Russia, Brazil and Italy for example: IMF Forecasts for the World’s Economies

The U.S. Small Cap Chart (RUT, IWM): The small caps broke down further and if you did nothing but listen to my warnings through this year on staying in larger stocks and out of small caps indices, you did much better.

Russell 2000 U.S. Small Caps (click the chart to enlarge it):

rut-small-cap-russell-2000-index-market-timing-chart-2014-10-10-close

Small Caps break to new lows. Watch out below!

Gold:  GLD, the gold ETF, held at the massive low we’ve been watching.  Whew!  Gold investors breathed a collective sigh of relief.  That does not mean gold will keep holding if the world’s stock markets keep falling however, so we’ll be vigilant. The U.S. dollar came down a bit but needs to keep falling or gold will suffer further.  There is room for gold to rally from here still.

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

gld-gold-etf-market-timing-chart-2014-10-10-close

Gold Survives at Major Support

The 10 Year Treasury interest rate (TNX, tracked by TLT if Bullish; TBT if Bearish) was back testing a major low on Friday.  If rates don’t hold at that low, stocks will head lower still.  So keep a keen eye on interest rates this week!

Please Click the Chart to enlarge it:

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

Rates are falling but on support.

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 10-03-2014 Close: Stocks Hit a Bottom. Gold AT the Bottom. Rates Still Low.

A Market Timing Report based on the 10-03-2014 Close, published Sunday October 5th, 2014

The SP500 Index slipped to what I shared on StockTwits® and Twitter® (see links just below) was support at about 1928 and bounced.  The actual low was 1926.03.  We bought back part of what we sold there, thereby doing exactly what I claim is possible, which is buying low and selling highHaving some cash on declines can make you money, but only if you are willing to get back in.

Bearish advisors often tell you to “GET OUT!”  Unfortunately they stink at telling you to “GET BACK IN!”  So discriminate when you listen to the broken clocks of the world.  It is known that the most Bearish advisors are the worst, as the world never seems to go to hell and stay in hell!  The Universe naturally and sometimes unnaturally repairs itself from its wounds.  The Fed would be an example of unnatural healing!

How do you keep your cool when stocks are plummeting as they were last week and buy when others are scrambling to sell?  I’ll be sharing more on how that can be done in the coming weeks, so stay tuned.

We added back to our model portfolio at 1930.46.  I personally added by purchasing puts below the lows of the week, so I’m sure to get a discount if put the shares of SPY and will make a 12.4% simple annualized gain on the puts otherwise.

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; click the chart to enlarge it):

sp500-index-market-timing-chart-2014-10-03-close

SP500 hits support and bounces.

Meanwhile, this is what this week’s investor sentiment survey at AAII says this about the bounce:  Survey Says! What About Investor Sentiment?

The U.S. Small Cap Chart (RUT, IWM):

U.S. Small Caps are bouncing with the SPX despite valuation concerns (click the chart to enlarge it).

rut-small-cap-russell-2000-index-market-timing-chart-2014-10-03

Small caps lead the bounce.

Gold:  GLD, the gold ETF, is testing the massive lows we’ve been watching.  The lows were: GLD 114.46 on 1-3-14, gold near month futures 1179.40 low on 6-28-2013, and spot gold’s low of 1192 on 6-28-2014.  The spot gold price is JUST BELOW support at 1190.70, but we can consider that a retest so far.  If we do not bounce quickly, gold could see far more damage. The other two lows mentioned have held thus far.

Gold will turn up or not.  If not, watch out below.  Low rates should have helped gold and are not.  Gold has been beaten lower even with lower rates.  The main driver has been the U.S. dollar strength DESPITE falling rates.  Investors are hiding in the U.S. dollars.  Fear is rising worldwide it seems.  This can reverse, but that is what has been happening.  The dollar’s advance is not sustainable as our economy is going to take a currency exchange hit in the coming quarters as it is.  That will make the Fed sit back and take it’s time in raising rates, which should pressure the US dollar.

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

gld-gold-etf-market-timing-chart-2014-10-03-close

Gold needs to hold the lows.

The 10 Year Treasury interest rate (TNX, tracked by TLT if Bullish; TBT if Bearish) could be forming a reverse head and shoulders and continue its bounce.  That means rates rising with a recovering economy.  If you believe the opposite, you should buy bonds and Treasuries on every rally.  2.471% was resistance on Friday (bottom yellow line in chart below).

Please Click the Chart to enlarge it:

tnx-10-year-treasury-note-market-timing-chart-2014-10-03-close

Rates forming a reverse head and shoulders.

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 9-19-2014 Close: Stocks Still Poised to Pull Back. Gold Headed to Bottom. Rates Falling Again?

A Market Timing Report based on the 9-19-2014 Close, published Sunday September 21, 2014

The SP500 Index is still slipping, as often happens near tops.  Tops sometimes are revisited.  The SP500 bounced up to the prior high and failed to break out.  Some hugely positive turn of international events could potentially spark a further rally to new highs, though unlikely, and given the tide of signs of economic slowing throughout the world, stocks may decide to at least take a breather until Europe and Japan find some reasonable footing and U.S. growth re-accelerates.  U.S. multinationals are exposed.

We took a bit off near the top in our model portfolio and will wait for a further pullback to reinvest it, or a higher high, which I clearly see as less likely to preceed at least a pullback of a few percent. (Don’t be too distracted by the big volume strike on Friday, as it was Quadruple Witching Day in the options market.)

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; click the chart to enlarge it):

sp500-index-market-timing-chart-2014-09-19-close

A Failed Breakout and Space to Fall.

Meanwhile, this week investor sentiment turned a bit too positive (learn what the downside risk is; this is an update from this past Thursday):  Survey Says! What About Investor Sentiment?

The U.S. Small Cap Chart (RUT, IWM):

U.S. Small Caps looked like they could reverse UP again (despite my warnings about valuation) and yet by Friday, they were headed down again (click the chart to enlarge it).

rut-small-cap-russell-2000-index-market-timing-chart-2014-09-19-close

Small caps failed to gain traction.

Gold:  GLD, the gold ETF, has now broken two levels of support.  It could head down toward the major low you see on the chart, but that could be interrupted if rates keep falling from their recent high and drag the dollar down with them.  Dollar down, gold up.

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

gld-gold-etf-market-timing-chart-2014-09-19-close

Gold dives. The thing that can save it is a dollar reversal with rates.

The 10 Year Treasury interest rate (TNX, tracked by TLT if Bullish; TBT if Bearish; click the chart to enlarge it): Rates falling again can drive the US Dollar down and gold UP.

tnx-10-year-treasury-note-market-timing-chart-2014-09-19-close

Rates ready to fall 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.

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 9-12-2014 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.

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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.

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