A Market Timing Report based on the 4-17-2015 Close, published Sunday April 19th, 2015
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”).
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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. ; )
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.
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).
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.
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