Market Timing Brief™ for the 11-17-2017 Close (Updated 11-22-2017): S&P 500 Index Mid-Dip on a Bounce. Gold Looking for a Breakout. Rates Eased This Week and Must Rally Soon.

A Market Timing Report based on the 11-17-2017 Close, published Saturday, November 18th, 2017

I deliver focused comments on market timing once or twice a week.  These are supplemented with daily “Tweets/StockTwits” (see links below).

Update 11-22-2017: S&P500 Index Sectors Winning since 8-21-2017 Low:  Market timing requires continually following which sectors are doing well.  Adding exposure to sectors that are underperforming the SP500 is generally a bad market timing approach unless you happen to catch the turn. 

Tech, Energy and Materials have been the real winners since the August low, with Tech leading by a wide mile, XLE and XLB doing about equally well, and Financials barely besting the SP500 Index.  The other 5 sectors of the SPX did worse than the index itself (that last conclusion was not corrected for dividend payments, but the table below was).

Click the link below to open and review the Adobe Document with the data…

2017-11-22-SPX Winning Sectors Since 8-21-17 Low (click to open)

Back to this week’s brief…

1.  SP500 Index: In market timing terms, the SP500 Index is about in the middle of the recent short term range. Progress on tax reform brightened things up a bit on Thursday, though it depended on what you owned.  Microsoft, Apple, and some others were giving back some of the outsized gains they saw after earnings this quarter. 

Over the intermediate term, the tax cuts being proposed in Congress will drive our national debt up, putting upward pressure on interest rates and downward pressure on the U.S. Dollar.  Inflation should increase in the coming several years.  The unwinding the the Fed balance sheet and the hiking of interest rates by them will be the proximate cause of the next recession, which will occur in the face of at least moderate inflation and with the 10 Year Treasury Yield rising to 4-5%.  That will take a while, so I’ll continue to advise you make hay while the sun shines.  I would also stay invested in both gold and a much smaller percentage of a portfolio of cryptocurrencies.

For those following my “Canary in the Trump Gold Mine” Trade, Bank of America (BAC) backtested the prior breakout and bounced sharply.  A drop below the breakout area (25.80 breakout which is barely above the Weds. low of 25.81 – NOT a market timing coincidence!) would not be received well.  The bird will and must fly in a strong economy..  It will be singin’ the “Red Song” if the prior breakout is voided. We prefer the “Green Song” around here.

We don’t buy in the middle in general.  We buy off the lows as best we can.  So having added exposure off the low, we wait for specific stocks to test their next lows or for indexes to do the same.

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 32,274 people are joining in…

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

sp500-index-spx-market-timing-chart-2017-11-17-close

Middle of the recent range. Buy low, not in the middle.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of  -5.87% vs. +22.02% vs. last week or incrementally much more Bearish, but not at an extreme.  I mentioned last week: “Sentiment is positive enough to allow for a pullback, given the low Bear number, but it’s still not at an extreme.  A pullback is a market timing Buy per the sentiment data.”   So did you buy some more this past week?  If you were already very long equities, maybe not, but if you were lightly exposed, it was a place to add more exposure.  Bearish Sentiment can go much higher with the right backdrop, but we don’t have a Bearish backdrop now, which will allow sentiment to improve, and the market to run higher. 

Thurs. 12 am close to poll Bulls               29.35% Neutrals 35.43% Bears      35.22%

2.  U.S. Small Caps: Small caps turned around when interest rates did, so be sure to follow rates if you are invested in them.  You’ll note they fell to retest the breakout level of 144.25 and bounced. I commented on that swoon last week on social media when it happened.  You can also see they bounced to the upper part of the market timing formation shown, which is a Bull Flag (read last week’s comments; link to upper right).   Without going over the top yellow line of the flag, the move was just a short term trade.  IF there is a rate breakout this next week, early in the week, I believe small caps will rally further and at least test the prior high.

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

iwm-russell-2000-etf-market-timing-chart-2017-11-17-close

Small caps still not “up and over.”

3. Gold: No need to repeat last week’s comments.  Rates were down a bit from last Friday’s high, which was not a shock, and that helped gold.  I still expect higher rates going forward.  IF gold can exceed the prior two market timing highs noted in the chart, it could really take off.  For now, and until that happens, we’re still out of the gold trade, while holding gold as insurance in our portfolio.

There is a story out there that China will be attempting to displace the US Dollar as the reserve currency for oil contracts with the Chinese yuan.  They intend to back “petroyuan” contracts with gold.  Maybe gold buying by the Chinese is one of the drivers here.  I may not be able to overcome rising rates, but we’ll see.

Gold is also cheap relative to Bitcoin.  Owners of bitcoin who do not also own gold are foolish in my view.  They could balance their holdings with gold, and perhaps real estate depending on their particular market.

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

gld-gold-etf-market-timing-chart-2017-11-17-close-v2

Gold is threatening a big move, but it must exceed those two highs noted in the chart.

4. U.S. 10 Year Treasury Note Yield (TNX): As I’ve argued for a while now, rates must rise slowly to confirm the recovery will continue.  This is normal at this time of the cycle.  The one thing constraining our rates is the rates of other nations, which remain highly accomodative.  Fiscal policy could drive inflation up faster in the U.S. as wages rise.   I outlined all that last week.

Low unemployment is the worst backdrop for a fiscal stimulus.  Trump thinks growth at all costs is great, but that is not the case.  He’s about to get a lesson on inflation over the next few years.  Maybe that is why gold wants to move higher.  Maybe inflation is actually going to become the Federal Reserve’s next problem due to the years of financial stimulus they have pumped into the markets.  I’ll be watching.

Now, as usual, we need to review our three market timing signals (below the chart after you review it…)

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

tnx-10-year-treasury-note-market-timing-chart-2017-11-17-close

Rates need to move up this next week.

Let’s review the three market timing signals together….

MY SIGNAL SUMMARY for a Further U.S. Stock Market Rally:

Stock Signal ON (Small Caps above “Trigger Line”), but a breakout above the flag (market timing signal) is needed.

Gold Signal OFF (GLD is slightly above the “Trigger line” which is positive for gold, and a warning sign for stocks in the form of inflation.  A breakout above the two prior highs noted will propel the gold trade.

Rate Signal ON (10 Year Yield above the “Trigger Line,” good for stocks, not bonds).  Rates back to rising, but with a pullback this week. That’s the way markets trade.  As long as we see rates above the aqua line in the above chart soon, the thesis on the recovery is intact.

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question…  Pay it forward too by sending the link to MarketTiming.Blog (that link will immediately connect them to this webpage) to a relative or friend.  Thanks for doing that.

Note: My monthly newsletter is now CLOSED to new subscriptions until late this year.  I’ll let you know here if and when it reopens.

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.

Copyright © 2017 By Wall Street Sun and Storm Report, LLC All rights reserved.

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

Market Timing Brief™ for the 11-10-2017 Close: Large Cap Stocks Slip But Stay In Up Trend. Small Caps Remain Weak. Gold Trembling On Trend Line. Rates Rise Again.

A Market Timing Report based on the 11-10-2017 Close, published Sunday, November 12th, 2017

I deliver focused comments on market timing once or twice a week.  These are supplemented with daily “Tweets/StockTwits” (see links below).

1.  SP500 Index: Market timing-wise the chart looks OK still.  We tested below the up trend line, but held it by the Friday close.  Sentiment is getting a little richer and allows for a pullback, but this won’t be the end of this Bull, so I’ll be adding more exposure back, lower or higher.  There is clearly room for a deeper pullback in a one down wave, two sideways move, and three second down wave, but it’s not a given.  Investors were feeling things were getting a bit rich with multiple huge stocks up more than 5-10 or more percent after their strong earnings.  We should still be looking for places to add exposure back, not run for the hills, exactly because those earnings are strong and the economy is still humming along.

What a mismatch!  The Jolts Jobs report said there are 6.093 million jobs available in the US.  You can read more on Bloomberg, but the point is there are an equal number of jobs vs. those looking for jobs!

And even given those numbers, our President and GOP Congress want to create deficits in order to drive the economy harder, which will cause interest rates and inflation to spike further together (inflation is already in the system in inflated prices of equities, bonds, property once again etc. and now prices will rise).  This means Trump and the GOP are about to drive us to recession earlier than would otherwise have been the case.  Jim Paulson echoed my views earlier in the week on CNBC. The Trump and GOP taxcut may accelerate our move into recession.

Instead of creating a recession, why not balance the budget at least somewhat better and reduce taxes on the middle class to the extent we cut spending.  Don’t raise taxes on ANYONE. How about that?  If you agree with me for golly gosh sakes to say it nicely,  ; ) or even if you don’t, please call your Representative in the House and your two Senators.  They DO listen to those who bother calling, because many do not bother.  Bother to call.  Yes, let’s have a new Twitter rule that if you don’t call your reps in Congress, you cannot tweet about politics any longer.  Same for non-voters.  Tough stance for sure. 😉

And why not improve retraining programs and provide incentives for them to create a MATCH between available jobs and those prepared for them.  Getting people off food stamps (about half the country) would cut expenses and raise tax revenue.

In the meantime, the economy is still strong with an overshoot in employment to the downside (4.1% below the standard Federal Reserve target of 5.0%), although the official measure of inflation the Fed Chair prefers PCE Price Index has been tame recently, last reported at 1.3% far from the 2% sought after.

Reflation is occurring despite the low PCE data.  Look at your pump prices (oh, that’s all temporary per Dr. Yellen!).  It seems the oil cartel got their act together along with increased demand to drive up oil prices.  I’m already adding back the prior oil positions I ditched earlier this year.  I’ll be adding slowly and you can follow my moves by clicking on the links just below here…

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 32,071 people are joining in…

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

sp500-index-spx-market-timing-chart-2017-11-10-close

Up Trend still intact.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of  +22.02 vs +16.48 vs. last week or incrementally less Bearish.  Not more Bullish however, as Bears decreased and Neutrals increased, but Bulls barely budged (45.10% vs. 45.05% last week).

Sentiment is positive enough to allow for a pullback, given the low Bear number, but it’s still not at an extreme.  A pullback is a market timing Buy per the sentiment data.  It is until it isn’t, so move in stages in and out of the market.  At least, I find that works much better for me.

Thurs. 12 am close to poll Bulls               45.10% Neutrals 31.82% Bears      23.08%

2.  U.S. Small Caps: Small caps are not helping.  Breadth has been poor lately, meaning since early October in market timing terms.  The “Up Flag” I showed you last week generally resolves to the upside, but the odds diminish the lower the dip goes.  The fact that interest rates were rising again on Friday is promising as long as inflation does not get out of control.  That’s the Fed’s job in raising short rates, to prevent that from happening.  I’m watching…  A flush in IWM to retest the 144.25 breakout market timing high could do it for this particular decline.

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

iwm-russell-2000-etf-market-timing-chart-2017-11-10-close

Still an Up Flag, but a sagging one.

3. Gold: We are staying out of gold trades (insurance only) due to rising interest rates. Follow the 10 Year Treasury Yield below if you want to know what gold is going to do…  Hint: it’s an inverse market timing correlation when rates are running ahead of inflation. Note the play off that orange “Trigger Line” I defined months ago.  No coincidence. Gold may hold up OK, but it will likely do it within a range, and we are descending from the top of the range right now.

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

gld-gold-etf-market-timing-chart-2017-11-10-close

Gold in still above market timing trend, but subject to rising interest rates.

4. U.S. 10 Year Treasury Note Yield (TNX): Because of the bounce in rates Friday, I started adding my Canary back (a big bank).  See last week’s issue for the link to my first comments about this market timing “Canary Signal.”  Rates should continue to rise if this recovery is real.  If rates fall once again in a meaningful way, it’s “watch out below” for the stock market.  Why? Because recovery will have turned into recession.

I’m not expecting a recession soon, but I am telling you what needs to be happening in a continued strong recovery – rising rates.  In a weak recovery, rates can slosh around in a low range.  Finally, the punch line is: a weakened recovery will not sustain stock prices at these levels.

Now, as usual, we need to review our three market timing signals (below the chart after you review it…)

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

tnx-10-year-treasury-note-market-timing-chart-2017-11-10-close

Rates retesting a resistance area. They should keep rising.

Let’s review the three market timing signals together….

MY SIGNAL SUMMARY for a Further U.S. Stock Market Rally:

Stock Signal ON (Small Caps above “Trigger Line” but weak due to a drag among small caps particularly. Mid caps have held up much better vs. large, which is exactly why I sold IWM recently (see social media links above). I still have plenty of equity exposure (see social media the % exposure).

Gold Signal ON (GLD is below the “Trigger line” which is negative for gold, positive for stocks). But GLD is on market timing support.  I would still follow the move either way if you are trading.  I am OUT except to hold gold as currency insurance.

Rate Signal ON (10 Year Yield above the “Trigger Line,” good for stocks, not bonds).  Rates back to rising, but at resistance.

NOTE: I have decided to separate my comments on Bitcoin and limit them to my social media feed for now (or in separate posts perhaps, but no promises there).  I expressed my doubts about buying this particular dip (update #3 of last week’s post),  because of utility issues of the Bitcoin blockchain.  Transactions are both too slow and still too expensive vs. the potential at any rate.  Until these issues are clarified, I will not include Bitcoin updates on this regular blog.  The “attack” on BTC by BCH this weekend raises too many questions about the poor management of the bitcoin network and it’s lack of suitability for routine transactions.  Why is it happening?  Perhaps it’s been engineered by Central Banks so they can keep control.  Perhaps it’s simply spontaneous disorder.  Either way, bitcoin cannot be accepted worldwide in a meaningful way until the network shows real leadership!  It remains a speculation suitable for only a very small percentage of total assets in my view. I am not telling you what to do yourself, but I am telling you what I’m doing – keeping my position size small.

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question…  Pay it forward too by sending the link to MarketTiming.Blog to a relative or friend.  Thanks for doing that.

Note: My monthly newsletter is now CLOSED to new subscriptions until late this year.  I’ll let you know here if and when it reopens.

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.

Copyright © 2017 By Wall Street Sun and Storm Report, LLC All rights reserved.

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

Market Timing Brief™ for the 11-03-2017 Close (Last of 3 Bitcoin Updates 11-11-2017): Stocks Still In Rally Mode, but Small Caps Need to Kick In. Gold On Trend At Decision Point. Here’s Why Interest Rates Concern Me Now…

A Market Timing Report based on the 11-03-2017 Close, published Sunday, November 5th, 2017

I deliver focused comments on market timing once or twice a week.  These are supplemented with daily “Tweets/StockTwits” (see links below).

Update 11-11-2017: Bitcoin Had Better Get Its Act Together:

You cannot use market timing to enter a “mess.”  The averaging in point for Bitcoin (BTC) I wrote about has become more muddied than before, particularly if you do not own Bitcoin Cash (BCC) from the fork prior to the Bitcoin Gold Fork.  Confused yet?  😉  (Note that StockTwits uses BCH.X for Bitcoin Cash; I’m using the Bittrex choice here.) 

The issue is whether BCC will be used for smaller transactions to make up for the slow speed of Bitcoin transactions currently.  This would move more “hash power” from BTC to BCC.  That devalues Bitcoin, as the hash power is a major parameter that determines the value of the network. In fact, Coinbase stated they would award the name of Bitcoin to the fork that had the greater hash power after a certain period following the now cancelled Segwit2x Fork.  You win if you’ve “got the power.”  “Hash power” that is.

Speed and transaction costs were the reasons the Segwit2x Fork had been planned until it was cancelled due to fears it could cause havoc in the BTC market.  Bitcoin Gold is non-competitive to Bitcoin, so they say, so when it is finally released to those who owned BTC prior to the Gold fork, it should not cause BTC to dive unless there are those who want to buy it and use BTC to do so.  That’s not the talk in the marketplace from what I understand.  Bitcoin Gold’s release (finally) should not disrupt Bitcoin is the thinking.

If BTC could solve it’s transaction issues of cost and speed more quickly, it will avoid this BCC challenge, but if not, it could lose momentum vs. BCC and give up market share essentially.  I cannot tell you whether the BTC group will act quickly and thereby drive BCC back down to where it started. It was born at $200, rocketed to 1470 and crashed to 325ish, then rose to 600ish, until it shot up 38% over the past 24 hours to the present to about $1400 until it backed down now to about 1290ish.  You could end up buying equal amounts of both and see one of them plummet, at least for a few weeks. 

As you can see, this uncertainty is what prevents BTC from being a serious player in the world currency markets at the moment, but it’s also what scares away those unwilling to tolerate risk and uncertainty.  Possibly for good reason though – that’s the catch.  They (BTC) had better get their act together quickly.  This decentralized, democratic process that gives rise to multiple forks, some of which can become competitive is destructive and frankly stupid.  It defeats the purpose of Bitcoin as it cannot be taken seriously as a currency without stability.  In the meantime, I continue to hold a small percentage of my total assets in Bitcoin and event less of a couple of alt coins as potential moon shots. 

Utility is clearly one big driver of a successful Bitcoin, and with the utility in question this week, and no immediate solution, you will have to decide for yourself whether you average into BCC AND BTC or just go more slowly into BTC to avoid investing too quickly before some of these issues are resolved or at least have stated solutions and a time frame.   Until then, BTC will be vulnerable, but a winner will emerge one way or another…

Update 11-10-2017: Bitcoin Falls within Up Trend

I’ll revisit bitcoin market timing this weekend, but for now, let’s just say there is some readjustment within the uptrend that is occurring after the controversial Segwit2x fork was cancelled.  That fork could have ruined Bitcoin by creating massive uncertainty.  That was avoided and IF you understand the utility of Bitcoin, you are getting one possible entry/averaging in point.  But if you don’t understand it, don’t invest.  In any case, limit the exposure you have to it to what you could lose without being heavily impacted. Even Bill Miller whose hedge fund has 30% of assets in it and he’s up 70% in his fund this year says “I believe there is still a nontrivial chance bitcoin goes to zero, but each day it does not, that chance declines as more venture capital flows into the bitcoin ecosystem and more people become familiar with bitcoin and buy it.” (source HERE)

Is there risk? Of course there is. Look at the chart and you’ll see it could fall to $4250 and still be in an uptrend.  But I believe demand would kick in before then, because there are still many who have not entered the market.  Belief is not certainty of course, so buy at your own pace or ignore it, your choice. 

BTC-bitcoin-market-timing-chart-2017-11-10-116pm

Swoon creates one possible entry point for those who understand Bitcoin.

Update 11-06-2017: Bitcoin Chart Update and One Way to Enter this Market

Bitcoin is headed to a hard fork between the legacy Bitcoin and Segwit2x (SEE UPDATE ABOVE-They Called off the Fork].  While the last Segwit fork did not generate a new coin (Bitcoin Gold did but was not a “competitive fork”), this one will and the winner will be the fork with the “most difficulty.”  You can visit the links on my social media pages (StockTwits and Twitter – see below) for the political and practical details of the upcoming fork.

The fork could lead to some fear, which means selling, which means better prices for those looking to enter the market for the first time using market timing signals.  Make sure you don’t commit too much capital to it, other than that which you are willing to lose.  That way you’ll have no regrets.  This is not a pessimistic view of cryptocurrency as I sense it will survive, in particular Bitcoin, Ethereum, and a few other CCs with growing usage and utility.  Many others will go to zero just as the dot.coms did.

Try not to add as much at the top of the range (see chart below) and instead wait for the pullbacks.  Mid-trend would be at about 6000 per Bitcoin.  It may or may not get there.  After the fork, the winning coin will likely move to even higher levels.  Realize though that Tom Lee of FundStrat said recently BTC was becoming overvalued based on the network size (I have a link to his statement on social media or Google it).  For this reason, bitcoin may need to consolidate further before making more upside progress.  Nevertheless, I like the idea of owning bitcoin prior to the fork.  Enter the market in the way you are comfortable entering.  The risk is a big drop due to confusion over which the winner of the fork will be. The sum total of the values of both coins will probably still be decently priced I sense.

Today there has been a substantial decline vs. the price 24 hrs ago – about 8% lower.  Averaging into this fear could pay off.  Go more slowly (smaller buys don’t generally hurt much in the way of fees) if you want to be more conservative, but realize you may have to buy more higher as well.  Don’t chase the market at the highs.  Buy some on the first pullback, a bit more on the next, etc.  If you intend to be in this market (your choice as there are alternatives!), buy mostly when others are fearful…while bitcoin is in a market timing UPtrend. You can see that the trend is still up despite the decline today.  The best real time (or close to real time) charts I’ve found for free are on Bittrex. If you have a better source, please leave a comment below.

Bitcoin-Bittrex-2017-11-06-232pm

Bitcoin pulling back from the upper trend line.

And now back to this week’s issue.

1.  SP500 Index: Market timing unknown events is always a challenge.  It’s best when a known entity takes over at the Federal Reserve as in this case “he” apparently will.  Jerome Powell is slated to be the next Fed Chair if approved by the Senate.  Wikipedia explains that “The nominees for chair and vice-chair may be chosen by the President from among the sitting Governors for four-year terms; these appointments are also subject to Senate confirmation.”

Powell is likely to be somewhat more hawkish than Dr. Yellen, but much less so than Taylor of the Taylor Rule at Stanford who was also under consideration. Powell served under Bush II in the Treasury Department and is trained as a lawyer and has investment banking experience, explaining his wealth.  No PhD in ecnomics though unlike the recent Chairs.  He is the richest sitting member of the Fed with a reported net worth of between “$19.7 million and $55″ by his own account.

This is Powell’s history with the Fed (per the Fed itself): “Jerome H. Powell took office as a member of the Board of Governors of the Federal Reserve System on May 25, 2012, to fill an unexpired term. He was reappointed and sworn in on June 16, 2014, for a term ending January 31, 2028.”  This tells you that Powell was appointed twice by President Obama, so he is clearly a bipartisan pick.

President Trump likely wanted to avoid trouble with the Democrats over this selection and in any case, Trump is the “King of Debt” and has said “I love debt.”  He used it as leverage in the real estate market, which came back to bite his casino investors, but according to him, he made out well.  President Trump does not want an interest rate hawk to ruin his chances of a second term by leading the economy into recession.  And he doesn’t want high rates to interfere with his own businesses and his sons’ success.

The Treasury market reacted by having rates fall slightly as you’ll see on the interest rate chart of the 10 Year Treasury from this week (4th Chart).  This is NOT what we want in fact.  We want gradually RISING rates corresponding to a continued recovery.  Keep an eye on the 10 Year Yield with me on social media (links below) this week.  It could impact banks and other financials as well as the overall market.

The jobs numbers were OK on Friday and you can review my comments on the social media links below…

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 31,836 people are joining in…

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

sp500-index-spx-market-timing-chart-2017-11-03-close

Stocks still near all time highs. Rally is still OK.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of  +16.48 vs. +6.61% vs. last week.  This number is not yet at an extreme, but it’s high enough to allow for a pullback.  Still it’s not a sell signal in sentiment market timing terms!

Thurs. 12 am close to poll Bulls               45.05% Neutrals 26.37% Bears      28.57%

2.  U.S. Small Caps: Small caps must continue in their rally or it’s going to be off.  Rallies need to be broad based to sustain themselves.  Furthermore, the heavy weighting of financials in the small cap index means that if interest rates don’t rise as they should now, the recovery is off or impaired and small caps will be punished. 

Right now there is roughly speaking a market timing pattern called an “Up Flag” as shown in the chart below.  That sort of flag generally resolves to the upside.  Watch for and trade the direction of its resolution if you like.

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

iwm-russell-2000-etf-market-timing-chart-2017-11-03-close

Market timing pattern known as an Up Flag must resolve to the UPSIDE soon.

3. Gold: Gold is weak still, below my Trigger Line for the Trump Growth Recovery phase, but on a market timing trend line as you see below.  The reaction to this line (breaking it or rising) will drive the gold trade this week.  Some of gold’s luster has been stolen by the cryptocurrency market (CCM).  You can follow my comments on it at the links above.  This week through the 16th or so could produce turmoil in the CCM.  This could either hurt or benefit the gold trade.

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

gld-gold-etf-market-timing-chart-2017-11-03-close

Gold is weak still but on trend.

4. U.S. 10 Year Treasury Note Yield (TNX): Rates fell a bit after the Powell decision for Federal Reserve Chair by Trump, but not by much, so there is no definite market timing signal we can use just yet; however, I set the aqua line as a necessary target for rates, and you can see, it turned into a false breakout at least for now.  In other words, rates are back below that aqua line in the chart below.  This is a note of caution for us.  Rates rise during a continuing recovery, especially at the current levels of employment. If rates don’t rise, we have to question the strength of the economy. See last week’s issue HERE on how to handle your bond and bond-like holdings during a period of rising interest rates.

There is a catch to raising rates when inflation is low (PCE Price Index of 1.3% last check, which the Fed follows), which is that they could end up flattening the yield curve, by slowing economic growth enough by raising rates, and driving down longer term rates as a result.  Longer rates fall and short rates rise, meaning the yield curve goes flat.  And the worry is “the economy goes splat!”  The Fed has been known to cause recessions through excessive tightening of rates.

Which is why…the minimum we need to see now is a higher low in the 10 Year Yield.  The stock market will likely sell off if the 10 Year runs hard and fast down toward that orange line in the sand (orange line in the chart below).

Now, as usual, we need to review our three market timing signals (below the chart after you review it…)

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

tnx-10-year-treasury-note-market-timing-chart-2017-11-03-close

Rates must rise or the economic recovery will be in question.

Let’s review the three market timing signals together….

MY SIGNAL SUMMARY for a Further U.S. Stock Market Rally:

Stock Signal ON (Small Caps above “Trigger Line”; a broad rally including small and mid cap stocks as well as large caps is a positive for stocks).  BUT we need a small cap breakout still.  That’s the same as last couple of weeks.

Gold Signal ON (GLD is below the “Trigger line” which is negative for gold, positive for stocks). But on trend market timing support.  A decision point.  Follow the move!

Rate Signal ON (10 Year Yield above the “Trigger Line,” good for stocks, not bonds).  The stock market rally will be muted if rates stop rising too soon (AND if they go up way too far; yes, it’s a tricky business ; )).

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question…  Pay it forward too by sending the link to MarketTiming.Blog to a relative or friend.  Thank you.

Note: My monthly newsletter is now CLOSED to new subscriptions until late this year.  I’ll let you know here if and when it reopens.

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.

Copyright © 2017 By Wall Street Sun and Storm Report, LLC All rights reserved.

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

Market Timing Brief™ for the 10-27-2017 Close (Bitcoin Update 11-02-2017 and 10-30-2017 Update: Japan is a Buy): SP500 Index Rally Is Not Over. Caution On Chasing Stocks and Mueller Monday. Gold Still Weak with Rates Rising Further.

A Market Timing Report based on the 10-27-2017 Close, published Sunday,  October 29th, 2017

I deliver focused comments on market timing once or twice a week.  These are supplemented with daily “Tweets/StockTwits” (see links below).

Update 11-02-2017 9:21 am: Bitcoin Update – The price has skyrocketed over the past day or so, but has not quite reached the upper end of the market timing channel, which is at about 7490.  This channel drawn on this chart is again ignoring the May swoon.  If you buy here, be prepared to buy both higher and lower.  Demand should continue to build prior to the mid-November Segwit2x fork. 

BTC-2017-11-02-921am

Bitcoin running up near but not at trend line.

 

Update 11-01-2017 6:10 am: Bitcoin Update – If you include the 1100 low in the daily market timing chart, there is an upward wedge which is normally Bearish, but if you factor that out as an extreme event, it looks very much like an upward channel, nearing it’s upper end, yes, but with room to rise overhead to about 7070ish.

BTC-2017-11-01-610am

Room to rise to top of channel.

Update 10-31-2017 1:14 pm: Bitcoin Update – It’s sitting on some support here, but obviously has run up quite a “bit” today.  There is room to fall to the next level of support at the earlier lows you see. The market is moving so fast, this chart could have changed quickly since I typed these words.  It actually tested the lower level of market timing support at Bittrex and popped back up to that black line in a couple of minutes. Now it’s moving up again above that dark line. Lots of buyers entering still.

If you are interested in learning more about this market, please send me a message through the contact box HEREI would like to gauge the interest in a “starter course” for buying cryptocurrencies.

Bitcoin-Chart-BTC-2017-10-31-114pm

Bitcoin Intraday Market Timing Chart

Update 10-30-2017: Japan is a Buy

I’m adding Japanese exposure based on the market timing breakout in their markets (see the Nikkei for example, now above 2015 high).  I am doing it through the small cap route vs. the large, both of which should still benefit. 

I’m also going with the dollar hedged ETF DXJS, because Japan is likely to lag in the tightening of their monetary policy vs. the US.  If you are not sure about the currency issue, you could hold equal amounts of DXJS (WisdomTree Japanese Small Cap Dollar Hedged) and DFJ (Wisdomtree Japanese Small Cap Dividend Fund).  They don’t have the exact same performance, but this is as close as we can get using ETFs from what I’ve found.

NOTE: The volumes of the small cap ETFs are very low, so be a little patient getting in, and check the premium you are paying at Morningstar.com.  At least you know how much you are paying up (or down).  DXJS has the best volume of the group and has had the best performance of the three.  DXJS is in yellow below, DFJ in green, and DXJ in aqua, plotted against the Nikkei.

Nikkei-index-market-timing-chart-vs-dxjs-dfj-dxj-2017-10-30-1049am

Nikkei vs. DXJS, DFJ, and DXJ.

If you want large cap exposure and dollar hedging, you can get that with DXJ or mix that with EWJ if you want to neutralize the currency issue.  You could also mix large with small cap exposure. 

Remember, I’m making two market timing decisions here:

1. The Japanese Economy will do well 

2. The US dollar will beat the yen in the intermediate term.

I am focusing on the small caps, because over time the returns are greater in them, just as they are in the U.S. Of course the risk is higher in draw-downs. 

Multiple sources are now onto this idea including the usually Bearish David Rosenberg who said Japan was the “most under-owned market: HERE.

Remember, don’t chase the ETFs (small caps in particular) or they’ll just fall right back down to their net asset value trading price (always check the NAV premium, whatever ETF you are buying!).  Be a little patient if you want to buy and you’ll be happier.

Back to this week’s issue….

1.  SP500 Index: U.S. GDP was better than expected by virtually all economists, beating the 2.5% SAAR GDP consensus @Bloomberg by about 0.5% at 2.95%, which was rounded to 3.0%.  The Bureau of Economic Analysis (BEA that puts together the GDP report) said storm reductions and storm increases in GDP were likely, but it had no way to sort it all out through it’s current data collection methods.

The market was at first hesitant after the news and then rallied further.  This also followed strong earnings performances and revenue growth by Amazon, Microsoft, Intel, and Alphabet, which all rallied in a panic mode.  Some of that no doubt was short covering, but many were chasing the stocks.

I’d advise you to keep your “non-buyer’s remorse” in check and instead find other great investments with better value in current up trends.  I am NOT talking about buying value stocks without growth!  Buying value and waiting around can take a long time and value is out of favor at the moment.  That will change, but until it does, why fight the trend?  Foreign markets are some that are much cheaper than ours, and I’ve highlighted those before on my social media stream.

I’m up about 44% on KWEB purchases of Chinese internet companies I made in late Nov. 2016 (after prior profits were taken, so the gains are actually higher), and through additions in Jan. and April 2017.  I took some profits during the recent decline, but I’m still holding 80% of the total position I had. The Chinese companies are providing the same services in China, but were cheaper.  That is not as true today with some components like JD.com trading at valuations far above Amazon’s.  Tencent is also a bit rich in valuation now.

KWEB survived at a key support level on Friday.  We’ll see where it goes from here.  I don’t just look blindly at support levels, so bouncing off of support by a little is not enough.  I use my own proprietary methods of examining whether the bottom looks solid or not.  This one is mixed.  There is some positive divergence showing up, but there were not enough buyers to verify the low.  It could be a decent entry point, IF it moves up tomorrow AND you are willing to sell if it breaks lower.  If you are not, stay out.  You will have to be more disciplined than ever to make money over the next two years.

There WILL be 5-10% corrections in this stock market rally, and we’ll need some cash to re-enter at better prices, meaning lower in relative but not necessarily in absolute terms.  Big moves up followed by corrections that are smaller will occur several more times before this already old Bull collapses into a Bear market.  That means higher lows and higher highs thereafter.

One possible, yet unknowable outside event?  The Mueller Investigation is issuing its first indictments on Monday.  I am calling it “Mueller Monday.”  If the implications are not good for Trump, his plans come into jeopardy, and the markets will not like it.  If he is NOT involved, that of course could have the opposite effect.  This is a hard thing to handicap unless you buy puts with the idea you are paying for insurance and expect you will likely lose.  I choose not to do this, but it’s not completely crazy.

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 31,629 people are joining in…

Twitter® Follow Me on Twitter®.  Follow Me on StockTwits®.

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

sp500-index-spx-market-timing-chart-2017-10-27-close

New high but barely. Take a look at the small cap chart.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of  +6.61% vs. +10.00% last week.  I say there is still more rally left with these numbers (despite any short term pullbacks).  With an all time high this week in the SP500 Index, the percent of Bears went up by just over 5 points just 2 days earlier (when the poll closed)That is the opposite of what we’ll see when this market turns into a Bear.

Thurs. 12 am close to poll Bulls               39.64% Neutrals 27.33% Bears      33.03%

2.  U.S. Small Caps: Small caps did OK on Friday as they did the prior Friday, but they have yet to confirm the new high in the SP500 Index. Yet that was the same last week, and the large caps did very well despite it.

What about the mid caps?  They AGAIN broke out to a new high (IJH).

Is the small cap performance still OK?  Yes, actually, as it’s up more than the mid and large cap stocks since the November 2016 lows, but I’ll be keeping an eye on the index.  They still need to break out eventually or the mid and large cap stocks will fall.

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

iwm-russell-2000-etf-market-timing-chart-2017-10-27-close

Small caps looking for another breakout.

3. Gold: Gold still looks poor, unless something unexpected like a Trump impeachment pops up to surprise the markets.  The Fed is clearly going to tighten.  Gov. Powell is likely Trump’s Federal Reserve Chair pick who is closer to Dr. Yellen in his interest rate outlook than the far more hawkish John Taylor, who could easily foist his “Taylor Rule” (right or wrong) on the Fed.  Still, Powell will continue to slowly raise rates and work off the balance sheet as Yellen has done, and the market likes that better than something more drastic, which they would get from both a Taylor or a Warsh, who is even more extreme than Taylor.

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

gld-gold-etf-market-timing-chart-2017-10-27-close

Gold suffers in rising rate environment with low inflation.

4. U.S. 10 Year Treasury Note Yield (TNX): Last week I said “short term, stocks will hesitate if the 10 Year Yield in the chart below does not complete a market timing breakout above the aqua line.”  In fact, we made it above that line, and I believe rates will continue to rise.  Stay with the financials in the meantime (read the issues from the past two weeks to see where I’m investing; links to upper right).

I cannot predict every squiggle in the chart, but over the next 6 months, rates will move higher.  That’s my view.

Invest in shorter maturity bonds/Treasuries/CDs and keeping adding at longer maturities as rates rise.  And get out of bond funds and invest in individual bonds, Treasury, and CDs if you can.

IF rates undulate in a range between 3.0% at the high end and 2.1% at the low end, bond funds can still do OK.  If they move still higher though, bond funds will generate losses and drive even more assets into stocks.

And stay connected on social media (links above) on Monday.  I’ll be adding exposure to a market with remaining growth potential IMO, depending on the state of the markets at the time.  If things are not right, I won’t make this recommendation.  This will be information I signal is posted here on the blog, via a social media comment.  Don’t put all your money in it, but consider starting a position and add to it as it starts working in your account.  You will have to be able to purchase ETFs to participate in this in the best way, although there is a “2nd level” way to participate too.  Be sure to check out the data on this idea yourself before investing.  As you know, I believe in conscious investing.

Now, as usual, we need to review our three market timing signals (below the chart after you review it…)

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

tnx-10-year-treasury-note-market-timing-chart-2017-10-27-close

Rates still rising as expected in a strong economy.

Let’s review the three market timing signals together….

MY SIGNAL SUMMARY for a Further U.S. Stock Market Rally:

Stock Signal ON (Small Caps above “Trigger Line”; a broad rally including small and mid cap stocks as well as large caps is a positive for stocks).  BUT we need a small cap breakout still.

Gold Signal ON (GLD is below the “Trigger line” which is negative for gold, positive for stocks).

Rate Signal ON (10 Year Yield above the “Trigger Line,” good for stocks, not bonds).  The stock market rally will be muted if we don’t need new highs over weeks to months.

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question…  Pay it forward too by sending the link to MarketTiming.Blog to a relative or friend.  Thank you.

Note: My monthly newsletter is now CLOSED to new subscriptions until late this year.  I’ll let you know here if and when it reopens.

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.

Copyright © 2017 By Wall Street Sun and Storm Report, LLC All rights reserved.

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

Market Timing Brief™ for the 10-20-2017 Close: Bulls In Charge with SP500 Index Rally to All Time High on Tax Reform Progress. Gold Rally Fails on Rising Rates.

A Market Timing Report based on the 10-20-2017 Close, published Sunday,  October 22nd, 2017

I deliver focused comments on market timing once or twice a week.  These are supplemented with daily “Tweets/StockTwits” (see links below).

1.  SP500 Index: The market went to all time highs this week based on progress with tax reform by the GOP.  A brand new high is irrefutable strength in market timing terms, and the great news is that individual investors are still holding back.  The GOP almost certainly will pass a bill, as they have the votes, but how much of a deficit they will build into it is up for grabs, given the fact that the House passed a revenue neutral bill, and the Trump Senate bill adds 1.7 Trillion to the national debt over 10 years.  I’ve commented on the LACK of fiscal discipline by the GOP AND the Dems HERE.

Skip this paragraph if you don’t like historical economic truth.  ; )  Our recent Presidents have mostly been fiscal liars with two exceptions.  Bush Senior broke his word and raised taxes, because he wasn’t a fiscal liar.  And Clinton balanced the budget if you don’t count the Social Security hedge, a hedge all the Presidents and Congresses use to fudge the numbers.  So they were not ALL liars.  Carter did not lie, but was very ineffective as a President at a time of crushing inflation.  “Tinkle down economics” does not work.  Reagan proved that with great help from the Dems who spent along with him.  Yes, he sought a line item veto, which is like asking for Electoral College reform.  It will never happen.  But Reagan was a BIG spender in the end.  I’d just like people to realize that the Reagan story has been idolized beyond reality.  Reagan was a great man for bringing down the Soviet Union in my view, but not for having any true fiscal discipline.

The big, big news this week will be Friday’s GDP number.  Consensus for the headline Q/Q number is 2.5% (@Bloomberg).  It is specifically the first estimate of the third quarter Real (meaning inflation adjusted) seasonally adjusted annualized rate (SAAR) of growth, representing the quarter over quarter growth rate, projected from the third quarter forward.  As you can imagine, it is hard to estimate growth for an entire year based on the rate of growth in one quarter, which is why the headline number fluctuates far more than the annualized or “Year over Year” GDP number.  That’s why we’ll be looking at both the quarterly rate and the annualized rate when they come out.  The Real SAAR GDP itself is a growth rate.  Total GDP is a number estimating the production of the entire economy.

If Trump Growth is real, we should see the annualized rate tick up some more on this chart: HERE.

The markets would NOT respond well to a weak GDP number and will continue to rally based on a solid number, which would be 2.4% annualized in my view.  Slow and steady keeps the Federal Reserve’s foot off the rate hike accelerator switch.  Markets won’t mind slowly rising rates, and the financials will benefit from them as I discussed HERE.

How is the Canary doing?  Read at the last link (just above) to catch up.  Let’s look…

bac-vs-sp500-index-spx-market-timing-chart-2017-10-20-close

The Canary is Singing “The Green Song”: Bank of America is gaining on the SP500 Index.

The Canary is singing the “Green Song.”  It is gaining on the SP500 Index (bottom part of the above chart, and it’s also gaining on XLF (not plotted) as I said it would.  I’d like to see a breakout in that bottom part of the chart this week or next.

This leg of the market, if it is to be substantial, depends on rising interest rates.  There is no excuse for anything else at this point.  The Federal Reserve is cutting back on some of their prior massive interference with normal market mechanisms, which were undertaken for better (higher housing and stock prices) or worse (the bust to come could be bigger than the last one).  That is why we’ll continue to BE IN this market, but be vigilant in watching for the cracks. 

Warning: There may be a tendency during the current rally to become complacent as we saw in housing at the end of the last bubble.  Don’t.  Come back here and read and examine the charts for yourself every week even if there are no financial fireworks to disturb things.

There is one slight negative in the charts this week…see the small cap chart below…

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 31,434 people are joining in…

Twitter® Follow Me on Twitter®.  Follow Me on StockTwits®.

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

sp500-index-spx-market-timing-chart-2017-10-20-close

New high on Tax Reform progress.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of  +10.00% vs. +12.90% last week.  With individual investors LESS Bullish at all time highs in the SP500 Index, we have more rally left.  Yes, there can be pullbacks due to exogenous events (slowing elsewhere, geopolitics etc), but with earnings very strong this season and the economy growing at a reasonable pace (to be verified by the number out this next Fri.), the market should continue to do well.

Thurs. 12 am close to poll Bulls               37.93% Neutrals 34.14% Bears      27.93%

2.  U.S. Small Caps: I said last week: “The 10-09-2017 low is likely the base of the current U.S. small cap consolidation in market timing terms.” We tested below that market timing level during the week, but gains on Friday brought us back above that level.

What about the mid caps?  They broke out to new highs this week (IJH). Check!

But now we need a breakout in the small caps to match that in the large and mid caps.  No check mark there yet.  It could come this week IF rates keep rising.  So follow the interest rate chart (section #4 below).

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

iwm-russell-2000-etf-market-timing-chart-2017-10-20-close

Small caps need a NEW breakout now.

3. Gold: The trade broke down on Monday with a “Bearish Engulfing Day” market timing signal, and rates climbed back up.  The move was a “fakeout.”  Expect more losses for gold in the coming months.  The only thing that could save gold is inflation rising more rapidly ahead of Fed action (review last week’s comments  HERE).

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

gld-gold-etf-market-timing-chart-2017-10-20-close

Gold will suffer from rising rates for months IF the economy is on track.

4. U.S. 10 Year Treasury Note Yield (TNX): My central thesis, as said, is rates must rise from here, or the recovery will be in trouble.  Maybe the market can churn around for a while as Congress gets its act together, and rates can stumble sideways, but a correction of significant proportions would be much more likely in the case of falling rates.

Short term, stocks will hesitate if the 10 Year Yield in the chart below does not complete a market timing breakout above the aqua line.

Now, as usual, we need to review our three market timing signals (below the chart after you review it…)

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

tnx-10-year-treasury-note-market-timing-chart-2017-10-20-close

Rates rise again.

Let’s review the three market timing signals together….

MY SIGNAL SUMMARY for a Further U.S. Stock Market Rally:

Stock Signal ON (Small Caps above “Trigger Line”; a broad rally including small and mid cap stocks as well as large caps is a positive for stocks).  BUT we need a small cap breakout this week or next.

Gold Signal ON (GLD is below the “Trigger line” which is negative for gold, positive for stocks).

Rate Signal ON (10 Year Yield above the “Trigger Line,” good for stocks, not bonds). We need a new breakout or at least stability in a higher range. The stock market rally will be muted if we don’t need new highs over weeks to months.

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question…  Pay it forward too by sending the link to MarketTiming.Blog to a relative or friend.  Thank you.

Note: My monthly newsletter is now CLOSED to new subscriptions until late this year.  I’ll let you know here if and when it reopens.

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.

Copyright © 2017 By Wall Street Sun and Storm Report, LLC All rights reserved.

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

Market Timing Brief™ for the 10-13-2017 Close (10-17-2017 Gold Update – May Be a “Fakeout”): The Threat to the Stock Market Rally. Gold’s a Trading Buy as it Ramps while Rates Fall.

A Market Timing Report based on the 10-13-2017 Close, published Saturday,  October 15th, 2017

I deliver focused comments on market timing once or twice a week.  These are supplemented with daily “Tweets/StockTwits” (see links below).

1.  SP500 Index: The markets were largely in a market timing consolidation this week (moving sideways) as recent big gains are being digested.  The small caps eased down a bit more than the large caps, but within their higher volatility range, held up well enough to allow the rally to continue.

BUT there is a threat to the rally as I discussed last week in some detail HERE.  The slipping sound heard on Friday was by interest rates which headed back down rather than up.  As I’ve said, rates rising is one of the things we need to see for the stock market rally to continue, because the financial sector depends on it, and because it means the economy is continuing to expand, which naturally drives rates up.  It is a complete misconception that when rates rise, the market does poorly.  It is true that rates have never been this low for this long, but the Federal Reserve intends to move them up slowly to avoid market volatility that would be injurious to the economy.

Remember that our “fail safe” is market timing.  When things are turning sour, we’ll see it in the charts before the market falls more quickly.  That’s not a 100% guarantee, but it’s usually the case.  Even in 1987, I saw the damage coming ahead of time.  Initially investors won’t believe the changes in the market that we will be able to see.  Why can we do this?  Because the markets cannot hide three things: Price, volume and volatility.  These are derived directly from market trading and cannot be hidden by Wall Street exchanges or anyone else.  Market timing data is the one thing the clever people on Wall Street cannot take away from us.

You can be sure, as I’ve been doing technical analysis formally and steadily since 2001, that I will continue to follow and report on what the markets are actually doing, not what people think they should do.  

After you review the large cap chart below, have a look at what small caps are doing.

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 31,259 people are joining in…

Twitter® Follow Me on Twitter®.  Follow Me on StockTwits®.

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

sp500-index-spx-market-timing-chart-2017-10-13-close

Stocks holding gains! Rally is still on.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of  +12.90% vs. +2.80% last week. Bears gave up about 6 points with about 4 points going to the Bulls and a bit less than 2 to the Neutrals.  Rallies don’t end at these levels.  There are more gains ahead in my opinion (short of unforeseen disasters like a resumption of war with North Korea – yes, resumption as we never signed a peace agreement with them!).

Thurs. 12 am close to poll Bulls               39.77% Neutrals 33.33% Bears      26.90%

2.  U.S. Small Caps: The 10-09-2017 low is likely the base of the current U.S. small cap consolidation in market timing terms. If you look at a magnified chart, you’ll see that.  The point is that the slight dip in IWM last week is still part of a consolidation, not a breach of the trend.

The mid caps are even stronger as you can tell by examining the IJH chart on your own.  This means the rally is intact with great breadth (large down to small cap participation).  So we can check off the “Breadth Box.”

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

iwm-russell-2000-etf-market-timing-chart-2017-10-13-close

Small caps slipping a bit, but rally is not broken.

3. Gold: UPDATE 10-17-2107: Gold has pulled back below the “Trigger Line” (you can see the number in the chart below).  A close below the 10-11-2017 low will reverse the trading signal in my view.  That is called a “fakeout.”  Some breakouts are fakeouts, because markets test just above them and reverse.  Gold is still fine as insurance against the US Dollar and other fiat currencies, but I make a distinction on trades vs. insurance.

Gold visited its market timing trend line (yellow) two Fridays back and then bounced as rates fell from their peak simultaneously (though the bond market was closed this past Monday).  This dance is a continuation from what we’ve seen for some time, which is an inverse trading relationship between gold and interest rates.

This echoes the threat to stocks I spoke of above.  Gold rising above my trigger is bad for the Trump Growth Thesis and negative for stocks.  Falling rates are not what the doctor ordered.  Rates should continue to rise in an expanding economy as the Federal Reserve raises rates.

I have mentioned the inflation scenario under which rates could rise while gold also rises.  That could happen if the Federal Reserve falls behind on inflation.  That does NOT seem to be the case at this time however, as the CPI is running at 2.2%, as reported this past Friday, and core CPI is running at 1.7%.

The measure of inflation the Fed prefers to watch is the 12 month change in Core PCE Prices (Price Index for Personal Consumption Expenditures (PCE)) which was last reported at 1.3%, far below their 2% target.  Dr. Yellen reviewed the inflation problem today in fact as posted HERE.  She pointed out that PCE Inflation (the change over 12 months) had reached 2.0% earlier in the year, while Core PCE Inflation had hit 1.9%.  The drop to 1.3% since then has puzzled the Fed.

Although the Federal Reserve would like to normalize rates, they are cognizant of the fact that the bond market could end up disagreeing, so there is always an out.  She says they do not plan to fidget with the balance sheet rebalancing mechanism as they do with the Fed dictated interest rates, but also reserves the right to slow that down and even reverse the flow if the economy does not do what they expect it to do.

That should address anyone who thought the entire path the Fed is now on was immutable.  It’s not.  They simply want to raise rates “while they can,” so that when they need to lower them, they can impact the economy to steady it.  It IS a manipulation and it is NOT a free market principle that drives it NO, which is why we have gold, and for the adventurous currency pioneers, a smaller amount of cryptocurrency on a percentage basis, as insurance.

The bottom line is this: if rates move back up from here and reach a new high, gold will suffer.  This means any current gold trade could be cut off in just days to a week or two.  Watch the interest rate chart below to figure out where gold will go, as they are firmly LINKED in an inverse relationship – higher rates means lower gold.

As far as market timing goes, gold is back to an up trend, also trading above my “Trigger Line” for Trump Growth. 

Now after reviewing the gold chart, have a look at the interest rate market timing signal…

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

gld-gold-etf-market-timing-chart-2017-10-13-close

Gold rises above my Trigger Line again!

4. U.S. 10 Year Treasury Note Yield (TNX): The 10 Year Treasury Yield could now back-test that orange line in the chart below that represents the “Trump Growth Trigger Line” for rates.  I told you last week, we could see a bigger drop in rates after it hit the overhead resistance line (the horizontal aqua line in the chart below; see last week’s issue).

This market timing move in rates could take us to the orange Trigger Line or perhaps to the red line below that, which would create a reverse head and shoulders formation, allowing for a bounce.  Could yields plunge still lower?  If Trump can keep legislative momentum on tax reform going, we should not revisit or break the September low.  If we do, the stock market will already be well into a deeper correction.  My favored scenario is a test no lower than the area of the orange Trigger Line or close to it, meaning the April low. 

The markets will do what they want, so we stay alert.  Stay tuned on social media with me this week (links above)!

Now we need to review our three market timing signals (below the chart after you review it…)

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

tnx-10-year-treasury-note-market-timing-chart-2017-10-13-close

Rates are heading in the WRONG direction.

Let’s review the three market timing signals together….

MY SIGNAL SUMMARY for a Further U.S. Stock Market Rally:

Stock Signal ON (Small Caps above “Trigger Line”; a broad rally including small and mid cap stocks as well as large caps is a positive for stocks).  Stocks consolidated this week. That’s fine for now.

Gold Signal OFF (GLD is above the “Trigger line” which is positive for gold, not stocks).  Gold is linked to rates though, so follow the 10 Year yield with me.

Rate Signal ON (10 Year Yield above the “Trigger Line,” good for stocks, not bonds). The fall I predicted last week may not quite be done yet.  (details above in part “4.”) Going below the orange Trigger Line will hit stocks in my view if rates get that far.

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question…  Pay it forward too by sending the link to MarketTiming.Blog to a relative or friend.  Thank you.

Note: My monthly newsletter is now CLOSED to new subscriptions until late this year.  I’ll let you know here if and when it reopens.

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.

Copyright © 2017 By Wall Street Sun and Storm Report, LLC All rights reserved.

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

Market Timing Brief™ for the 10-06-2017 Close (Update 10-09-2017): Many Are Waiting for the Stock Market to Crash Again. Gold at Low End of Range. Rates Can Move Higher.

A Market Timing Report based on the 10-06-2017 Close, published Saturday,  October 7th, 2017

I deliver focused comments on market timing once or twice a week.  These are supplemented with daily “Tweets/StockTwits” (see links below).

Update 10-09-2017: Bank of America: The Market Timing Canary in the Trump Gold Mine

For this rally to continue, there will have to be tax reform, especially corporate tax reform with repatriation, as it’s been at least partially built into the market.  And the other thing that must happen is for rates to rise; otherwise, it means economic slowing will likely occur with a potential recession to follow.  No need to be pessimistic at this point however, so…

My favored scenario is: Rising rates with at least corporate tax reform and some sort of tax reduction for the middle class, which could be enough for the markets, even if individual tax reform is watered down. 

The financials (XLF; financial ETF) are the Canary market timing signal in the coal mine, with Bank of America (BAC) being a more sensitive Canary than the XLF.  I reviewed the comparison chart, and BAC will pack more punch to the upside than will XLF, if rates keep rising with further economic expansion, OR more punch to the downside if rates fall meaningfully from here (not just a few days of a reaction swing lower), and the economy slows. 

The XLF and, more sensitively, in market timing terms, BAC will show us the way forward.

And now back to the major market setup for this week…

1.  SP500 Index: Markets are still strong, but it seems many are still waiting for the next stock market crash, so they can swoop in and buy stocks on the cheap, but instead, they are being sorely disappointed.  Of course, the doomsayers will be right one day, but please don’t mention the cost of their being out of the market since the 2009 bottom to them.  The poor market timing of the average investor is a touchy subject, but is too often left unaddressed with ongoing lousy returns.  And if you are one of the skeptics, it’s OK, because redemption is for everyone.  Winter may be coming, but “Not yet, not yet!” as the Gladiator Juba says after Maximus dies in the Colosseum.  (Gladiator meets Game of Thrones ;))

Investors could have used market timing to enter the SP500 Index SEVEN times just since May of this year.  See the green numbers on the chart below.  The entries were at higher lows or backtests of breakouts, both legitimate buying points. There is actually a 6th and 7th entry, at the breakouts themselves.  Can you find them?  #4 is one of the market timing breakout buys, but there are two others that have not been marked.

Employment did take a hit this past month (the US jobs number was minus 33,000 for September) due to Harvey and Irma, but should rebound along with increased activity due to the rebuilding efforts.  The NY Federal Reserve still expects GDP for Q3 to turn out at 1.53%, slightly above last week’s estimate, while the Atlanta Fed brought down its estimate to 2.5%.  Remember that the quarter to quarter seasonally adjusted annualized GDP numbers are more volatile than the year over year GDP numbers.  At the end of Q2 2017, Year over Year US GDP growth was 2.2%.  You can review the data HEREAs long as the economy is doing OK, and inflation is not running wild, I remain invested in equities.

Review the SP500 Index market timing chart below and then we’ll discuss investor sentiment and the US small caps…

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 31,066 people are joining in…

Twitter® Follow Me on Twitter®.  Follow Me on StockTwits®.

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

sp500-index-spx-market-timing-chart-2017-10-06-close

Hurricanes, North Korea, Tigers and Bears, Oh My!

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of  +2.80% vs. +4.59% last week.  A few more BEARS were recruited from Neutrals last week than were Bulls!  Investors are incrementally more Bearish as the market continues to make new highs.  That means there are more gains ahead!

Thurs. 12 am close to poll Bulls               35.60% Neutrals 31.60% Bears      32.80%

2.  U.S. Small Caps: Mid caps did indeed confirm the small cap market timing signal this week by breaking out to new all time highs.  Small caps moved up yet another notch.

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

iwm-russell-2000-etf-market-timing-chart-2017-10-06-close

Small caps move up once again.

3. Gold: In market timing terms, gold has reached the base of the trading range, which is represented by the yellow trend line in the chart below.
It must bounce from here or that will be a distinctly negative market timing signal.  The GLD price would then undoubtedly test the next red line beneath the current level as an initial downside target.  If you are Bullish, which I am not due to rising interest rates, then buy at the trend line and dump those shares back at the top of the range.  You can keep a core position if you like. I use gold as insurance against fiat currencies.

The one thing gold has going for it at this level is the resistance interest rates are facing (see the next chart).  No guarantees though and my bet is still for 10 Year Treasury Rates moving at least to 2.6%ish over the intermediate term.

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

gld-gold-etf-market-timing-chart-2017-10-06-close

Gold reached the bottom of the trading range.

4. U.S. 10 Year Treasury Note Yield (TNX): Rates moved still higher this week.  I think they have farther to go, as the Federal Reserve will use this time of economic expansion to raise rates and reduce their balance sheet to get ready for the next economic decline. The 10 Year Treasury Yield can certainly run up all the way to 2.6%ish without destroying economic growth.  The Fed will move slowly no doubt, as they’ve never undone QE before as they have raised rates.

Rates hit the top of the recent range and could move back down a bit before moving higher, but my bet is on higher in the intermediate term. 

The Fed has never reduced such a massive balance sheet before, so I’ll follow the charts, not my assumptions about ranges holding!  Rates could just as easily keep moving up steadily.  

Now we need to review our three signals (below the chart after you review it…)

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

tnx-10-year-treasury-note-market-timing-chart-2017-10-06-close

Rates moved higher still, but bumped up against the July high.

Let’s review the three market timing signals together….

MY SIGNAL SUMMARY for a Further U.S. Stock Market Rally:

Stock Signal ON (Small Caps above “Trigger Line”; a broad rally including small and mid cap stocks as well as large caps is a positive for stocks).  All three market caps are moving higher.

Gold Signal ON (GLD is below the “Trigger line” which is negative for gold, not stocks).  Gold is on support at the moment.  It must hold.

Rate Signal ON (10 Year Yield above the “Trigger Line,” good for stocks, not bonds). There is more room for rates to rise.

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question…  Pay it forward too by sending the link to MarketTiming.Blog to a relative or friend.  Thank you.

Note: My monthly newsletter is now CLOSED to new subscriptions until late this year.  I’ll let you know here if and when it reopens.

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.

Copyright © 2017 By Wall Street Sun and Storm Report, LLC All rights reserved.

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