Market Timing Brief™ for the 6-22-2018 Close: Summer Market Dip Starting? Get Your Buy List Ready. Gold Down Another Notch with Rates Mid-Range.

A Market Timing Report based on the 06-22-2018 Close, published Sunday, June 24th, 2018…

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 (S&P 500 Index®; SPY, SPX): Let’s check in on two signals we’ve been following:

“Intel-igent Signal”:  Negative.  The trigger point is 54.36 and the close Friday was 52.50, despite INTC guiding earnings for the current quarter upward.   There was also the small thing of the CEO being forced out for fraternizing with an employee in the age of #MeToo ethical standards.  It was also an Intel rule, and he violated it, so he’s out.  This may taint this “tell” on the market a bit, as the CEO had been doing good things in redirecting the companies efforts more away from the PC toward data centers or as it is better marketed to stockholders – “the Cloud”!   The CFO supposedly knows what the company needs in the meantime as they search for the next CEO.

Remember that INTC was supposed to be our “tell” on what the second half of the year in tech could look like in terms of earnings.  They had warned on possible weakness in the second half as noted HERE.  Despite the CEO issue, I believe the market will look past it to the company’s performance, although there could be some degree of damage.  The Q2 earnings season starts with Pepsi (PEP) on July 10th followed by JPM, C, WFC, and PNC banks on Friday July 13th.

Bank of America (BAC) signal: Negative.  The BAC low in Feb. was 29.13 and the close Friday was 28.99 with small caps and the QQQ – the latter not all tech, but heavy in tech at new all time highs, although that is barely the case for QQQ, as the Trump Trade War heats up.  The QQQ close Friday was 175.32, while the breakout was at 175.21.  XLK which is “pure tech” in the SPX is below the breakout at 71.34 with a close Fri. of 70.80.

I had said, “We’ll keep an eye on whether BAC can hold the prior recent major lows.  If not, a greater decline in interest rates would be expected.”  I believe interest rates will fall further in the U.S. as global deceleration of growth sinks in.  This will temper the gains in the U.S. perhaps, but remember that the U.S. is among the strongest economies left, so money has rotated into the U.S. from abroad.  That’s exactly what I did near the Feb. lows, and it has paid off.  The U.S. market has recovered while Europe, Japan, and China ETFs have lagged very badly.  FXI (China Big Cap) is BELOW the Feb. low.  EWJ, which is the Japan ETF is near the Feb. low, and Europe (VGK) is as well.  Studies have shown that when markets diverge, you can do better by concentrating your investment in the strongest countries rather than just going to cash. 

Last week I pointed out: “The SP500 Index is hugging the upper trend line of the 2017 channel.  This is not a problem, but it allows for a pullback within the trend without ending it.”  I also said it was a place you could “Take some off” if you are overinvested in stocks.  What happened is the market did pull back from that channel top  a bit, but it’s only down about 21.1% from the top of the channel.   It could slide further, depending on the trajectory of the tariff disputes Trump is engaged in.

The midcaps, QQQ, and XLK, all among the leaders, are back down below their prior breakout points.  Small caps are 4.47% above their breakout on the other hand.  A  breakdown there would be an extremely negative sign for the market, because the thesis there has been that the U.S. economy can be very strong domestically, even if foreign predominantly large cap sales suffer from the trade disputes.  If that’s not the case, then the supposition is that the large cap suffering is going to spill over into all stocks, even the small caps.  There is no definitive break yet in the midcaps either though, despite being belong the breakout point.

The loss of key breakouts noted as well as negative INTC and BAC signals, as well as a breach of that yellow up trend line shown in the SP500 Index chart below indicates something more than a couple day dip is in store for the market.   The other softer sign of a “problem” is that some stocks like Netflix are up 34.08% since my buy on 4-24-18.  At this rate, by 4-23-19, NFLX will be at 918 for a gain of 200.6%.  Does that seem likely?  Possible perhaps in a nutty world, but not likely, so some sort of pullback is needed along that path.  If you have no cash, this may be the time to raise a bit, so you can buy stocks back lower this summer. 

One warning though: Don’t sell your winners unless it is to take some modest profits off the table, but do it on a stop loss basis for a strong stock like NFLX.  And be sure the company you buy is as good as or better than the one you sell.  If not, why are you selling?  To de-worsify?  To buy cheap companies that may take years to turn around? 

Sell your losers first to raise cash and get a list ready to redeploy the assets into strong companies with strong balance sheets and a high return on equity, one of the top criteria Warren Buffett uses to identify great companies with a consistent operating history.  Why is that?  It is because earnings mean nothing if a company does not create shareholder value from those earnings.  Buffett states that a company should be able to create at least $1 in value for every $1 of retained earnings.

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 33, 540 people are joining in…

Follow Me on Twitter®  Follow Me on StockTwits®.

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

sp500-index-spx-market-timing-chart-2018-06-22-close

Just a dip or more?

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +12.54% vs. +23.08% vs. the prior week.  I said last week: “This is compatible with a continued Bull move, but allows for a dip of a few percent (say 3%) or a period of consolidation.”  We’re down only a little so far.  Sentiment in this range says there is room for both downside and upside, so it’s not that helpful.  We are not at a pivot point in sentiment terms, which is just one parameter I follow.

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
38.72% 35.10% 26.18%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): As said above, the small cap breakout must be maintained or a big crack in the continued U.S. expansion will be exposed.  Follow these signals with me on social media (links above).

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

iwm-russell-2000-market-timing-chart-2018-06-22-close

Small caps lead still.

3. Gold Market Timing (GLD):  I believe the current gold decline is temporary, due to a miscalculation by the Federal Reserve.  They are raising rates into a global deceleration and will be forced to at least hold off from further hikes after a Sept. hike, as I discussed last week (links to past issues to upper right).  When they become less hawkish on inflation, the U.S. dollar and long rates will both be falling and gold will rise again.  It’s a bad trade for now, but the reversal is coming.

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

gld-gold-etf-market-timing-chart-2018-06-22-close

Gold is still weak and may be for weeks to months.

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX):  Rates are mid-range as the chart shows and could move a bit higher on inflation news and lower on global deceleration news.  Seems too hard to trade to bother, but there are always those who do.

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

tnx-10-year-treasury-note-market-timing-chart-2018-06-22-close

The 10 Year Yield is in the middle of the recent range.

Now let’s review three key market timing signals together…. 

Do not use these signals as a trading plan.  They are rough guidelines.  I currently share my own moves on social media (links above).

MY SIGNAL AND TREND SUMMARY for a Further U.S. Stock Market Rally with Real GDP Growth (“real” means above inflation):

Stock Signal GREEN for a further U.S. stock market rally with a Bullish SP500 Index trend.  The VIX closed at 13.77, above the key 13.31 number I have pointed out.  The close was 11.98 last week and 12.18 the prior Friday.  A rise above 14.57 would be a concern for a more serious correction, although on Thursday the high was 15.18, so a quick test above is not enough to tip the market over. 

Gold Signal  GREEN for a further U.S. stock market rally with a Bearish Gold Trend. 

Remember GLD is being used as an indicator for the ECONOMY here. 

Rate Signal YELLOW for a further stock market rally with a NEUTRAL 10 Year Yield Trend.  Things have changed due to the recent swoon and then bounce in rates.  A more definitive rise above 3.036% would turn the rate trend back to Bullish (bearish for bonds).  A fall below 2.717% would be required to turn the rate trend back to Bearish. “Bullish” for yields is Bearish for bonds and vice versa.  This level of the 10 Year Treasury Yield, which is too high for current conditions as explained HERE, will eventually slow the economy.  The market seems to have adjusted to rates of up to 3% or so as said in the signal summary HERE.

Note: I’ve updated my criteria for the equity signal for a further U.S. stock market rally to the following: GREEN = Bullish, YELLOW = Neutral, RED = Bearish.  In other words, the colors tell you whether the signal supports the stock rally or not, while the Bullish, Neutral, and Bearish designations are about the trend. 

NOTE: A BEARISH trend signal does not mean we should not buy.  A BULLISH signal does not mean you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL signal does not mean the end of the Bull or Bear. It means to wait and look for possible subsequent entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the charts for now as reference points only; they have historical value for us from the post-2016 election period.

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.

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.

Finally: Excuse and report all typos if you are so moved.  I do my best to pick up most of them, but have not always found them all.  Shoot me a comment (I don’t have to post your typo report as I filter them before publication, but I’ll be grateful to you!)

Copyright © 2018 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 6-15-2018 Close: The Fed is Boxed In. Stocks Still Edging Higher with Turbulence Ahead. Gold Falling on Dollar Rising. Rates Falling in the Range.

A Market Timing Report based on the 06-15-2018 Close, published Sunday, June 17th, 2018…

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 (S&P 500 Index®; SPY, SPX): Let’s check in on two signals we’ve been following:

“Intel-igent Signal”:  Positive, but consolidating.  Last Friday’s close was 55.05, but this week the close was just 55.11.  This is still above the 54.36 number we’re following, but not making progress.  The move out of this consolidation, up or down, will be a “tell” on the market.  Read last week’s blurb on this to understand its importance as a “tell” for the general stock market in the U.S. HERE.

Bank of America signal: Negative. I said last week: “Looks like it is rolling over again at the 50 day moving average.”  The February low in BAC was 29.15 and the close Friday was at 29.28.  It is in danger of breaking, and if it does, it could be a sign for the overall market to fall.  It could be an indication that the markets are expecting another significant decline in interest rates.  Gradually higher rates are OK in a strong recovery; “Rate Shock” is not OK, as I explained back in February when many commentators were falsely blaming “inflation fears” for the market’s precipitous fall.  You can read about that HERE if you haven’t.  Then again, falling rates don’t compute in a strong recovery.  They are a sign of deterioration of prospects.  We’ll keep an eye on whether BAC can hold the prior recent major lows.  If not, a greater decline in interest rates would be expected.

The Federal Reserve this week stayed on track with their planned hike of 0.25%.  That is exactly what the market expected.  The Fed expects two more hikes this year, one in September and one in December.  There is an aggregate 86.6% probability of one or more Sept. hikes and a 55.4% probability of one or more hikes in Dec. per the CME.

Of course, the Federal Reserve remains “data dependent,” meaning that if circumstances intervene that prove there is slowing of the economy, they may forego one or both of these hikes.  From my reading of the data, unless there are intervening emerging market blow-ups before September, the hike in September is highly likely.  Given the Ex-U.S. global deceleration occurring now, the U.S. may start showing cracks before December, causing the Federal Reserve to back off from the last rate hike.

The SP500 Index is hugging the upper trend line of the 2017 channel.  This is not a problem, but it allows for a pullback within the trend without ending it.  The trend is still up, so I’m sticking with it for now.  If you are over-invested, the top of the current range is where you can “take some off.”

The Federal Reserve dot plots expect slowing of GDP growth from 2.8% this year, to 2.4% in 2019, and to 2.0% in 2020 with a longer run tendency running at 1.8%.  If growth is slowing, growth rates of companies will be slowing more or less depending on the nature of the businesses considered, and slower growth will mean lower stock prices, if in fact the market is now valuing stocks at their current earnings and revenue growth rates.  If this general slowing hits your companies over the next two years, their stock prices should fall.

This means we must watch for deceleration in revenue and earnings growth of the companies we own!  Even the Federal Reserve is indirectly telling investors that stock prices won’t do as well over the next two years as they have in the past due to deceleration in the growth of the overall economy. 

If the companies you own remain at the top of the heap despite some slowing, you may want to ride out the fluctuations in their stock prices.  If not, you may want to seek out companies with higher growth rates, especially companies that can grow despite the global economic deceleration.  One example, could be companies that deal with internet/computer security.  Companies are forced to invest in security to meet threats regardless of what the economy is doing.

Biotech companies are other examples of course, as their products are in demand to solve medical problems regardless of the economy’s trajectory.  The government has spent billions of dollars on Hepatitis C cures and AIDS treatments, because companies discovered the drugs.  AIDS patient treatment did not stop, even during the Great Recession.

Deceleration of growth does not have to mean an immediate recession.  Recession by definition means a contraction of GDP over two or more quarters.  Decelerating growth can simply bring stock valuations down as company revenues and earnings fail to meet prior growth expectations.  The coming earnings reports out in July could lead to such adjustments in expectations for the final two quarters of 2018 and lower prices in a number of stocks.

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 33, 527 people are joining in…

Follow Me on Twitter®  Follow Me on StockTwits®.

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

sp500-index-spx-market-timing-chart-2018-06-15-close

Uptrend intact.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +23.08% vs. +12.21% vs. the prior week.  This is the strongest Bullish spread number since February when the market was in the middle of its first bounce.  This is compatible with a continued Bull move, but allows for a dip of a few percent (say 3%) or a period of consolidation.  Sentiment alone gives me no reason to “sell some” just yet.  I already have some excess cash/short term Treasuries to take advantage of pullbacks. (I share my exposure level on social media at the links above if you are curious.  Simply scroll back to the last message which says “Now at X% of usual max. equity exposure worldwide (meaning vs. usual max. for a Bull Market.”)

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
44.78% 33.52% 21.70%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): The small cap rise has decelerated, but that’s all at this point – it’s called a consolidation (4 days).  There is no reason IWM cannot make higher highs.  In general, small caps should not be doing this well and leading the SP500 Index if the belief were the U.S. economy is headed for trouble.  The U.S. remains a prime place to invest in the midst of global deceleration, and investors believe small caps have a home stadium advantage as they do most of their business in the U.S. vs. large cap multinationals.  It is the relative U.S. advantage that may keep the rally going here as long as the emerging market blow-ups don’t threaten the global financial system.

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

iwm-russell-2000-market-timing-chart-2018-06-15-close

Small caps still above breakout.

3. Gold Market Timing (GLD): Gold is in a “heap of trouble.”  The chart (second below) looks bad with lower lows being made.  Friday’s break was on very high volume, which is a bad sign.  But let’s also examine the relationship of the US dollar plotted against the 10 Year Yield (TNX) and GLD.

The first chart below that starts at 4-23-2018 shows this: Since the U.S. dollar broke out of its prior consolidation on 4-23-2018, TNX has been rising and falling, while GLD has made a series of 3 lower lows.  Remember gold reacts most strongly to real rates, so this means the market believes real rates are rising in dollar terms, not falling.

The Federal Reserve is raising rates while the rest of the world’s economy outside the U.S. slows.  The slowing takes pressure off of input pricing and hence dampens inflation.  Higher rates with falling inflation (from the current highs or so) is a recipe for higher real rates and BAD FOR GOLD.  That last statement is WORTH GOLD!  😉  Watch your stops.  We have no trading positions on when gold is falling.   We only use it for “insurance” during those periods.

When the Fed is forced to reverse course (which could take months as described), gold will rise again. 

uup-vs-gld-vs-tnx-market-timing-chart-2018-06-15-close

U.S. Dollar (UUP) vs. GLD and TNX (10 Year Treasury Yield)

The Gold ETF (click chart to enlarge the chart; GLD): You can see the breach!

gld-gold-etf-market-timing-chart-2018-06-15-close

Bad break on high volume.

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX): You can play the trading range of rates, but you had better be prepared to act outside the typical monthly newsletter time frame!  Inflation could rise a few more months on a Y/Y basis and drive the Fed’s rate hikes into Sept. but global slowing (initially from higher to lower growth rates and then potentially into recession starting outside the U.S.) could cause the Federal Reserve to pause and forego the December rate hike.

As said above, falling rates are NOT what we want to see in a strong recovery.  The Fed is already ahead of the global economy as I summarize below in the “Signals.”   This does not mean it will impact the U.S. stock market immediately, but it does mean “global slowing” may come home to roost on a time lag.   If the Fed ignores this, it will flatten and then invert the yield curve – not a good thing as demonstrated by history.   Why invest in corporate debt if you can get “risk free” U.S. Treasuries at relatively high rates over short periods of investment (like 2 years)? 

Just to clarify this point even more…  The Federal Reserve has ALREADY tightened too much vs. prevailing global economic conditions in reaction to U.S. inflation.  That is its “job,” but it does not make it correct in the sense of sustaining the recovery.  The Fed in fact, created the inflation by inflating asset prices.

Trump and the GOP have now added to inflation via late fiscal stimulus, regardless of whether we and corporations like the cuts or not.  They may have accelerated the arrival of U.S. growth deceleration leading to the next U.S. recession.  Why?  Because they are forcing the Fed to raise rates in response to inflation induced by their stimulus.

The Fed tightening is already blowing up emerging markets and will compound the global slowing that is already occurring.  They could have raised rates much earlier when the global economy was accelerating.  Now the world economy will lead them by the nose.  If you do not lead, you will be led. 

Now the Fed is boxed in!  If they don’t raise rates, U.S. markets could become inflated, and inflation will rise across the economy as well.  Then the Fed would be forced to raise rates to curtail inflation as that is half of their mandate.  The endpoint, if they do nothing, is stagflation, which means GDP stagnation/recession and inflation.

If they do raise rates, that could put them ahead of the rest of the central banks, and they then impact the entire global economy to further slow it.  That slowing impacts U.S. companies, particularly multinationals, and stock prices fall.  The endpoint if they hike too aggressively is recession and deflation.

In summary, the Fed must act cautiously in its reading of the economy and must not ignore global issues.  For now, it has ONE mandate, which is to fight inflation as employment is “low enough” in its view.   This mandate could lead us into the next recession as I’ve outlined in the above scenarios and lead to the next major market decline.  Be careful about acting too early though as the “over-exuberance” of the last innings can be huge. 

First review the rate chart below and then look at the signal updates…

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

tnx-10-year-treasury-note-market-timing-chart-2018-06-15-close

Rates falling after Fed FOMC meeting.

Now let’s review three key market timing signals together…. 

Do not use these signals as a trading plan.  They are rough guidelines.  I currently share my own moves on social media (links above).

MY SIGNAL AND TREND SUMMARY for a Further U.S. Stock Market Rally with Real GDP Growth (“real” means above inflation):

Stock Signal GREEN for a further U.S. stock market rally with a Bullish SP500 Index trend.  The VIX is back to levels below 13.31; a rise back above that could lead to significant selling.  The close was 11.98 for the week and 12.18 the prior Friday.

Gold Signal  GREEN for a further U.S. stock market rally with a Bearish Gold Trend. 

Remember GLD is being used as an indicator for the ECONOMY here. 

Rate Signal YELLOW for a further stock market rally with a NEUTRAL 10 Year Yield Trend.  Things have changed due to the recent swoon and then bounce in rates.  A more definitive rise above 3.036% would turn the rate trend back to Bullish (bearish for bonds).  The close this week was 2.924% and 2.937% the prior Friday.  A fall below 2.717% would be required to turn the rate trend back to Bearish.

I have been calling rising rates a “positive” thing for U.S. stock market gains as that is what normally happens in the late stage of recovery, yet the current situation is very abnormal.   I am calling rates above my 2.676% number, but below 2.943% YELLOW for a further stock market rally. “Bullish” for yields is Bearish for bonds and vice versa. There is a twist here.  This level of the 10 Year Treasury Yield, which is too high for current conditions as explained HERE, will eventually slow the economy.  The market will likely be far happier if rates stay within a lower range, while not too low and not too high.

Finally, and this is an update, the market seems OK with rates up to 3% or so for now vs. current U.S. growth.  A rise above the prior high of 3.115% could mean trouble for stocks; however, this depends on the economic context. Currently, moving above there could jar the stock market.

Note: I’ve updated my criteria for the equity signal for a further U.S. stock market rally to the following: GREEN = Bullish, YELLOW = Neutral, RED = Bearish.  In other words, the colors tell you whether the signal supports the stock rally or not, while the Bullish, Neutral, and Bearish designations are about the trend. 

NOTE: A BEARISH trend signal does not mean we should not buy.  A BULLISH signal does not mean you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL signal does not mean the end of the Bull or Bear. It means to wait and look for possible subsequent entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the charts for now as reference points only; they have historical value for us from the post-2016 election period.

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.

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.

Finally: Excuse and report all typos if you are so moved.  I do my best to pick up most of them, but have not always found them all.  Shoot me a comment (I don’t have to post your typo report as I filter them, but I’ll be grateful to you!)

Copyright © 2018 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 6-08-2018 Close: SP500 Index at Top of the Upward Channel. Gold Pauses as Inflation Numbers Move Higher vs. a Stronger Dollar. Rates in a Range.

A Market Timing Report based on the 06-08-2018 Close, published Sunday, June 10th, 2018…

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 (S&P 500 Index®; SPY, SPX): Let’s check in on two signals we’ve been following:

“Intel-igent Signal”:  Positive. Still above the 54.36 number we’re following with a Friday close at 55.05.  I’m following Intel as a proxy for tech as it is a market timing leader as well as #1 holding of the semiconductor index.  They’ve also warned that although they expect good things for Q2, the second half of the year could disappoint.  The stock market discounts events ahead of time, so these “tells” can be very helpful in addition to the behavior of the overall U.S stock market.

Bank of America signal: Negative. Looks like it is rolling over again at the 50 day moving average.  The stock has formed two consecutive lower double tops since it peaked.  The pattern will be reversed once it makes a higher high on the daily market timing chart.  If interest rates go down further from here, as the rest of the world runs into economic slowing ahead of the U.S., the banks won’t beat the market.

The SP500 Index has made a higher high and is back in an up trend.  This was the 3rd higher high; however, it is also back to the top of the 2017 upward channel, which could mean traders will take some profits.  Things have gotten stretched with the QQQ’s testing back above the prior high of 175.21 and pulling back to 174.44 on Friday.

The Federal Reserve will meet this week and ends their two day meeting on Weds. June 13th.  It intends to raise rates by another 0.25% per the futures markets as I’ve recently discussed.  Inflation data is coming in on Tues. with CPI expected at 2.2% (Y/Y core without food or energy) and PPI-Final Demand on Weds. with the Y/Y core number without food, energy, or trade services at 2.5% consensus (review the data HERE).

I provide LIVE coverage of Fed statements and the dog and pony show that follows (every other meeting) on social media.  Follow me at the links below…

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 33, 521 people are joining in…

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

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

sp500-index-spx-market-timing-chart-2018-06-08-close

Back to the top of the 2017 Channel (orange lines).

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +12.21% vs. +8.67% the prior week.  Still room for more Bull recruitment.  We are at the TOP of a range (the channel) and investors are not Bullish, which means we need to continue to buy the dips.  Buy ONLY the strongest indexes and stocks though.  Forget the rest.  Weed your portfolio, and put the money where it can grow.  Make sure the reasons you bought the stock or ETF are still valid. 

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
38.93% 34.35% 26.72%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): The small cap trade is still working.  They are leading along with the midcaps.

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

iwm-russell-2000-market-timing-chart-2018-06-08-close

Small cap rally is intact.

3. Gold Market Timing (GLD): Rates are rising because inflation is rising and the Fed is reacting by raising short rates.  When investors are paid well vs. inflation, they don’t run to gold for protection.  The rising dollar makes gold cheaper for those with dollars.  The dollar is rising because other currencies are being trashed in the emerging markets.  They are not all running to Bitcoin, which has been in a down trend (though it may create a bottom eventually!). 

So why is gold not breaking even lower?  That is because there was a break in the dollar rally as rates pulled back a bit.  Lower real rates and a weak dollar drive up gold prices.  The lack of a rally here means the market is still undecided about the course of inflation.  The numbers out this week should help break the deadlock.

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

gld-gold-etf-market-timing-chart-2018-06-08-close

Gold is caught between rising inflation and a vigilant Fed focused mainly on inflation with a strong U.S. dollar due to foreign troubles.

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX): Rates are not likely to get out of control with the rest of the world in a troubled state, but inflation is still rising in the U.S., so the Federal Reserve feels the need to be proactive, and is slowly raising rates.

The Federal Reserve said they’ll tolerate an inflation rate a bit above their target of core PCE Inflation of 2%.  The latest reading in May was 1.8% as noted HERE.  The rising U.S. dollar is a force working against inflation in the U.S. and for anyone holding the USD.  The battle between Ex-U.S. deflationary forces as foreign economic slowing occurs in the midst of currency blowups, vs. rising inflation in the U.S., will sort itself out, but the combination is not likely to yield runaway inflation necessitating aggressive Federal Reserve action in the near future.

First review the rate chart below and then look at the signal updates…

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

tnx-10-year-treasury-note-market-timing-chart-2018-06-08-close

Rates are below the 2.943% level, but barely and with warmer inflation data coming out this week.

Now let’s review three key market timing signals together…. 

Do not use these signals as a trading plan.  They are rough guidelines.  I currently share my own moves on social media (links above).

MY SIGNAL AND TREND SUMMARY for a Further U.S. Stock Market Rally with GDP Growth and Low Inflation:

Stock Signal GREEN for a further U.S. stock market rally with a Bullish SP500 Index trend.  The VIX is back to levels below 13.31; a rise back above that could lead to significant selling.  The close was at 12.18 on Friday.

Gold Signal  GREEN for a further U.S. stock market rally with a Bearish Gold Trend. 

Remember GLD is being used as an indicator for the ECONOMY here. 

Rate Signal YELLOW for a further stock market rally with a NEUTRAL 10 Year Yield Trend.  Things have changed due to the recent swoon and then bounce in rates.  A more definitive rise above 3.036% would turn the rate trend back to Bullish (bearish for bonds).  The close Fri. was 2.937%.  A fall below 2.717% would be required to turn the trend back to Bearish.

I have been calling rising rates a “positive” thing for U.S. stock market gains as that is what normally happens in the late stage of recovery, yet the current situation is very abnormal.  For this reason, I will call rates above my 2.676% number, but below 2.943% YELLOW.  “Bullish” for yields is Bearish for bonds and vice versa. There is a twist here.  This level of the 10 Year Treasury Yield, which is too high for current conditions as explained HERE, will eventually slow the economy.  The market will likely be far happier if rates stay within a lower range, while not too low and not too high.

Note: I’ve updated my criteria for the equity signal for a further U.S. stock market rally to the following: GREEN = Bullish, YELLOW = Neutral, RED = Bearish.  In other words, the colors tell you whether the signal supports the stock rally or not, while the Bullish, Neutral, and Bearish designations are about the trend. 

NOTE: A BEARISH trend signal does not mean we should not buy.  A BULLISH signal does not mean you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL signal does not mean the end of the Bull or Bear. It means to wait and look for possible subsequent entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the charts for now as reference points only; they have historical value for us from the post-2016 election period.

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.

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.

Finally: Excuse and report all typos if you are so moved.  I do my best to pick up most of them, but can’t find them all.  Shoot me a comment (I don’t have to post your typo report as I filter them, but I’ll be grateful to you!)

Copyright © 2018 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 6-01-2018 Close: Is the U.S. Stock Market the “Best Game in Town”? Strong Dollar Holds Gold Down. Rates Fall and then Bounce.

A Market Timing Report based on the 06-01-2018 Close, published Sunday, June 3rd, 2018…

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 (S&P 500 Index®; SPY, SPX): What did the Intel-igent Signal say this week?  INTC closed at 57.08 for the week with the breakout at 54.36.  The signal is now again positive for a continued large cap rally after reversing previously.  This is despite warnings from the company itself that the second half of the year could show slowing growth.

I warned you last week about the Bank of America signal, and it has continued to fall vs. the prior week, but has for the moment bounced off the May low, which is below the February low, where the S&P500 Index bottomed.  BAC is also just above the February low as well.

The SP500 Index is still above that key 4-18 top at 2717.49 approaching the higher high of 2742.24, the next test of Bullish interest in buying.  The VIX volatility index closed Friday at 13.46, above the Bullish 13.31 target we’ve been following; hence, the “volatility decision” has yet to be fully made about which way the market will turn from here, but the Bulls have more of an edge now, and sentiment is cooperative as you’ll see below…

One advantage now about investing in the U.S. is that European, Japanese, and Chinese growth rates are slowing.   You may say “China is still growing faster than the U.S!” yet, that’s not how the market looks at it.  A faster rate of growth is already priced into the market and if the growth rate slows, PEs must compress further regardless of the absolute level of earnings and revenue growth.

The U.S is “the best place in town” to invest…and with a rising U.S. dollar, it’s even better for foreign investors to buy U.S. stocks denominated in U.S. dollars. The challenge down the road will be slowing profits for U.S. multinationals in those slowing economies.   When the U.S. could catch an economic cold is a question we need to keep in mind in relation to our exposure level to U.S. stocks. 

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 33,495 people are joining in…

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

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

sp500-index-spx-market-timing-chart-2018-06-01-close

That last retracement test worked!

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +8.67% vs. +13.40% the prior week.  Sentiment is still not at an extreme, which means we can still add to stock holdings at these levels, because many investors are still skeptical.  Investors became marginally MORE Bearish as the SP500 Index ROSE!  That is Bullish.

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
35.02% 38.63% 26.35%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): The breakout is still intact, and I’ve added once again to my growing position.  Small caps will be a major part of the last big blow off top in the U.S. markets. 

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

iwm-russell-2000-market-timing-chart-2018-06-01-close

Small caps have an edge with the strengthening U.S. dollar.

3. Gold Market Timing (GLD): I would expect U.S. Treasury rates to move up a bit more from here as U.S. inflation gradually rises, but not if Italy is falling apart, so playing rates here is a tricky business.  The U.S. dollar strength due to higher rates, European instability, and slower economic growth abroad are reasons gold could suffer, yet gold could benefit from a flight from the Euro if the Italy story worsens.  Still, it’s hard to make money trading gold against a strong U.S. dollar except for times of outright panic.

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

gld-gold-etf-market-timing-chart-2018-06-01-close

Gold is still fighting higher U.S. rates and a stronger U.S. dollar.

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX):  The 10 Year Yield rose a bit last week after a bigger fall.  For now, the 2.717% low is the Bond Bull target and 2.943% is the Bond Bear target to be captured.

First review the rate chart below and then look at the signal updates…

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

tnx-10-year-treasury-note-market-timing-chart-2018-06-01-close

Rates rising or falling? Lower than last week but bouncing.

Now let’s review three key market timing signals together…. 

Do not use these signals as a trading plan.  They are rough guidelines.  I currently share my own moves on social media (links above).

MY SIGNAL AND TREND SUMMARY for a Further U.S. Stock Market Rally with GDP Growth and Low Inflation:

Stock Signal GREEN for a further U.S. stock market rally with a Bullish SP500 Index trend.  The SPX retook the 4-18 high and the VIX dropped below 13.31. 

Gold Signal  GREEN for a further U.S. stock market rally with a Bearish Gold Trend. 

Remember GLD is being used as an indicator for the ECONOMY here. 

Rate Signal YELLOW for a further stock market rally with a Bearish 10 Year Yield Trend.  TNX must rise above 2.911% to turn back to neutral and above 2.943% to turn back to Bullish.  

I have been calling rising rates a “positive” thing for U.S. stock market gains as that is what normally happens in the late stage of recovery, yet the current situation is very abnormal.  For this reason, I will call rates above my 2.676% number, but below 2.943% YELLOW.  “Bullish” for yields is Bearish for bonds and vice versa. There is a twist here.  This level of the 10 Year Treasury Yield, which is too high for current conditions as explained HERE, will eventually slow the economy.  The market will likely be far happier if rates stay within a lower range, while not too low and not too high.

Note: I’ve updated my criteria for the equity signal for a further U.S. stock market rally to the following: GREEN = Bullish, YELLOW = Neutral, RED = Bearish.  In other words, the colors tell you whether the signal supports the stock rally or not, while the Bullish, Neutral, and Bearish designations are about the trend. 

Explanation: Note that a BEARISH signal does not mean we should not buy.  A BULLISH signal does not mean you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL signal does not mean the end of the Bull or Bear. It means to wait and look for possible subsequent entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the charts for now as reference points only; they have historical value for us from the post-2016 election period.

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.

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.

Finally: Excuse and report all typos if you are so moved.  I do my best to pick up most of them, but can’t find them all.  Shoot me a comment (I don’t have to post your typo report as I filter them, but I’ll be grateful to you!)

Copyright © 2018 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 5-25-2018 Close: Bulls Have a Slight Edge. Small Caps Hold Their Breakout. Gold Below Support. 10 Year Yield On the Line.

A Market Timing Report based on the 5-25-2018 Close, published Sunday, May 28th, 2018…

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 (S&P 500 Index®; SPY, SPX): What did the Intel-igent Signal say this week? INTC closed at 55.44 for the week with the breakout at 54.36.  The signal is now again positive for a continued large cap rally, but it has already reversed once before.

I warned you last week about the Bank of America signal, and the stock is even weaker than it was last week, which is correlated with rates moving back down. The chart set-up is more Bearish than Bullish with lower highs off a base.

The SP500 Index is still above that key 4-18 top at 2717.49.  The VIX volatility index closed Friday at 13.22, below the Bull 13.31 target we’ve been following.  That alone is Bullish, yet there was a reversal from earlier gains for the Bulls in volatility terms.  The “volatility decision” has yet to be fully made about which way the market will turn from here.

The earnings season was strong, and yet companies like Intel have said they are not sure how solid the second half of the year will be.  This uncertainty is leading to tentative trading, but overall, the Bulls have a slight edge.  Until that changes, I would recommend maintaining a Bullish stance, perhaps with somewhat less exposure, as is the case for me at the moment.  You can see my recent messages on my exposure level at the links just below.

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 33,480 people are joining in…

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

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

sp500-index-market-timing-chart-2018-05-25-close

SP500 Index still, but barely, above the pivot.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +13.40% vs. +16.10% the prior week.  Sentiment is not at an extreme, so it is not particularly useful at this point.

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
38.56% 36.27% 25.16%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): The breakout is intact, and I have added to my position on the small pullback.  I would not like to see a reversal below the last breakout at this point.

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

iwm-russell-2000-small-cap-index-market-timing-chart

Small cap breakout still there.

3. Gold Market Timing (GLD): The US dollar has moved up, but rates have eased just slightly, and that was enough to move GLD up a bit, but not enough to matter.  GLD will have to rise above 124.10 to change the picture.

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

gld-gold-etf-market-timing-chart-2018-05-25-close

Gold Chart Bearish still.

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX):  Rates have eased back below the 2.944% low, but further progress is needed below 2.911%. The 30 Year Treasury Bond Yield is in the same position and is within 0.01% of breaking to a new low.

First review the rate chart below and then look at the signal updates…

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

tnx-10-year-treasury-note-market-timing-chart-2018-05-25-close

Rates easing.

Now let’s review three key market timing signals together…. 

Do not use these signals as a trading plan.  They are rough guidelines.  I currently share my own moves on social media (links above).

MY SIGNAL AND TREND SUMMARY for a Further U.S. Stock Market Rally with GDP Growth and Low Inflation:

Stock Signal GREEN with a Bullish SP500 Index trend.  The SPX retook the 4-18 high and the VIX dropped below 13.31. 

Gold Signal  GREEN with a Bearish Gold Trend.  Gold broke down to new lows and the trend is down. See test above.

Remember GLD is being used as an indicator for the ECONOMY here.  The new recent LOW in GLD turned the signal GREEN. 

Rate Signal YELLOW with a Bullish 10 Year Yield Trend.  The loss of the last breakout is significant, but another push lower is needed to take out the last low. 

I have been calling rising rates a “positive” thing for U.S. stock market gains as that is what normally happens in the late stage of recovery, yet the current situation is very abnormal.  For this reason, I will call rates above my 2.676% number, but below the 3.036% prior breakout YELLOW.  “Bullish” for yields is Bearish for bonds and vice versa. There is a twist here.  This level of the 10 Year Treasury Yield, which is too high for current conditions as explained HERE, will eventually slow the economy.  The market will likely be far happier if rates stay within a lower range, while not too low and not too high.

Note: I’ve updated my criteria for the equity signal for a further U.S. stock market rally to the following: GREEN = Bullish, YELLOW = Neutral, RED = Bearish.  In other words, the colors tell you whether the signal supports the stock rally or not, while the Bullish, Neutral, and Bearish designations are about the trend. 

Explanation: Note that a BEARISH signal does not mean we should not buy.  A BULLISH signal does not mean you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL signal does not mean the end of the Bull or Bear. It means to wait and look for possible subsequent entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the charts for now as reference points only; they have historical value for us from the post-2016 election period.

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.

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.

Finally: Excuse and report all typos if you are so moved.  I do my best to pick up most of them, but can’t find them all.  Shoot me a comment (I don’t have to post your typo report as I filter them, but I’ll be grateful to you!)

Copyright © 2018 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 5-18-2018 Close: Small Caps Lead Large. Gold Breaks Down. Rates Spike. More to Come?

A Market Timing Report based on the 5-18-2018 Close, published Saturday, May 20th, 2018…

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 (S&P 500 Index®; SPY, SPX): What did the Intel-igent Signal say this week? INTC closed at 53.50 for the week with the breakout at 54.36.  The signal is NEGATIVE for a continued large cap rally in other words, but can reverse back up from here, so keep following it with me.

I warned you last week about the Bank of America signal and when rates eased a bit on Friday, BAC rolled over below the 50 day moving average.  Remember that average is not a great trading signal, just a landmark that gives you a quick idea of how strong a stock is.  Generally stocks are weak if they are rolling over and falling below that moving average line, especially if the line is falling rather than flat or rising.

What about that “Big Picture” this week?  The Big Picture is that of a second set of LOWER double tops, lower than the last double top back in the end of Feb. into March.  But the large caps are still in the upper part of the 2017 channel, which says they are still on trend in that sense, despite the big loss off the over-exuberant top we saw back in January.  (Read last week’s issue to catch up on that: HERE.)

Furthermore, with the small cap breakout out to new highs, there is hope for large caps.  Small caps had a very strong earnings season, and as they carry greater risk (“high beta”), we would expect them to lead the way down if the market were about to fall apart.  They are not.  They are leading instead.

Interest rates did hit fresh highs this past week as I’ll cover below in more detail, but then eased.  I believe that if the 10 Year Treasury Rate continue to climb next week toward 3.25%, stocks will be pressured.  You need to read the last few issues to really hear this, but it’s not the rate LEVEL that is important; it is the rate of change of rates that is key.  A fast climb in rates will cause another episode of “Rate Shock” as I discussed here back on February 11th.

Volatility is burning off as I’ve been telling you for weeks now. The VIX Volatility Index close was at 13.42 on Friday.  I would have preferred a close below 13.31 with a stronger close above the 4-18 high of 271.30.  The SPY close was 271.33.  The SP500 Index itself closed at 2712.97 vs. a 4-18 high of 2717.49.  Not good enough, although only 0.17% below that high.  That is a lower high and a failed breakout, despite the SPY close. Long time readers and social media followers know that these numbers are discerned by carefully watching the behavior of the market.  These closes are what I call “cute.”  A little above on the VIX, a negative, and a little above for the SPY, a positive, but with the SP500 Index below its 4-18 high, this is not a pattern that says the market’s decision has been made.

I recently adjusted my exposure down a bit by taking off some profits in Google and Netflix as examples.  My exact exposure is something I publish fairly soon after each trade in or out of the market on social media (be sure to follow me on Twitter as well as StockTwits as sometimes there are access issues, and I cannot post to one or the other – links are below).

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 33,480 people are joining in…

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

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

sp500-index-spx-market-timing-chart-2018-05-18-close

Large caps are trailing small caps.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +16.10% vs. +7.98% the prior week.  This is still not too Bullish to prevent more upside from here, and the percent of Neutrals is Bullish for prices 6 months from now as loyal readers know well.  The latter fact was proven by AAII research on the sentiment patterns that matter.  The Bears are getting low in number, which is one cautionary sign, but there are plenty of neutrals to convert. 

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
36.68% 42.74% 20.58%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Small caps have broken out to a new all time high.  Still, midcaps, which I favor over the long term are leading small caps vs. the 2009 low.  Small caps took a bigger hit in the 2015 and 2016 downdrafts and fell behind. This also does not take the larger dividend of the midcaps into account.  The returns including dividends of the three major indexes each starting with $10,000 on 3-06-2009 are:

SPY IJH IWM
375.82% 433.66% 417.88%
$47,582.00 $53,366.00 $51,778.00

The winner since 2009 is IJH, the midcap ETF, but since Feb. 27th, the small caps have been outperforming the midcaps by a significant margin, while both have left SPY in the dust.  The data is from this handy calculator you may want to check out HERE.

SPY IJH IWM
-0.73% 3.37% 6.21%

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

iwm-russell-2000-market-timing-chart-2018-05-18-close

Small caps are strong. New Breakout.

3. Gold Market Timing (GLD): The U.S dollar kept moving up and pushed GLD below important support and even below the line I drew in the sand after Trump was elected, saying that gold should go below there if the economy is strong.  There is something different though now with rates where they are and that is that real interest rates are higher.  Gold hates rising real rates as much as it hates a rising U.S. dollar.  We have both.  You should have exited trading gold positions by now.  If you haven’t, I would sell on the first new high in TNX  (see chart below) or in the first new high in the US dollar .

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

gld-gold-etf-market-timing-chart-2018-05-18-close

Breaking down on strong dollar and higher real rates.

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX):  Rates are too high for current economic conditions.  As I said HERE last week, the Federal Reserve is likely to be the cause of the next economic contraction as it seeks to put a brake on inflation, which is its sole mandate now that unemployment is low in their view.  The Treasury/Bond Bulls need to see a reversal below that top green line for starters. 

Any encouraging signs?  Yes.  The 30 Year Yield just gave up a new breakout this past week, closing at 3.210% below the prior tops at 3.221% and 3.219%.

If the opposite happens, and rates rise to a new high this week, I predict the U.S. stock markets will choke, and emerging markets will gasp. 

First review the rate chart below and THEN I’ll go over signal updates…

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

tnx-10-year-treasury-note-market-timing-chart-2018-05-18-close

Rate trend is still up. A reversal of any breakout is important to watch for though.

Now let’s review three key market timing signals together…. 

Do not use these signals as a trading plan.  They are rough guidelines.  I currently share my own moves on social media (links above).

MY SIGNAL AND TREND SUMMARY for a Further U.S. Stock Market Rally with GDP Growth and Low Inflation:

Stock Signal Neutral with a Bullish SP500 Index trend.  The higher high above the 4-18 high was lost for the SPX, but not for SPY; however, the price is still in the upper part of the 2017 upward channel, so the trend is still up.  VIX must move below 13.31 on Monday, and SPX must retake the 4-18 high. 

Remember the small caps are GREEN already, but I cannot give the entire market a GREEN light when the large caps have not confirmed the small cap signal.  Buy pullbacks in small caps but do not buy a reversal below the highs shown.  Use stops on new purchases on a close below those highs – meaning get out if the small caps fail.

Gold Signal  GREEN with a Bearish Gold Trend.  Gold broke down to new lows and the trend is down. See test above.

Remember GLD is being used as an indicator for the ECONOMY here.  The new recent LOW in GLD turned the signal GREEN. 

Rate Signal  GREEN with a Bullish 10 Year Yield Trend.  A new high cannot be refuted.  Bears need a reversal.  

Remember this GREEN signal is a signal for a “further stock market rally” as it’s being used here.  Remember also “Bullish” for yields is Bearish for bonds and vice versa. There is a twist here though.  This level of the 10 Year Treasury Yield, which is too high for current conditions as explained HERE, will eventually slow the economy.

Note: I’ve updated my criteria for the equity signal for a further U.S. stock market rally to the following: GREEN = Bullish, YELLOW = Neutral, RED = Bearish.  In other words, the colors tell you whether the signal supports the stock rally or not, while the Bullish, Neutral, and Bearish designations are about the trend. 

Explanation: Note that a BEARISH signal does not mean we should not buy.  A BULLISH signal does not mean you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL signal does not mean the end of the Bull or Bear. It means to wait and look for possible subsequent entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the charts for now as reference points only; they have historical value for us from the post-2016 election period.

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.

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.

Finally: Excuse and report all typos if you are so moved.  I do my best to pick up most of them, but can’t find them all.  Shoot me a comment (I don’t have to post your typo report as I filter them, but I’ll be grateful to you!)

Copyright © 2018 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 5-11-2018 Close: The One Thing that can End the Bull Market. Gold Bounces per Script. Rates Rising More or Not?

A Market Timing Report based on the 5-11-2018 Close, published Saturday, May 12th, 2018…

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 (S&P 500 Index®; SPY, SPX): What did the Intel-igent Signal say this week? INTC closed at 54.67 for the week with the breakout at 54.36.  The signal is positive for a continued rally in other words, but cannot reverse from here, so keep following it with me.  The prior Bank of America signal does not look that good as it is barely above the 50 day moving average and rates seem to have eased a bit off 3%.  Higher rates are what banking investors want most.  I have to admit that with inflation rising for another 1-2 quarters, investing in the banks may work here.  Since it will be short lived, it’s a trade though, not a static investment proposition.

What is the truly BIG chart picture?  The Big Picture is this: The SP500 Index is back on trend.  The big picture is that the run up into the end of January was hyper-enthusiasm at work due to the one time “earnings growth benefit” of the tax cuts.

What do I mean?  It’s simple math.  The tax cut gives many corporations, though not all, a big tax break, but it’s a one time adjustment to the earnings capacity of the company, rather than a continued source of growth with one caveat I’ll get to in a moment.  It allows companies to retain and then share more of their earnings, which is very positive, but it does NOT necessarily add to growth of earnings in the subsequent year.  In fact, companies will be reporting a deceleration of earnings due to the loss of the tax cut benefit in earnings GROWTH throughout 2019, unless they invest the new money productively in growing enterprises, which immediately add to earnings, which only some companies will end up doing successfully.  The new enterprises have to immediately spin off cash that can be reinvested in further new enterprises that immediately spin off cash once again to keep the earnings growth ball in the air.

If a company made 10 million in earnings in 2017, let’s say their tax benefit under the Tax Bill was 1 million, so they’ll make 11 million in 2018.  That added 10% earnings growth for 2018 without the company doing anything, but the base earnings for next year assuming zero growth this year will be 11 million, not 10 million, and it must go up due to top and/or bottom line earnings growth for their growth numbers to be better.

Investors pay for current earnings yield for sure, as companies who make lots of money can successfully invest it in new business, in dividends, in debt retirement, and in share buybacks, but investors also pay for growth of earnings and revenue.  They will have to come up with new tricks for 2019 to keep the earnings ball in the air.  They cannot invest the money in enterprises that will take years to show a profit to keep that earnings growth ball levitated.

Going back to the chart, we see that what happened on 2-09, 4-02, and 5-03 was a test of the rising 2017 long term channel base, which is the lower magenta line in the chart below.  What happened is the added premium investors placed on the SP500 Index from the very end of November to January 26th was lost and stocks went into a series of volatile moves each time testing the rising 2017 lower channel line.

NOTHING REALLY HAPPENED!  is my astounding conclusion if you take both the crazy rise of stock prices and their fall into equal account.  Overvaluation of stocks vs. trend went away, but there is no evidence of a “Bear Market” in the making…yet.   There was a “Rate Shock” as I told you back in February, but the markets have readjusted for now and are back on trend. 

The current VIX reading at 12.65, below all useful support levels and below the peaks achieved in Nov. and Dec. 2017, says “it  is likely over.”  If Trump is impeached, because of something we don’t know now, the quiet will be over, but as I said on social media, you cannot protect yourself from the unknown.  If you do that as a plan, you will have lousy results as an investor. Remember, I am not saying here that there are no risks; in fact, I name the number one risk facing the stock markets just below…

As I like to say, when the market changes, I change, because stubborn = dumb.  Bears have things to gripe about including global slowing showing up in China (vs. prior growth rates) and Europe, but it’s not recessionary.  PE ratios could be challenged, but there should be no Big Bear Market as I defined it HERE, until financial conditions deteriorate.

Let’s look at the major threats:

Trade Wars: As I predicted last week, the market is already quickly forgetting the ongoing process of trade negotiation with China, our NAFTA partners and Europe.  I will call Trump’s bluff on this one and say it will all come down to a negotiated win win series of agreements.  It has to be resolved positively, as everyone realizes selling into a smaller market does not increase opportunity for anyone!

• Recession: Not in the picture, though slower growth moving from China and Europe to the U.S. could be, which would contract PEs (bring prices down) but not cause a “Big Bear” as I just said.  We could be dragged below the 2017 trend however, because our multinationals depend on foreign markets.

• War with North Korea: Not happening apparently any time soon.

• War with Iran: Trump won’t allow it to get to that. He actually hates the idea of money wasting wars and bloodshed more than some other Presidents despite his bluster.  The U.S. will have to watch the current tiff between Israel and Iran however and not let it get out of control.  He’ll renegotiate the nuclear deal somewhat – enough for him to save face and Iran to continue to sell their oil.  He is right that Iran is a regional negative and destructive force that must be contained, be he won’t be easily led into a war with Iran as some say Bolton would like.

• Runaway Inflation: One thing that HAS happened is that the inflation rate has moved up to a point fairly close to the Federal Reserve’s target of 2.0% PCE Index inflation.  This in turn did shock the stock markets via “Rate Shock” as I called it HEREBut runaway or even more rapidly rising inflation is not likely in near term due to economic slowing in China and Europe. Their slowing puts less pressure on input prices.  In addition, the Federal Reserve learned its lesson under President Jimmy Carter, when rates went up to 15%!!!  They know they cannot allow that to happen again.  They will be proactive on inflation and that is their main focus now, not jobs as it was before.

• Rising Interest Rates: This is the number one threat I see, namely, the Federal Reserve ending or seriously damaging the Bull market.  The Federal Reserve will be reacting to a rising CPI Index for the next quarter or two, before inflation falls again.  I have said several times that current interest rates are contractionary as detailed HERE.  They are probably something stocks can withstand at these slightly elevated levels, but NOT is they continue much higher than the current range to 3.036%.

Under different global circumstances, rates of above 3% would mean nothing, but not in the current context.  So I disagree with Jim Cramer on that as he said the market no longer fears rates above 3%. Look where they are now…back below 3%.  Let’s talk again if they hit 3.5%. 😉

Note the breakout above the triangle and the higher high…and review the signal summary below please.  The next test for the Bulls to the upside will be the top of that key 2017 Channel (ascending orange line).   This maps out to about 2757 for the SPX and about 274.90 for SPY.  Remember the number changes daily as the top of the channel is slanted up.

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

sp500-index-spx-market-timing-chart-2018-05-11-close

SP500 Index breaks up above the triangle with another higher high..

See what my exposure is at the social media links just below… I raised it a bit more this past week.

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 33,466 people are joining in…

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

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +7.98% vs. -1.85%.   This does not change my stance on sentiment from last week.  Read what I said HERE (scroll past the SP500 Index chart).

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
33.51% 40.96% 25.53%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Small caps are just a bit behind big tech in terms of leadership.  The rising dollar trend should moderate though as the global economy slows and U.S. rates stay relatively low vs. where they would be in a normal world without ridiculously low rates abroad supporting economies that are growing very slowly.  I am continuing to hold my mid cap allocation as noted before, although the outperformance vs. large caps is a bit less than for IWM.  Small caps have more debt than large caps, so the exposure to rising rates is higher for small cap companies pressed to meet their interest rate payments.  Keep an eye on the debt level and the expense line associated with it for individual companies you own of all sizes.

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

iwm-russell-2000-market-timing-chart-2018-05-11-close

Small caps still leading large.

3. Gold Market Timing (GLD): The U.S dollar had a 3 day lull in its rise, so gold caught a break off the prior lows.  This dance will continue unless as I reminded you last week “all heck breaks loose!”

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

gld-gold-etf-market-timing-chart-2018-05-11-close

Gold rises off its lows just in time.

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX):  I said 2 weeks ago: “If inflation is still heading up as mentioned, rates should NOT break down below the 2nd green line from the top.”  There was no breach.  There was a bounce.  If inflation is going to rise for 1-2 quarters, rates could rise as well. This could pose problems for stocks as the Federal Reserve would be likely to continue raising rates as its focus is now exclusively on inflation, not jobs.  They would tolerate more inflation if the jobs numbers were bad, but they are not.

First review the rate chart below and THEN I’ll go over signal updates…

That top line was a 12/31/2013 intraday high of 3.036% that I was referencing.  The 4/25/18 high was 3.035%.

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

tnx-10-year-treasury-note-market-timing-chart-2018-05-11-close

Rates did not make it through 3% but could as inflation creeps up.

Now let’s review three key market timing signals together…. 

Do not use these signals as a trading plan.  They are rough guidelines.  I currently share my own moves on social media (links above).

MY SIGNAL AND TREND SUMMARY for a Further U.S. Stock Market Rally with GDP Growth and Low Inflation:

Stock Signal GREEN with a Bullish SP500 Index trend.  There is now a higher high and this must NOT reverse.  Last week I said: The SPX must break the triangle shown to the upside to become Bullish again…  It’s done that and gone to a higher high with the VIX collapsing below 13 to 12.65.

Gold Signal  YELLOW with a Neutral Gold Trend.  Same advice: “Now the advice is “Buy the low” if we get back there for more aggressive traders, OR preferably buy when you see the dollar falling for the 2nd or 3rd day.”  We are near a key low now.  If you bought the low, you are already a bit ahead, but watch rates and the U.S. dollar like a hawk!

Remember GLD is being used as an indicator for the ECONOMY here.  A new recent LOW in GLD will turn the signal GREEN. 

Rate Signal  GREEN with a Bullish short term 10 Year Yield Trend but barely this week, as we’re just 0.01 above a key number as discussed above.  Rates fell from the 2014 high of 3.036%, but the TNX is still above the prior breakout level of 2.943%.  If it breaks that level, it becomes Neutral Trend. 

Remember this too is a signal for a “further stock market rally” as it’s being used here.  Remember also “Bullish” for yields is Bearish for bonds and vice versa. There is a twist here though.  This level of the 10 Year Treasury Yield, which is too high for current conditions as explained HERE, will eventually slow the economy in my view (not to mention Gundlach’s view).

Note: I’ve updated my criteria for the equity signal for a further U.S. stock market rally to the following: GREEN = Bullish, YELLOW = Neutral, RED = Bearish.  In other words, the colors tell you whether the signal supports the stock rally or not, while the Bullish, Neutral, and Bearish designations are about the trend. 

Explanation: Note that a RED signal does not mean we should not buy.  A GREEN signal does you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold, sold on the next bounce, etc. and whether a Bullish signal is to be bought or profits should be taken.  YELLOW does not mean the end of the Bull or Bear. It means look for possible entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the charts for now as reference points only; they have historical value for us from the post-election period.

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.

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.

Finally: Excuse and report all typos if you are so moved.  I do my best to pick up most of them, but can’t find them all.  Shoot me a comment (I don’t have to post the comment as I filter them, but I’ll be grateful to you!)

Copyright © 2018 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