Market Timing Brief™ for the 8-26-2016 Close: What Happened After the Yellen Speech to the SP500 Index, Gold and Interest Rates?

A Market Timing Report based on the 8-26-2016 Close, published Sunday August 28th, 2016

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

UPDATE 8-29-2016: Gold Holding Weekly Up Trend

Market timing gold?  Well, it’s still holding onto its weekly up trend and I noted on Twitter/StockTwits (links below) today that TLT (Treasury ETF) is holding a breakout.  I think these two are closely linked.  The fact that Yellen’s hawkish talk could not wreck these two charts is significant.  The short term trend line was broken as I suspected it would be, but now may be one point at which to add more exposure with a stop. 

What’s the risk?  That the economy will improve dramatically with rising interest rates that ALSO stay ahead of inflation, making the stock market a more attractive place than gold.  If the two trends being testing (GLD and TLT) both break down from here, it will be a negative intermediate prognostic sign.

gld-etf-market-timing-chart-2016-08-29-weekly chart

Weekly Trend Still Holding Up for Gold

1.  SP500 Index: The market is done waiting for Dr. Yellen.  She said that the Federal Reserve is about ready to move interest rates up.  The key line from her speech was: ” I believe the case for an increase in the federal funds rate has strengthened in recent months.”  Here is the Entire Text.

The box the Fed is in has to do with the fact that the economy is still sluggish at best despite the prediction by the Atlanta Fed for a 3rd Quarter real GDP of 3.6%.  Remember that real GDP is a seasonally adjusted annualized rate of growth of the economy.  That number, if attained, is far too strong for interest rates to remain as low as they are.  Inflation would result, and the Fed wants to be ahead of that curve.  There are those who are predicting a much softer number for Q3 GDP and raising rates ahead of that weakness would be an error.  The Federal Reserve clearly has no clue, no visibility beyond a few weeks.  

Remember that the real market timing killer is recession and that won’t be happening, even if GDP comes in soft next quarter.  So for now, we’ll stay long, not leveraged long, but long.  The SP500 is testing the base of a range, and yes, it can correct from here, but the Bull is not dead.  We have cash to deploy and will buy the next time fear rises and investors are again uncomfortable.  Check the sentiment numbers below and you’ll see what kind of room is left for the Bulls…

SP500 Large Cap Index (click chart to enlarge; SPX, SPY):

sp500-index-spx-market-timing-chart-2016-08-26-close

SP500 Index backtests the recent range.

Survey Says!  Sentiment this week among individual investors (AAII.com) showed a Bull minus Bear percentage spread of -0.22% after bumping up a bit last week.  That means the Bulls have pulled back from a relatively weak rally up to a 9.2% sentiment spread back down to zero.  Markets don’t end this way classically.  Investors are hyper-Bullish at big tops.

8-24-16 close to poll Bulls               29.42% Neutrals 40.94% Bears      29.64%

Keep up to date at Twitter and StockTwits where a combined 18,321 people are joining in. Thank you for your interest!  Twitter® Follow Me on Twitter®.   Follow Me on StockTwits®).

2.  U.S. Small Caps: Same position as large caps, testing back a bit within the latest consolidation, but with higher risk.  If you are market timing, be sure to take beta (greater movement up and down vs. the SP500) into account.  Lower your beta (risk) exposure at highs and increase it when investors are foolishly fearful.

Russell 2000 U.S. Small Cap Index  (click chart to enlarge; RUT, IWM):

rut-small cap-index-market-timing-chart-2016-08-26-close

Small caps dip slightly post-Yellen.

3. Gold: “It’s still the economy stupid.”  The line happens to apply here.  Gold does not do well in an “improving economy rising rate environment.”  However, my belief is that the economy, while better than some were expecting, is still running on the soft side requiring dovish Federal Reserve policy for a while.  Given that view, we’ll keep some healthy exposure to gold, but watch our profits to date.  We took some trading profits higher.

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

gld-etf-market-timing-chart-2016-08-26-close

Gold fails a rally post-Yellen. May drop yet another notch.

4. U.S. 10 Year Treasury Note Yield (TNX): The break of the prior triangle was to the upside.  The market believes the Federal Reserve’s story for now.  If they are right, rates will rise from here.

U.S. 10 Year Treasury Note Yield (click chart to enlarge; TNX,TYX,TLT,TBF):

tnx-10-year-treasury-note-market-timing-chart-2016-08-26-close

Rates rise post-Yellen speech.

Stay with me throughout the week for the LATEST via the links to Twitter/StockTwits above.  Feel free to ask me questions, comment, retweet etc.

Be sure to visit the website for more general investing knowledge 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: Join the Wait List to Join the Newsletter as a Loyal Subscriber, Opening again for the October 2nd 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.

Copyright © 2016 By Wall Street Sun and Storm Report, LLC All rights reserved.

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

Market Timing Brief™ for the 8-19-2016 Close: SP500 Index in Holding Pattern. Gold Stagnation Continues. Rates About to Make a Move.

A Market Timing Report based on the 8-19-2016 Close, published Sunday August 21st, 2016

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

1.  SP500 Index: The market seems to be waiting for Dr. Yellen’s statement at Jackson Hole. In the meantime, the same questions remain that we’ve discussed over the prior 3 weeks, so I’ll direct you there to review them (links to upper right).  The NEW news is sentiment, which I’ll discuss after you look at the chart…

SP500 Large Cap Index (click chart to enlarge; SPX, SPY):

sp500-index-spx-market-timing-chart-2016-08-19-close

On a plateau…waiting for a move.

Survey Says!  Sentiment this week among retail investors (AAII.com) showed a Bull minus Bear percentage spread of +9.20% that FINALLY moved vs. last week.  Last week the Bull minus Bear spread was 4.5% and the prior week it was 3.0%.  This gives the market a Bullish tilt, because that sentiment spread is not extreme, yet Bulls are coming on board.  There is room to at least a spread of 20-30ish. A big Bull run could bring the sentiment spread to the mid-30’s.

8-17-16 close to poll Bulls               35.56% Neutrals 38.08% Bears      26.36%

Keep up to date at Twitter and StockTwits where a combined 18,321 people are joining in. Thank you for your interest!  Twitter® Follow Me on Twitter®.   Follow Me on StockTwits®).

2.  U.S. Small Caps: Waiting as well.  All depends on the economy, which is projected to improve in GDP terms this quarter.  The U.S. remains stronger than much of the rest of the world, hence the stretched valuation.  This all falls apart should U.S. GDP slow again.  Those that say the latest rise in GDP was a blip up in a down trend are waiting for just that.  Meanwhile, be sure to pick a side and adjust your portfolio accordingly.

Russell 2000 U.S. Small Cap Index  (click chart to enlarge; RUT, IWM): For the 8-19-2016 Close

rut-small cap-index-market-timing-chart-2016-08-19-close

Small caps also waiting.

3. Gold: Gold is struggling against the impression that the economy is improving.  Please look at prior issues if you are not clear on this. It is being held up by the impression that ALL major governments intend to demolish their own currencies to maintain economic market share.

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

gld-etf-market-timing-chart-2016-08-19-close

Gold has a bit of a limp and looks more like it could test lower.

4. U.S. 10 Year Treasury Note Yield (TNX):

U.S. 10 Year Treasury Note Yield (click chart to enlarge; TNX,TYX,TLT,TBF): This triangle will be resolved soon.  The move in the direction of the break out from this triangle (yellow lines), could be substantial.

tnx-10-year-treasury-note-market-timing-chart-2016-08-19-close

Rates are about to make a move. Follow that move.

Stay with me throughout the week for the LATEST via the links to Twitter/StockTwits above.  Feel free to ask me questions, comment, retweet etc.

Be sure to visit the website for more general investing knowledge 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: Join the Wait List to Join the Newsletter as a Loyal Subscriber, Opening again for the October 2nd 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.

Copyright © 2016 By Wall Street Sun and Storm Report, LLC All rights reserved.

Posted in Bonds, federal reserve, gold, investment, investor sentiment, large cap stocks, S&P 500 Index, small cap stocks, Treasuries | Tagged , , , , , , , , , , , , , , , , | 2 Comments

Market Timing Brief™ for the 8-12-2016 Close (Updates 8-15-2016 and 8-16-2016*New Charts): SP500 Index Holds Marginal New High. Gold Stalls. Rates Ease Again.

A Market Timing Report based on the 8-12-2016 Close, published Sunday August 14th, 2016

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

UPDATE 8-16-2016: Market timing the China ETF vs. other BRIC Members

FXI is the (Hong Kong listed Shares) FXI, which I’ve plotted vs. rest of BRIC (Brazil EWZ, Russia RSX, India EPI) and overall emerging market index (VWO) since the 2011 low (dividends not accounted for).  Although Brazil (EWZ) has rapidly reversed toward the mean from a huge fall, it is still trailing the other three ETFs.

fxi-vs-epi-vwo-rsx-ewz-market-timing-chart-2016-08-16-since-2011-low

India and China are on top since the 2011 low in FXI.

UPDATE 8-15-2016: SPY vs. the World since Brexit: I examined the market timing of numerous markets since Brexit (just after the fall; chart starts on 6-27-2016) and here are the results: China wins (H shares, FXI). Gold loses in relative terms for this period (ignore that green arrow ;)).

spy-vs-fxi-dxps-vgk-hedj-ewu-iwm-vpl-dxj-ijh-gld-market-timing-chart-2016-08-15-141pm

Market timing SPY (plus IWM (US small caps) and IJH (US mid caps) vs. the World

1.  SP500 Index: The index is holding onto a new high despite falling corporate profits.  Of course, if the Atlanta Fed’s very large 3.5% GDP number holds up for Q3, profits may rise and drive down PE’s.   At the moment the U.S. definitely remains a favored market for investors, which is likely why Brexit was such a short lived event.  Compare that to the Japanese tsunami HERE. In that case, selling made sense if you were willing to buy back lower, our process of “passive shorting.”

SP500 Large Cap Index (click chart to enlarge; SPX, SPY):

sp500-index-spx-market-timing-chart-2016-08-12-close

SP500 Index Holds Marginal New High

Survey Says!  Sentiment this week among retail investors (AAII.com) showed a Bull minus Bear percentage spread of +4.53% that once again barely moved vs. last week [over 40% Neutrals is Bullish for market timing 6 months out]). Last week the Bull minus Bear spread was 3.0% and the prior week it was 2.8%.  This is despite the achievement of all time highs.  That is Bullish!  Typically at tops everyone is Bullish and the Uber driver is talking about his last stock trade (it used to be cab drivers!).

8-10-16 close to poll Bulls               31.29% Neutrals 41.95% Bears      26.76%

Keep up to date at Twitter and StockTwits where a combined 18,321 people are joining in. Thank you for your interest!  Twitter® Follow Me on Twitter®.   Follow Me on StockTwits®).

2.  U.S. Small Caps: Small caps are holding up well despite the failure of corporate profits to materialize in this group.  The Wall Street Journal still reports the PE ratio of the small caps to be “nil,” even after most of earnings season has passed us by.  We will continue to favor mid caps to small caps until this turns around.

Russell 2000 U.S. Small Cap Index  (click chart to enlarge; RUT, IWM):

rut-small cap-index-market-timing-chart-2016-08-12-close-v2

Small caps slip and recover.

3. Gold: Gold will continue to be under pressure if the Fed is seen as getting closer to raise rates.  With Atlanta Fed GDP estimates of 3.5% for Q3, the Fed won’t be able to hold off forever on raising rates if it chooses to believe its own data.  That it may not do, given the fact that the chair is a devout Democrat.  Not a political comment, just a factual point that will likely keep rates steady until the December meeting or later.

If you are in the “GDP-slowing camp,” then you are raising cash right now in anticipation of another market decline.  You can see how invested I am via the social media links above.  My view is that the stock market finds the current “Muddle Along Economy” adequate.  I suspect the market also likes the prospects of Trump losing the election, so world trade is not disrupted.  Again, not a judgment of policy choice, just the facts!

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

gld-etf-market-timing-chart-2016-08-12-close

Gold stalls as the economy grows slowly.

4. U.S. 10 Year Treasury Note Yield (TNX): Rates are still staying low as growth is not spectacular.  Corporate profits were down about 5% this past quarter despite “beating expectations.”  This allows the Fed to keep rates low in the context of low rates around the world.

U.S. 10 Year Treasury Note Yield (click chart to enlarge; TNX,TYX,TLT,TBF):

tnx-10-year-treasury-note-market-timing-chart-2016-08-12-close-v2

Rates ease.

Stay with me throughout the week for the LATEST via the links to Twitter/StockTwits above.  Feel free to ask me questions, comment, retweet etc.

Be sure to visit the website for more general investing knowledge 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: Join the Wait List to Join the Newsletter as a Loyal Subscriber, Opening again for the October 2nd 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.

Copyright © 2016 By Wall Street Sun and Storm Report, LLC All rights reserved.

Posted in Bonds, federal reserve, gold, investment, investor sentiment, large cap stocks, S&P 500 Index, small cap stocks, Treasuries | Tagged , , , , , , , , , , , , , , , , , , , , | 2 Comments

Market Timing Brief™ for the 8-05-2016 Close (8-08-2016 GLD Update): New SP500 Index High on Hot Jobs Number. Rates Spike. Gold Falls as Predicted.

A Market Timing Report based on the 8-05-2016 Close, published Sunday August 7th, 2016

UPDATE 8-08-2016: See GLD Update just above the GLD chart.

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

1.  SP500 Index: If you are running behind this market, you need to catch up on the market timing context here: My Prior issue  On Friday we found out in the U.S. employment report that the US jobs number for July was 255,000 vs. 185,000 expected.  That surprised the market in a good way, with the SP500 Index making a new high as the chart shows below.

The market can take this in two ways:
1. It can decide that the slowdown in GDP is going to reverse as discussed last week and rally based on the assumption of rising GDP and earnings.  The market will rally.

2. It can decide that the employment strength over the past two months is just a blip in a downtrend and that the Fed may mistakenly raise interest rates into a world slowdown and trigger a U.S. recession.  The market will correct 5-10%.

My favored scenario is a move up followed by a correction (loss of all new gains), and then a rally into greater certainty about the Presidential election (prayer needed!).  After you review the chart, take a look at investor sentiment.

SP500 Large Cap Index (click chart to enlarge; SPX, SPY):

sp500-index-spx-market-timing-chart-2016-08-05-close

New high on strong jobs.

Survey Says!  Sentiment this week among retail investors (AAII.com) showed a Bull minus Bear percentage spread of +3.02% that barely moved vs. last week [over 40% Neutrals is Bullish for market timing 6 months out]).  At these levels there is plenty of room for sentiment to go in either direction, BUT the neutrals have the ball for the 6 month period  Again: the odds according to AAII’s data of the market being higher in 6 months is better than 80%. 

8-03-16 close to poll Bulls       29.79% Neutrals 43.44% Bears      26.77%

We said last week we’d follow the market, so we did. I upped my exposure level more to equities as you can read on the two social media sites that I use.  Keep up to date at Twitter and StockTwits where a combined 18,020 people are joining in. Thank you for that!  Twitter® Follow Me on Twitter®.   Follow Me on StockTwits®).

2.  U.S. Small Caps: I successfully closed out my short U.S. small cap market timing position this past week on the swoon, very close to the low.  These things are always educated guesses, but the education part of it is what requires the most work.  As long as we continue to buy lower and sell higher, we’ll do well. Or as I like to say: “Buy fear, sell greed.”

We buy when investors are becoming scared and sell when they are too complacent.  The reason I feel the market could surprise to the upside whether that is immediately, or as if it’s as I suspect a few more weeks or a couple of months from now, is that investors are in a confused/doubtful state as the high neutral sentiment shows.  That is NOT the sentiment you see at highs.  At highs investors become rabidly Bullish.  We are no where close to that place now.

That said, the economy (GDP) must strengthen soon for the small caps to continue to outperform large caps as they have since the February 2016 low.  We’ve had some mid cap exposure, which has allowed us to match small cap performance with less risk (better GAAP earnings!).

Russell 2000 U.S. Small Cap Index  (click chart to enlarge; RUT, IWM):

rut-small cap-index-market-timing-chart-2016-08-05-close

The small caps are headed higher again.

3. Gold: Gold did pull back a bit as I warned last Sunday it could based on firmer economic numbers.  The risk is higher rates.  For why that occurs, please review last week’s issue just above the gold chart (link above or to upper right).  I will likely wait longer for the new enthusiasm to die down in the stock market before buying more gold.  We’ll also watch our profits and try to give back less than 50% of profits. The breach of that up trend line (highest yellow line) is a warning.

UPDATE 8-08-2016: On short term market timing charts, GLD looks like it’s due another drop to around 125.11-125.31.  A bounce is likely to occur from there due to the amount of support at that level.  I will reassess the market there and let you know via Twitter/StockTwits whether it is a good buying point.  If we don’t get there, we’ll find another entry point along the way.  The key is to have a core position in my opinion that is a bit larger than our usual allocation.

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

gld-etf-market-timing-chart-2016-08-05-close

Gold hit on hot jobs number.

4. U.S. 10 Year Treasury Note Yield (TNX): U.S. 10 Year Treasury Note Yield (click chart to enlarge; TNX,TYX,TLT,TBF):

Rates spiked up on the jobs report as they should have.  A stronger economy supports higher interest rates.  There is more upside for now and this will strengthen the U.S. dollar and hurt gold.

tnx-10-year-treasury-note-market-timing-chart-2016-08-05-close

Rates spike on jobs report.

Stay with me throughout the week for the LATEST via the links to Twitter/StockTwits above.  Feel free to comment, retweet etc. to spread the word.

Be sure to visit the website for more general investing knowledge 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: Join the Wait List to Join the Newsletter as a Loyal Subscriber, Opening again for the October 2nd 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.

Copyright © 2016 By Wall Street Sun and Storm Report, LLC All rights reserved.

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

Market Timing Brief™ for the 7-29-2016 Close (8-02-2016 UPDATE: STOCKS SLIP!): “Bad is OK” Rules. SP500 Index Stalled. Gold Rises as Rates Fall AGAIN!

A Market Timing Report based on the 7-29-2016 Close, published Sunday July 31th, 2016

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

UPDATE 8-02-2016: Stocks Slip

I closed out my Russell 2000 Index small cap short fairly close to the bottom today at 119.22 (low was  119.10), close enough.  It is not that I don’t expect a greater pullback; it is that I am trading a short against buying strength/weakness and my signals said to cover.  It is definitely an art, but the signals help to get me into the ballpark frequently (not always).

Here is what the break in the SPY looked like today. We fell to the bottom of the recent consolidation band, so the next break could be bigger.  I realize it’s hard to see on the right exactly where we are, but the close was JUST ABOVE that top red line.  If this support does not hold, the next support is the band of support lines that span the range of about 211 to 212.5. (those lower three closely spaced red lines that are almost blurred together):

spy-sp500-index-spx-market-timing-chart-2016-08-02-close

SP500 Index breaks support.

…now back to my recent report…

1.  SP500 Index: Please read my update made in the prior issue about the Fed statement.  I won’t repeat that here. 

You cannot use market timing safely until you figure out the economy.  Not safely, and not intelligently either.  The Bureau of Economic Analysis (BEA) which announced a first estimate of Q2 GDP that was 1.2% vs. the 2.6% expected per Bloomberg News has been playing with the books, just as many companies play with Non-GAAP vs. GAAP earnings, the latter of which takes all charges into account, while the former does not.  If a company decides it will take a charge on a bad investment, it can basically hide the error by including it in the non-GAAP earnings number.  There are other expenditures that reduce earnings temporarily, but which result in increased sales and earnings down the road.  That’s fine, but it’s important to know where a company screwed up.

In a similar way the BEA decided to use a small deflator when GDP was weaker in Q1 and now use a larger deflator in Q2 when GDP was on the hot side, thereby smoothing out the results.  It makes it tough to predict what the market’s reaction to a given economic number will be when the books are cooked in this way.  Some contend that Q1 would have been recessionary (the first quarter of two required for the formal definition of recession) had the proper deflator been used. 

Here are the important numbers:

Remember that GDP is the seasonally adjusted annualized rate of growth of the economy.  It is an attempt to project the current rate of growth forward for a year.  “Real” means inflation adjusted and that is the big number that is always reported first.  Current dollar (non-inflation adjusted) GDP was 3.5% in Q2 2016 vs. real GDP of 1.2%, while Q1 was revised to 1.3% in current dollars vs 0.8% real GDP. The ratio between real GDP vs. current dollar GDP in Q1 vs. Q2 showed a HUGE difference: 0.34 now vs. 0.62 then.  In other words, GDP was “marked down” by inflation much more for Q2 than was done in Q1.

The excuse is that they claim inflation shot up in Q2 vs. Q1: “The price index for gross domestic purchases increased 2.0 percent in the second quarter, compared with an increase of 0.2 percent in the first.”

If you are going to do market timing, you must also understand other key numbers the Fed follows.  What about Dr. Yellen’s favorite inflation measure?  “The PCE price index increased 1.9 percent [in Q2], compared with an increase of 0.3 percent [in Q1]. Excluding food and energy prices, the PCE price index increased 1.7 percent [in Q2], compared with an increase of 2.1 percent [in Q1].”  This tells you that it is likely the wild swings in gas prices are part of a legitimate excuse but don’t you think Wall Street can also do the math on inflation?  Beyond conspiracy theory, we can say:

  1. Inflation is running a bit hot but cooled somewhat EX-food and energy going into Q2.  Federal Reserve Chair Janet Yellen is most impressed by that as she believes food and energy pressures are “transitory.”  We have to pay the difference, but it’s transitory. 
  2. GDP is trending down and has been since 2014 when it peaked (see graph just below).  If the slowing continues, we’ll end up in at least a mild recession and sorry to say, that is when stocks would definitely be hit hard.  So that is the risk. 
  3. If things continue to trend back up from the GDP basement, the stock market could just work higher as we continue with a “Muddle Through Economy” as I’ve been calling it.
  4. The initial reaction was “Bad is OK.”  It was very tentative, up just a bit and not convincingly for a “window dressing” day, which is what happens on the last day of the trading month.  Monday will give us the next direction of the market.
  5. Based on market value, there is risk to the downside as in a correction, but based on sentiment (See below) and my “Muddle Through Scenario,” the market can work higher still before correcting.
  6. What I am looking for based on prior sentiment patterns and the current slightly overpriced market in the face of weak GDP is:
    1. A correction of 5-10%, EVEN if the market goes a bit higher from here (up to 5%).  At the minimum, I expect all the gains to be wiped out if the market works immediately higher. 
    2. After A is completed, I expect a stronger market recovery that takes the market to new all time highs and a return of 10% or more above the prior highs.
    3. If we go into recession, forget B.  We’ll easily have a pullback of 15-25% or more depending on the depth of the recession.

https://i1.wp.com/www.bea.gov/newsreleases/national/gdp/2016/_images/gdp2q16_adv_chart.png

The BEA Stats for the PRIOR Quarter (from BEA):
                                         First Quarter 2016
                                Previous Estimate       Revised
                            (Percent change from preceding quarter)
Real GDP                               1.1                0.8
Current-dollar GDP                     1.4                1.3
Real GDI                               2.9                0.9
Average of GDP and GDI                 2.0                0.9
Gross domestic purchases price index   0.2                0.2
PCE price index                        0.2                0.3

SP500 Large Cap Index (click chart to enlarge; SPX, SPY):

sp500-index-spx-market-timing-chart-2016-07-29-close

Market in levitation. Follow the next move!

Survey Says!  Sentiment this week among retail investors (AAII.com) showed a Bull minus Bear percentage spread that went down even more than last week +2.84% [over 40% Neutrals is Bullish for market timing 6 months out]).  At these levels there is plenty of room for sentiment to go in either direction, BUT the neutrals have the ball for the 6 month point.  The odds according to AAII’s data of the market being higher in 6 months is better than 80%. 

7-28-16 12 am CT close to poll Bulls       31.25% Neutrals 40.34% Bears      28.41%

It seems popular right now that the market is going to go down a bit and then rally later on perhaps after the election.  Instead of guessing we will follow the market!

Please keep up to date at Twitter and StockTwits: See my messages on Twitter® Follow Me on Twitter®.   Follow Me on StockTwits®).

2.  U.S. Small Caps: Small caps moved a bit higher against my short position, but failed to make a new high at the end of the week.  I still believe they will underperform large caps in the slower economy.

Russell 2000 U.S. Small Cap Index  (click chart to enlarge; RUT, IWM):

rut-small cap-index-market-timing-chart-2016-07-29-close

Small cap stocks hold up at new recent highs.

3. Gold: I bought more gold on the pullback as said and trimmed some mining exposure a bit early prior.  I did book a healthy profit on GDX and a miner option combination.  Fortunately, I kept my GLD.

Remember that gold will have problems if one of TWO things happens:

  1.  IF the Fed raises rates as employment improves and inflation rises toward their 2% target (this Friday is the next employment report) OR
  2.  IF GDP rises from the slowdown of the past few quarters.  The trend is down as the chart above shows, but if growth ticks up rather than down for a second quarter in a row “Muddle Through” wins over recession.  In other words, if we don’t go into a true recession, but rather, we recover from a temporary mild slowdown with rising earnings.  Gold hates economic strength and lower economic risk for stocks unless inflation is substantial (inflation dropped a bit during the last quarter vs. Q1). 

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

gld-etf-market-timing-chart-2016-07-29-close

Gold bounces nicely from our “add.”

4. U.S. 10 Year Treasury Note Yield (TNX): U.S. 10 Year Treasury Note Yield (click chart to enlarge; TNX,TYX,TLT,TBF): The 10 year yield broke back below 1.567%.  This is very bad for the banks and insurers.  Avoid them.  Rates are going to stay low for many months most likely.  That does not mean there is no “rate risk” to bonds.  The rubber band is stretched to the downside. My opinion is that negative rates would be a horrible idea.

tnx-10-year-treasury-note-market-timing-chart-2016-07-29-close

Rates plunge on weak GDP, much worse than expected.

Stay with me throughout the week for the LATEST via the links to Twitter/StockTwits above.  Feel free to comment, retweet etc. to spread the word.

Be sure to visit the website for more general investing knowledge 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: Join the Wait List to Join the Newsletter as a Loyal Subscriber, Opening again for the October 2nd 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.

Copyright © 2016 By Wall Street Sun and Storm Report, LLC All rights reserved.

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

Market Timing Brief™ for the 7-22-2016 Close (UPDATE 7-27-2016 for Fed Statement): SP500 Index Pauses at New High Ahead of Fed. Gold Eases. Rates Drop Slightly.

A Market Timing Report based on the 7-22-2016 Close, published Sunday July 24th, 2016

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

UPDATE 7-27-20126 #2: Here is what the Federal Reserve was really saying and what they were REALLY thinking:

“The US labor market is stronger with increased labor utilization, which could raise wages and force a rate hike, and economic activity is expanding at a moderate rate.  Household spending is growing strongly while business fixed investment has been soft. Inflation is below target, but the influences that have been keeping it down are transitory in our view.

We believe that, overall, the economy is improving enough to raise rates fairly soon, but we are chicken, and we’re planning on being accommodative whatever that takes. 

In other words, we are not telling you what we’ll do and you’ll have to guess, because we honestly have no idea about when we should raise rates.  But don’t go making any bubbles out there in the markets, because we could raise rates at any time given the economic data and mess your hyper-Bullish financial plans up.” 

UPDATE 7-27-2016  #1  –  Federal Reserve FOMC Statement:

Here are the changes from last month.  [IN BLUE ] means deleted and BOLD means new language since last month.

Press Release

Release Date: [June 15] July 27, 2016

For release at 2:00 p.m. EDT

Information received since the Federal Open Market Committee met in [April] June indicates that the [pace of improvement in the] labor market [has slowed while growth in] strengthened and that economic activity [appears to have picked up. Although the unemployment ] has been expanding at a moderate rate [has declined, job.] Job gains [have diminished. Growth] were strong in June following weak growth in May. On balance, payrolls and other labor market indicators point to some increase in [household] labor utilization in recent months. Household spending has [strengthened. Since the beginning of the year, the household sector has continued to improve and the drag from net exports appears to have lessened] been growing strongly but business fixed investment has been soft. Inflation has continued to run below the Committee’s 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation [declined] remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will strengthen. Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further. Near-term risks to the economic outlook have diminished. The Committee continues to closely monitor inflation indicators and global economic and financial developments.

Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; James Bullard; Stanley Fischer; [Esther George]; Loretta J. Mester; Jerome H. Powell; Eric Rosengren; and Daniel K. Tarullo. Voting against the action was Esther L. George, who preferred at this meeting to raise the target range for the federal funds rate to 1/2 to 3/4 percent.

There you have it.  The market reaction thus far vs. the 2 pm opening prices is SPY up 0.24%, IWM +0.17%, GLD up +0.43%, and GDX up 2.67%, and TLT up 0.12%.

Back to the issue…

1.  SP500 Index: The market is hanging close to the new high it established above 2134.71 on 5-20-2015, now at 2175.03, 1.89% above the prior high.  The market timing data on news highs after a prolonged period of no progress of a year or more are very Bullish. Review what I wrote last week on what I’m actually doing about it.  I’ve been trimming my individual stock exposure over time and have sold some U.S. exposure near the highs, while adding some Chinese stock market exposure.  I added some gold exposure on the pullback this week.  What I am doing is noted on my Twitter/StockTwits feeds every market day (links below).

Earnings season is mixed so far.  Some groups are having a worse time of it, particularly the regional banks.

The Federal Reserve has a two day FOMC meeting this next week on July 26 and 27th with no dog and pony show to follow, just the written statement.  The markets would be shocked by a rate hike as the current probability per the CME group is just 3.6%.  The Fed has been very reluctant to hike rates when both Japan and Europe have negative interest rate policies.  Here is where you can follow the changes in their number day to day: CME Group Fed Rate Hike Risk

Note that I highlighted the volume decline during part of the recent rally.  That means this rally has been a bit shaky as volume rises with price in a healthy market.

SP500 Large Cap Index (click chart to enlarge; SPX, SPY):

***DATE OF CHART IS ACTUALLY 7-22-2016 CLOSE***

sp500-index-spx-market-timing-chart-2016-07-22-close

Market holds new highs.

Survey Says!  Sentiment this week among retail investors (AAII.com) showed a Bull minus Bear percentage spread that went down just a bit to +8.71% [over 40% Neutrals is Bullish for market timing 6 months out]).  At these levels there is plenty of room for sentiment to go in either direction.

7-21-16 12 am CT close to poll Bulls       35.43% Neutrals 37.85% Bears      26.72%

Please keep up to date at Twitter and StockTwits: See my messages on Twitter® Follow Me on Twitter®.   Follow Me on StockTwits®).

2.  U.S. Small Caps: I made some money on a quick addition to my IWM short last week, but kept the core short position.  The Bulls have the edge based on the new closing high above the prior top.  A quick reversal is needed or my short will fail.  The close did not take out the 7-21-2016 high of 1213.52.  Remember that I am using this to hedge just about 5% of my long positions.

Russell 2000 U.S. Small Cap Index  (click chart to enlarge; RUT, IWM):

***DATE OF CHART IS ACTUALLY 7-22-2016 CLOSE***

rut-small cap-index-market-timing-chart-2016-07-22-close

Small Caps flirt with a new high.

3. Gold: I bought more gold on the pullback.  When you are in a Bull market, buy the pullbacks, not the rips to the upside.  Gold could keep falling a bit more, and if the economy actual turns around, it could fall a lot more, so don’t get too cozy with your trading position.  With the central bank antics around the world, the intermediate trade is likely safe however.

The dollar is still rising which is OK when there is a financial rush to safety, but not OK if there is not.  In any case, a strong dollar pressures the gold price for those buying it in U.S. dollar terms.  If the dollar goes back to the 2015 highs, the stock market won’t like it due to pressured earnings abroad.  This is especially true of international large cap stocks and less so for small caps.  A strong dollar is OK if the economy is strong, but hurts when it’s not. 

If you want a bigger “pop,” which also means larger losses if gold falls more, buy the gold miner ETF, GDX. 

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

gld-etf-market-timing-chart-2016-07-22-close

Bought gold on the pullback.

4. U.S. 10 Year Treasury Note Yield (TNX): U.S. 10 Year Treasury Note Yield (click chart to enlarge; TNX,TYX,TLT,TBF): The 10 year yield needs to hold above 1.567% to keep the momentum going into the Fed meeting statement to be released at 2 pm on Wednesday.

tnx-10-year-treasury-note-market-timing-chart-2016-07-22-close

1.567% needs to hold if rates are to rise further near term.

Stay with me throughout the week for the LATEST via the links to Twitter/StockTwits above.  Feel free to comment, retweet etc. to spread the word.

Be sure to visit the website for more general investing knowledge 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: Join the Wait List to Join the Newsletter as a Loyal Subscriber, Opening again for the October 2nd 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.

Copyright © 2016 By Wall Street Sun and Storm Report, LLC All rights reserved.

Posted in Bonds, federal reserve, gold, investment, investor sentiment, large cap stocks, S&P 500 Index, small cap stocks, Treasuries | Tagged , , , , , , , , , , , , , , , , ,

Market Timing Brief™ for the 7-15-2016 Close: SP500 Index Four Days Over the Top. Gold Pauses as Interest Rates Spike.

A Market Timing Report based on the 7-15-2016 Close, published Sunday July 17th, 2016

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

1.  SP500 Index: Earnings season has arrived, and the SP500 Index is now 4 days over the prior all time high.  There is a common understanding among market timing technical analysts to look for 3 days above a breakout to confirm it.  That idea never precludes a reversal!  Still, there is no reason the SP500 Index cannot make more progress given sufficient earnings this quarter. 

Bears should note that earnings are down 2.5% and revenues are up 0.5% vs. the same period last year.  Here are the numbers: Start of Q2 Earnings Season: The Stats 

You’ll note that analysts are expecting a rise of earnings to about flat from negative for Q3 and a much bigger boost going into the holiday quarter of 2016 and into 2017.  Those expectations could be pressured if worldwide slowing continues.  The election may throw some curve balls too.  The drip, drip, drip of terrorist attacks could weigh on consumers eventually should it continue.  If you expect the acceleration of earnings, you should be long stocks and just hang on for the ride.

The longer term good news may be that our government is finally going to move into action again, hopefully in ways that support rather than cripple the economy.

A final Bullish note.  I have read from two sources that if the SP500 treads water for a year and then breaks out, further double digit gains are likely.  Keep that in mind before you throw in the towel.  

What have I done?  I have lightened stock exposure just a bit in part by shorting small cap stocks.  I added a very well valued utility in the form of a long term options play.  I trimmed some gold miner exposure to take substantial profits and will look for a place to re-enter lower.  See below for my move in the bond realm.  I sold some.  Check my Twitter/StockTwits feeds (links below) for information on my current exposure level and adjust it according to your own view.

SP500 Large Cap Index (click chart to enlarge; SPX, SPY):

sp500-index-spx-market-timing-chart-2016-07-15-close

SP500 Index is 4 Days “Over”

Survey Says!  Sentiment this week among individual investors (AAII.com) showed a Bull minus Bear percentage spread at +12.45% this past Wednesday [over 40% Neutrals is Bullish for market timing 6 months out]).

7-14-16 12 am CT close to poll Bulls  36.87% Neutrals 38.71% Bears 24.42%

As I explained last week, we should expect more positive sentiment at a top now moving on to new highs.  The market may pull back a bit if earnings continue on the light side against the current backdrop of higher employment with rising wages in the most recent reports.

I told you exactly what your choices were last week (see prior issue link to upper right).  You must make your own decisions, but you can view my current exposure to the market here at the following links.

Please keep up to date at Twitter and StockTwits: See my messages on Twitter® Follow Me on Twitter®.   Follow Me on StockTwits®).

2.  U.S. Small Caps: I decided to short the IWM given the likelihood that earnings could continue to be tough for the small caps.  You can follow that trade on the above links.  I am using the short position to offset some SP500 Index long exposure. 

Russell 2000 U.S. Small Cap Index  (click chart to enlarge; RUT, IWM):

rut-small cap-index-market-timing-chart-2016-07-15-close

Small caps COULD come off from this lower double top.

3. Gold: The gold rally is pausing.  Follow the dollar chart just below the gold chart.  I would begin buying here if you have no gold exposure, but otherwise wait for it to hit those up trend lines in yellow you see on the chart below OR wait until you see the U.S. dollar rally break down.  I sold some of my gold stock exposure making about 28.5% on my capital at risk in an options trade.  The trade made me a credit when I first opened it, which is a great way to enter the market (if you are invested in the right direction!). 

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

gld-etf-market-timing-chart-2016-07-15-close

Gold is on pause. Watch the dollar.

UUP (U.S. Dollar Index ETF, market timing chart):

uup-us-dollar-index-etf-market-timing-chart-2016-07-15-close

US dollar will determine gold’s next move.

4. U.S. 10 Year Treasury Note Yield (TNX): This week we saw a REVERSAL of the prior break to a new low below the 2012 low.  The below is a weekly chart.  The bounce in rates was hard and fast but it could extend still higher.  GDP is not going to be that bad for Q2 and wages are rising, so the market is going to be a bit afraid of the Fed over the next 6 months despite the gloom and doom talk we previously heard around Brexit. 

The bond move was very stretched, so I let go of about 25% of my municipal bond position which is 50% of my trading position in munis.

My sense so far is that we are muddling through.  Markets can do OK in muddle-through conditions.  If you believe those predicting an all out recession, you should substantially decrease your exposure in stocks.  Recessions are stock market killers.  I have taken a middle ground so far, lowering my exposure a bit by moving some assets to cash and adding a small trading short small cap position.

U.S. 10 Year Treasury Note Yield (click chart to enlarge; TNX,TYX,TLT,TBF):

tnx-10-year-treasury-note-market-timing-chart-2016-07-15-close

Rates rise off major low reversal.

Stay with me throughout the week for the LATEST via the links to Twitter/StockTwits above.  Feel free to comment, retweet etc. to spread the word.

Be sure to visit the website for more general investing knowledge 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: Join the Wait List to Join the Newsletter as a Loyal Subscriber, Opening again for the October 2nd 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.

Copyright © 2016 By Wall Street Sun and Storm Report, LLC All rights reserved.

Posted in Bonds, federal reserve, gold, investment, investor sentiment, large cap stocks, S&P 500 Index, small cap stocks, Treasuries | Tagged , , , , , , , , , , , , , , , , , ,