A Market Timing Report based on the 4-17-2015 Close, published Sunday April 19th, 2015
UPDATE for the Big Markets We Follow Published 4-26-2015 (Update 2 on a subscriber email is below these comments…)
SP500 Index: stopped at 2117.69 on Friday, barely below the prior 2-24-2015 high of 2117.94. This is a possible pivot point up or down and not a great place to buy.
Russell 2000: Stopped at 1267.54, just below the 3-27-2015 high of 1268.16.
Both large and small cap stocks are testing just below major highs. This is a pivot point, so if you intend to trade it, follow the move, up or down. I remain Bullish over the intermediate term of 6 months, because I expect the world economy to continue to strengthen and help the SP500’s performance despite the U.S. dollar, so investors who don’t like trading may choose to stand pat and take their lumps should we shift into a correction.
As I messaged on Twitter®/Stocktwits® this week (see links below), sentiment remains supportive of a Bull case for the coming 6 months, because a large number of investors are neither Bullish nor Bearish (read at the link in the Tweet). SPX earnings are beating ESTIMATES, but earnings are lower than the prior year’s Q1, and revenues are coming in light: Revenues light, earnings beat lowered expectations
That means the article at the prior link is a bit of baloney frankly. Earnings FELL year over year and now they are beating LOWERED expectations. The story sounds a lot different when you know the facts.
Multinationals remain challenged by the strong U.S. dollar.
Gold ETF (GLD): Broke the 113.41 low of 3-31-2015. My view? More downside to 111.95ish or prior March or November lows. I still like GLD as insurance, but we’re not in a trade right now.
10 Year Treasury Yield: Back below 1.930%, so headed to test the base of the current range at 1.843%. Bullish for bonds.
We’ve got both the Fed and GDP for Q1 2015 this Weds, so plenty of explosives on hand to send the stock markets higher or lower.
UPDATE 2 at 10:11 am 4-27-2015: I received this note from Don and wanted to comment. See my answers in bold/brackets.
I just wanted to write a quick note to thank you for your excellent insight and commentary on the markets. I’m a new subscriber (just received my first monthly newsletter a few weeks ago) and I’m really enjoying learning from your insights. <Glad you find it valuable!>
I’ve noticed recently that a larger than normal number of “experts” on CNBC seem to be pulling back, anticipating a possibly substantial correction in the U.S. markets. <They are continually finding people who will be contrary to what the market is doing, because that is what makes for better TV, but not necessarily better investing. Follow the key information on what is actually happening, rather than the latest opinion that is not based on facts, but just “worry.” Worry will get you out of the market too soon in many cases, and keep you out when you should be back in. > For that reason, I’ve been investing in DXJ, DXGE, and EWU, but I’m still overweight U.S. equities, mainly tech stocks. <Unless you are sure as to where the US dollar will go, I recommend that you balance dollar hedged vs. non-hedged ETFs. If you are good at currency trading, by all means, pick one over the other. >My portfolio has done well, beating the S&P by about ten points<Fantastic results, hopefully in a tax-free setting of course if you are buying and selling a lot, or those gains get trimmed, but very well done regardless!>, but I’m wondering what you’d advise. I am a faithful reader of Investor’s Business Daily and so follow the tenets of William O’Neil by carefully watching the moves of the big institutional traders. IBD recently moved into a “Confirmed Uptrend” view of the markets based on institutional buying patterns<IBD is one of the better sources of information and perspective, though I don’t personally follow them at this time. I do like Bill O’Neil’s book “How to Make Money in Stocks” but don’t use stops that are quite as rigid as he does. I believe stops should vary with volatility. Using the same % stop on every ETF/stock does not make sense in my view.>.
I do have a question for you: You say you’re bullish in the intermediate term, but are you neutral in the near term? I couldn’t determine your outlook by your comments in your most recent weekly update.<You actually just stated my view. I’m short term neutral on the market (a pivot point is neutral really, not a place to buy or sell, but perhaps to hedge a bit of your gains if you know how to do that (see Tweet from this morning at link below or on sidebar of this site) or to take some profits and ride the rest, but I’m Bullish for the 6 month period for reasons that I’ve stated (why go too far ahead in time really? It’s all guesswork and nonsense. Even the Fed has no clue what the conditions will be in 6 months. Their forecasts are notoriously bad. My guess? Economic conditions will not be that bad given all the monetary stimulus being supplied by central banks around the world.)
Thanks again for your wonderful newsletter. I’m an appreciative subscriber!
<Glad to have you on board as a “Loyal Reader”! Keep sending your comments Don. In the end, follow YOUR OWN conclusions, and you will do well, as you have. Be flexible and willing to change your mind, but not too willing (over-trading most often results in lousy returns!).>
Standard Disclaimer: It’s your money and your decision as to how to invest it.
back to last week’s charts and commentary….
I deliver extremely FOCUSED comments on the markets. These are supplemented with “Tweets/StockTwits” (see links below).
Current Thinking and Market Timing:
– There are many who believe the Fed cannot raise rates until early 2016 now.
– European rates are negative out many years (8 for Germany), so the pressure to invest in European stocks will be high for Europeans for a while to come. This will pressure their stock markets higher.
– Stick with EWU if you own it. It’s off it’s lows now. Not a great buy here as it has run up from the recent low (you’ll have to buy a low in the up trend; we’re holding current positions). It will benefit from the stronger European economy, and the pound should hold up better now.
– For new European positions (in this case EuroZONE…), I’d buy Germany (see below for how to avoid currency exposure – unless you WANT some currency exposure!).
– China just announced Sunday that they will allow banks to further cut reserves to bolster their economy that threatens to fall below the target of 7% growth. It’s the second cut in 2 months per @CNBC. Stick with FXI for now. Decide where you’ll preserve profits of course, but don’t set an ultra tight stop. I believe there was an overreaction on Friday to the announcement that the Chinese were going to allow more short selling in their markets. The weakest hands fled the market. Our hands are not weak, but we’re also not stupid, so we will apply some reasonable stop to preserve at least, say half our profits, correct? It’s your decision, not mine.
– The dollar is looking toppy now (there is a “but” there….keep reading) and with the Fed being put off potentially by several months if not much longer, the dollar could weaken further on the margin. That’s why I’d hedge your European holdings with an equal amount of hedged vs. non-hedged ETFs (e.g. EWG plus DXGE). That way, you don’t have to guess which way the Euro will go vs. the dollar. If you are sure the Euro will fall to 0.85, then by all means overweight the hedged ETFs like HEDJ over VGK and DXGE over EWG for example. Look at a chart of UUP, and you’ll see it’s on support, and if it holds there, the dollar up trend will remain intact.
– Rates are falling again in the U.S. See the chart below (TNX). This makes stocks a good relative value over the intermediate term.
– Longer term Treasuries will continue to rally (TLT, TYX). That’s the trend and the short term trend is also down in yield (TLT UP). I admit that in the ultra-short term, we must break the current yield support (see chart) to continue the down trend on an immediate basis. Stop buying into the BS sold to you by the mainstream press and read the truth about the “risk of rising rates” here: “What Actually Happens When Rates DO Rise…”
– Gold is rising in a long term down trend. Keep that in mind. You are now in a trade until the big trend changes. (We are not in that trade, but I’ve commented that gold at least can be held as insurance and buying some would not be a bad idea if you hold zero currently. Many advisors recommend 5% gold, but don’t say what the denominator is (investable assets [not including real estate] vs. all assets). I say 5% of investable assets is reasonable. Real estate is an inflation hedge at this point too, since it’s still fairly cheap, despite recent gains (not for all locations obviously; if something is overvalued due to speculation, it’s not a hedge).
Why am I not trading gold? No great reason, other than the fact that the yield is zero and the fact that there are many complicating factors for gold not the least of which is the impending speeding up of the world’s economy, never great for gold unless inflation starts rising faster than interest rates (persistent negative real interest rates). I think Chinese stocks are a better investment than gold right now (buy the pullbacks, not the “rips”).
If you like what you just read, please show your gratitude in a tangible way as many of you do, as in Tweeting the link to this article, writing a comment below that is meaningful, or writing a testimonial in the comments below about how you’ve made money based on my insights. Thanks for taking the time to do that!
And now the charts for the week:
SP500 Index (SPX, SPY; click the chart to enlarge it): My sense is that the first two red lines will hold this pullback, but it really depends on earnings flow and forward guidance. I don’t control that. ; )
Correction in Bull Trend
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Russell 2000 U.S. Small Cap Chart (RUT, IWM; click the chart to enlarge it): Small caps will fall about twice as fast as large if the correction deepens. That’s called “beta.” You see in the chart below that the channel breakout to the upside failed TWICE. This is a correction in an up trend though, so be ready to use some cash if we get a bigger pullback than we’ve already had. Your first add could be at the 50 day moving average or slightly below that if we get there.
Small caps correcting a bit as well in Bull Trend.
The Gold ETF Chart (GLD; click to enlarge the chart): (see above and below for predictions): This “trade” is slightly above mid-range in the channel, but I’d use the red line for a stop if I were to enter here (see above for why I’m not bothering beyond “insurance” when it comes to gold).
Gold has formed at least a temporary low and is rising in its downward channel.
Please Click the TNX Chart to enlarge it (see related ETFs, TLT, UBT and TBT): The 10 year yield did in fact fall back below 19.30 as predicted. We’re at support, and we need a break below support. My guess? It will happen this week, so we’re staying long TLT.
Rates are still falling in their longer term down trend.
I cover foreign markets on social media (see links above) and in my monthly newsletter. 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.
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