Market Timing Brief™ for the 10-19-2018 Close: My Favored Scenario and the Risks. Small Caps May Underperform. Gold Just a Tease or for Real? Rate Top In?

A Market Timing Report based on the 10-19-2018 Close, published Saturday, October 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):

Two weeks ago I said there could be “About a 6% fall for the SP500 Index to test the 200 day moving average.”  Guess where we are trading?  The Friday close was 2767.78 with the 200 day moving average at 2768.24, so we’re just 0.46 points below that moving average (mav).

I teach people how to become more conscious in all areas of life.  It turns out, when you do it for investing, you are doing it for every other area of your life, which will allow you to act less like a monkey swinging from the branch of attachment, which means over-exuberance  in investing terms to the branch of aversion or fear and selling stocks at lows.  Contact me if you are tired of being a monkey emotionally via the contact tab above.  Let’s talk about your path to a conscious life including investing, and if it’s a fit, I’ll work with you…

How does this apply to the market?  The market represents the sum total consciousness of all participating investors.  It is useful to think about the market as a single individual to understand him.  Yes, it’s a boy.  😉  Women are generally more advanced spiritually (a fact) and therefore more mature than he is.  Investors have been falsely calling him “Mr. Market,” but he’s really more like “Master Market.”  Master Market is like a 5 year old and just like the monkey described, swings from attachment to aversion and back again.  Simply put, the market is like an emotional child.

What is Master Market (hereafter MM) thinking these days?  MM got really, really excited about stocks back in January, which as I warned here in mid-January, had driven individual investor sentiment to the sky.  You can even see it in the chart.  The SP500 Index was going up in parabolic fashion, which always leads to crashes back to reality in virtually every market.  The only justified parabolas in investing are those based on buyouts.  Otherwise they are bets for suckers.

What has MM been thinking since the February 9th intraday low?  MM believes the 200 day mav is a useful guide for him, along with the lower orange line representing the lower up trend line of the 2017 channel.   Once he got more comfortable with the up trend, he began using the 2017 up channel (orange lines on the chart below) as a guide for the high end and the 50 day mav as a rough guide for the low end (touching it twice on the way up), and then ignored even the 50 day mav and shot above the 2017 channel.  That was when we could have known things had gone too far.

There were a couple of pullbacks off the upper channel line and then it was ignored on several thrusts to the upside as everyone rushed to buy tech stocks like Square (SQ) again and again and again.  That does not make Square a bad company, just one that was overvalued, because MM was getting overly excited as if the trend could only end at the price of infinity. 

Now that MM is back at the same 200 day mav and the same lower 2017 channel line, using it for support for the FOURTH time now, already with two tests of it just in the past 7 trading days, a good question to ask is…

“WILL THE 2017 CHANNEL and 200 DAY MAV HOLD AGAIN THIS TIME?”

“It could” is the initial answer. 

What favors them holding?

  1. They held before.
  2. The market was very oversold at the low on 10-11-18.
  3. Earnings are coming in strongly, even a bit better than expected.
  4. Earnings projections are not as strong as they were last quarter, but they are decent.

What favors the market breaking at all?

If “it” holds, what will hold is NOT the 200 day in my view, or even the slightly lower 2017 channel line, but the low set intraday on 10-11.  Because the market is no longer as oversold as it was then, it can easily do a full retracement of the gains back to the 10-11 low.  That’s what it did earlier in the year.  That is a loss of 2.07% from here.  Not that big of a deal, IF it holds as a temporary low.  We could even call such an event something like “the 200 day mav roughly holding.”

What favors it breaking (at least in time) in a significant way? 

1. The current earnings season could allow the market to hold up for another quarter, but after that, reality kicks in.  I’ve documented in detail back in early August (remember to read carefully!) how much revenues and earnings are due to slide, not so much in Q4 2018, but in a bigger way in Q1 and Q2 of 2019 and for 2019 as a whole.  Factset has just updated the data HERE for the current quarter’s earnings, but read my explanation of how markets track deceleration of E by dropping stock Prices (lower E, means lower P): HERE (it’s in the top SP500 Index section).

This means that a rally from this level won’t prevent the market from ultimately testing a lower low. The 3 horizontal red lines in the chart below are all possible targets.  My sense is the February low will be a magnet for the market if one of the higher levels is reached. 

That means, if the market breaks the recent low, expect the Feb. low to be reached at a minimum. 

2. Investor sentiment (AAII as shown below) did not reach any sort of wash out level.  In fact, as I said last week, investors were complacent on 10-10-18, after a very big down day of 3.29%.  I believe with the deceleration of revenue and earnings coming in 2019 especially (GDP falling obviously), investor sentiment will eventually hit a reasonable washout level.

This meager low in sentiment does not preclude a bounce from this level.  In fact, even back after the huge fall in February, AAII sentiment was not washed out, and a bounce occurred driving sentiment straight back to sanguine levels which marked the top of a FAILED BOUNCE. Then down the market went…

What COULD favor a significant break lower from this level?

1. A surprise run by oil much higher, with an associated spike in rates to a new high.  Inflation and oil spikes move together despite what the Fed may say. 

2. A rate spike of the 10 Year Treasury Yield above 3.248% (without the oil spike) for ANY REASON would induce a further leg down in the SP500 Index and in midcaps and small caps as well of course.  The reason for this is I believe Master Market, MM, has decided interest rates have stopped going up for now, even though he doesn’t know it yet!  Yes, it must be proven by a fall back through 3.115% as I explained last week.  If rates misbehave by moving still higher, it will be taken badly by MM.  He’ll throw another tantrum being the unruly 5 yr old emotional child he is!  😉

3.  A bad break in the small and mid caps to new lows leading the SP500 Index down.  There is already some risk there. Look at where small caps (IWM) closed on Friday.  This was the second “MUST” I outlined last week HERE.  Last week’s issue was one of the most important issues I’ve ever written, so please read it if you haven’t.  It will prepare you for the coming continuing market swings…

What to Do?

If you’ve been ignoring me since early August and instead have been chasing tech stocks to the stratospheres, read last week’s issue (link just above) and learn something.  My situation may be very different from yours, so I cannot possibly tell you what to do.  With my exposure level now, the market can do whatever the heck it wants, and I’ll be fine.  Can you say that?  I’m not bragging.  I’m saying you NEEDED to have a plan.  You didn’t?  Then get one now.  WRITE IT DOWN or it’s NOT a plan.  It’s never too late to “get it right.”  I work at eliminating my own errors in investing every single day.  I suggest you do the same.

Keep improving by tracking your results, noting your victories and admitting your errors, and fixing the latter with improved processes you apply with discipline.

This is a pivot point, which means if the market rises, you may want to sell into bounces.  They can go farther than you think, so sell in stages and sell MORE on a break from a lower high that is of note (follow me on social media to spot the better times to buy/sell).

My Favored Scenario

As a pivot, the market could now go straight down from here.  That’s NOT the “Favored Scenario” which in my view is now…

1. FIRST a Bounce to suck investors back in, lasting even to Christmas and

2. THEN a Trounce to take it all back again. 

But if the market does break down directly from here, I’ll be selling even more exposure to an even lower 65-70% of “usual maximum exposure for a Bull market” as I say.  Adjust that to your circumstances if you like.  Remember the risk of lost opportunity by SELLING low and having to chase higher, so be willing to re-buy your exposure if the market does not do what YOU thought it would do.  Yes, YOU.  You, as I say every week in some fashion, are responsible for YOUR results, not me.  I cannot be, as I don’t know your circumstances or your risk tolerance.  If you cannot sleep at night, guess what?  YOUR EXPOSURE IS TOO HIGH!  😉

AGAIN: DO NOT SELL exposure you are not willing to buy it back if your SELL is wrong! 

And SELL exposure when your BUY is wrong by the way!

What am I going to do?  I’ll share that on social media as I do it.  Do me a favor by the way.  If you follow me on StockTwits, follow me on Twitter as well (link is above).  Thanks for doing that!  I appreciate my loyal readers, their retweets, comments, and interaction.  You and I both get better when we exchange ideas and views. 

Now let’s check in on two “Canary Signals” we’ve been following:

“Intel-igent Market Timing Signal” (Intel; INTC):  Negative. It closed at 44.00 at a new recent closing low,  though barely below the September low.  The stock has to bounce above the 200 day mav to be back in recovery mode in rough terms.   (Reminder: INTC is our “tell” on 2nd half earnings in tech as noted HERE.)  Earnings are out Thursday after the close.

Bank of America (BAC) Market Timing Signal: Negative but now seeking support at the July low, so it’s not a sell in my view, unless it breaks again.  Their earnings were out Monday the 15th and the stock is up slightly from then.  Be careful if the stock rises to the 50 day mav and fails – it could be the time to sell again.

Note on the chart below that the 2017 channel line (in orange) served as closer support most recently, not the 200 day mav (white line on the chart).

Keep up-to-date during the week at Twitter and StockTwits (links below)…

Follow Me on Twitter®  Follow Me on StockTwits®.

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

sp500-index-spx-market-timing-chart-2018-10-19-close

Bounce then back down?

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -1.11% vs. -4.84% last week.  I explained what this lack of Bearishness may mean above…

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
33.94% 31.05% 35.02%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): I believe the scenario I’ve outlined raises the risk for small (highest risk) and mid (medium risk) caps in particular.  If they behave as they did in the bounce between the 2015 and 2016 lows, they won’t bounce as much as the SP500 Index, and could fall much further in the second big wave down.

For tax and other reasons, I’m still holding midcaps long term, but I’m out of small caps for now with the exception of very small positions in speculative stocks (mainly biotechs).  Mid caps may also underperform large caps however if we see a bounce/trounce scenario to new lows.  When growth slows, small caps and to a lesser extent mid caps do not perform as well.  (And large cap growth suffers too!)  These are normally the faster growing companies in good times.

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

iwm-russell-2000-market-timing-chart-2018-10-19-close

Will small caps bounce as much as large?

3. Gold Market Timing (GLD):  Gold is perking up despite the dollar retesting the prior October high and rates moving UP, not down.  This is Bullish for gold, but we’re going to trade this one, not consider it a long term position (our gold insurance IS a long term position remember – see last week’s post HERE. Scroll down to the Gold section).

I left this trading view from last week: “If you buy here, you should consider using the lower red line, the 111.06 level, as your stop, or more aggressively and perhaps better, you could stop out below the 114.87 level (upper red line it [was] testing) to protect your capital.”  GLD is now above that test level in consolidation. 

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

gld-gold-etf-market-timing-chart-2018-10-19-close

Gold consolidates despite rates rising with the dollar. Positive.

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX):

Rates are edging up along the critical trend line, so there is no top in rates yet!  Remember that as you position yourself.  If you expect the 10 Year Yield and other U.S. rates to break lower as I do, you can buy earlier, but get out if there is an upside surprise.  The yield could certainly retest the prior high, even if it does not exceed that level and then falls.  Read last week’s post for rates in “Section 4” for more detail.

Check out the “Market Signal Summary” below – after you review the following chart…

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

tnx-10-year-treasury-note-market-timing-chart-2018-10-19-close

Rate top NOT certain yet. Edging up along trend line.

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

Stock Signal RED for a further U.S. stock market rally with a BEARISH SP500 Index trend.

Two weeks ago week I said: “The small caps broke down badly, so the SP500 Index could follow them down (as I said, about 6% from the high to start).  The small caps are a better indicator of the health of the economy, as they are most vulnerable to economic changes, and hence, are the basis for this signal.”

Last week I said (still applies): “One could argue about the SPX trend.  If it stays above the lower orange line shown, it is still in the 2017 upward channel; however, it clearly has broken the prior up trend, so let’s call it Bearish with a caveat.  In other words, one could say the prior trend was unrealistic, and this one is realistic.

The VIX (which relates to SPX volatility) closed at 19.89 on Friday vs. 21.31 the previous week.  Above 19.55, the VIX level is BEARISH for the SP500 Index, but rising to the 26ish level and then falling could be Bullish short term.  The Bulls must retake the 8-15 high of 16.86 (break down below it). The “Bull Nirvana Target” is our VIX # of the Year: 13.31.  As I said 2 wks ago, “Super Bull Nirvana would be VIX below 11.22, but I have the feeling it will take a while to get back there.” 

The Bears need to take out the 26ish top that was tested this week for the market to  go into another big decline.  If they do it soon, it COULD still just last a day or two.

Gold Signal  YELLOW for a further U.S. stock market rally with a BULLISH Gold Trend. 

Remember GLD is being used as an indicator for the ECONOMY here.  I am calling it a BULLISH trend, because of both 1) the breakout above the recent trading range and 2) the stability in the face of rising dollar and rates.  It must hold above that upper red line discussed above however.

Rate Signal  BEARISH  for a further stock market rally with a BULLISH 10 Year Yield Trend.  Until the trend breaks down again, the current rate level can be seen as Bearish, in my opinion.  It is too high for current conditions, and yes, the Fed is likely wrong about their plans to raise rates as many times as they say they intend to through 2019.  I have my opinion, but I don’t blame them for the market’s condition.  Slowing growth can explain it all.  Raising rates is simply revealing how sick market dependence is on accommodation.

I’m leaving this important statement here until things change: “This level of the 10 Year Treasury Yield, which is too high for current conditions as explained HERE, will eventually slow the economy.”

I’ll keep this here as a reminder from prior issues: The market seems to have adjusted to rates of up to 3% or so as said in the signal summary HERE” but NOT above there.  Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.”  That’s what I call “Rate Shock.”  This period of rising rates is #RateShockII.”

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. 

A BEARISH trend signal does not mean we should not buy.  A BULLISH trend 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 trend 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.

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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: Please 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!)

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Market Timing Brief™ for the 10-12-2018 Close: Is There More Downside? Four Actions to Consider. What “MUST” happen now? Small Caps at a Decision Point. Gold Glimmering? Rates Ease a Bit.

A Market Timing Report based on the 10-12-2018 Close, published Sunday, October 14th, 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):

Last week I said: “As I also warned you, small caps were saying investors were seeing rising risk in owning small cap, higher beta and higher momentum stocks…and they came crashing down this week.”

I also said, “The key to understanding ‘what is really going on’ is interest rates.  They have been ramping up since the August low, and this week the rise accelerated, and went past the prior May high of 3.115%.”  This rate shock is what I called “#RateShockII.” It happened before at the end of January.

And I said: “The next logical target if rates don’t simmer down or earnings projections sour (big banks start reporting next Friday Oct. 12)?  About a 6% fall for the SP500 Index to test the 200 day moving average.”

Now that has actually taken place with the SP500 Index less than one point above its 200 day moving average (mav), these are two of the critical MUST signals that I will be watching with you over the next several days to weeks… 

What MUST ideally happen to “save this market” from another possibly greater decline:

MUST #1. Small (IWM) and Midcap (IJH) stocks cannot reach significantly lower lows from here or the SP500 Index will follow them down to at least test the February low in my view.  The higher lows achieved in April and May serve as higher targets, but I’d put my money on the Feb. low, and be prepared to add at those two higher lows (April/May) if the market ends up looking good for a bounce from there.

The SP500 Index closed at less than a point above the 200 day mav as said, so this is a decision point for many investors who follow it.  Being there of course does NOT tell you whether it will hold, but it must hold is what I’m saying.

The next SP500 Index target to the downside is 8.35% lower if these levels do not hold. 

I do not intend to ride my entire exposure down that low, but you can do what you feel is best.  I will likely lower my exposure from the current level (stated at the social media links below) to 70% of my usual maximum exposure for a Bull market at least.  (someone asked me what this meant on Friday and you can find the answer on my Twitter or StockTwits feeds). 

Remember I started at 100% of maximum exposure at the January high and have sold enough exposure already to make a difference.  The idea of “Passive Shorting,” a term I coined, is to SELL high and buy LOW, instead of riding the big waves down.  Read about it HERE.

MUST #2 A. The second thing that must happen is rates must ease further and slice down through that prior high I’ve been following with you at 3.115%.  The close Friday was at 3.141%.  That means the test of the breakout is only 2.6 basis points lower from the close on 10-12-18.  (1 percent = 100 basis points, or bp abbreviated). 

This week rates eased a bit, which is helpful as #RateShock was a major issue for the market in the current sell-off.  I went over my concept of “#RateShock” in the 2-09-18 issue: HERE (see section 3 on gold)Rates WERE rising too fast for the current context of Ex-US slowing with extremely low rates still in both the EU and in Japan and accommodative currency games being played by China.  Even at current levels, this means that this rise in U.S. rates is actually contractionary rather than accommodative in relative terms.

We must watch oil with the 10 Year Treasury Yield, because it is a major driver of inflation, despite what the Fed tells you about oil costs being transient. 

“MUST #2 B.”  Oil must keep coming down or at least stay below the lower high formed on the WTI Oil chart I posted last Friday on social media. 

I realize it is hard for many of you to trade quickly if you have assets tied up in mutual funds.  Even if this level of the market were to hold, it is unlikely it will hold on a single V shaped bounce.  IF the market breaks further to the Feb. lows, that could provide the impetus for a strong bounce as well, especially if it happens quickly.

If the whole move down is 8.35%, then selling on a 4% down day may not be fruitful if the next day the target is hit and the market reverses.  You’ll have to make your own judgment on when and how much to sell based on your cash needs in the next couple of years, and certainly, you will also have to get back in if your timing is wrong.  “Your timing” you notice, not mine.  I provide the guidelines to help you look at the market the way the mainstream media often fails to (more on that another time…), but YOU have to live with your decisions.  

That comment about the media is of course with the exception of MarketWatch, which in a Monday morning market preview by Barbara Kollmeyer at 9:38 a.m., included a link to my Sunday 10-08-2018 post HERE.  😉   I wonder if anyone read it and sold stocks on Monday?  If you did, please comment below.  

Over the past several weeks, I told you to “sell some.”  I repeated my lower exposure levels numerous times on social media.   I sold SP500 exposure before the last fall.  I’ve been switching some SPY (SP500 ETF) exposure for XLV Healthcare exposure that has been doing a bit better than the SPY.  I told you to sell high risk stocks and ETFs etc. before the latest fall.  Many of you may have ignored what I said, but I said it.

Learn to read and be present with what you are reading and decide based on your understanding of what was said what you yourself believe and most importantly ask yourself this:

“WHAT ACTIONS AM I GOING TO TAKE OR NOT TAKE BASED ON WHAT I JUST READ?”  Inaction is an action.

The above will help you enormously going forward.  Read it three times and sit with that question after reading this blog each week and for whatthat matter, anything about investment. On the buy side, how does it help you to read about the “next Microsoft or next Apple” and not invest anything in it if you believe the statement?

I realize you cannot change what  you did NOT do, but there are a few other things you CAN do if you decide they are right for you:

Four Actions to Consider…A through D of Managing Market Declines

A. Sell the Bounces.  Follow me on social media to learn where the better spots are.  THIS IS NOT a good spot to sell unless you need to protect college assets in an SPX fund for example.  After the Fri. bounce we are only 6.13% from the top, so you could sell some right here if your cash need is coming up soon.  You may be sucked in by the crowd that is already buying high risk stocks back off this week’s lows.  Avoid that, unless you know something about the company that convinces you it can “float above the market” (read below about this point).  If you’ve been overexposed, this is a chance for you to “sell the bounces,” rather than buy them.

Markets, once they break like this, very often take time to heal (2-3 months at least), and the upcoming slowing of U.S. growth is going to start to take its toll on the market from whatever level investors take it to before digesting that news.  Be careful not to ANCHOR on the past.  That means believing what you believed before, thinking all is the same.  It’s not going to be…in my view.

Growth is NOT enough.  I told you in early August, U.S. growth was going to slow.  Not below zero growth, which is a recession, but slow.  INCREASING growth is what the market pays for, at least at these prices.  SLOWING growth is what markets sell.  That’s why prices have gotten to these levels in the U.S.  Growth WAS on the increase.  But you see, once we reach peak GDP and turn down, all the numbers are “less good.”  That drives stock prices down.

It’s not complicated, but many investors don’t get it.  They think as long as GDP is rising at 2%, all is well.  It’s the increase from 2% to 3% that is built into stock prices.  And it’s about to turn the other way.  The Fed has even predicted the coming GDP decline, as I discussed here previously.

B. Sell Higher Beta, Higher Momentum Stocks and Funds on the Bounces.  Replace the exposure sold with SP500 market exposure in part or completely if you do not want your exposure level to fall to the level it otherwise would. 

Sell SP500 Index exposure on the bounce too, if you decide your exposure is too high to ride down, should the market step down to the next level as discussed.

I made this a separate point, because I have not just sold some market exposure.  I have also lowered risk.  You may want to consider doing that on any bounce or perhaps on a further trounce if the bounce is killed off in its infancy.

Decide what exposure level you want here and sell risk, but buy back SPY or the equivalent with PART of the funds to do that.  Say you have 50% high risk stocks and 50% SPY now.  Sell the 50% high risk (or 25%, if you so decide to hedge your bet) and use half of it to buy SPY, and you’re back to a lower risk at 75% exposure, which is a lower exposure.  That’s just one example.  Perhaps you want to keep some growth stocks you believe in or even QQQ for example.  Your choice.  Keep stocks that can continue to hit their targets (more on that later).  Few will stay levitated above the market, but some may.

Yes, you may have had more gains if the market goes to brand new all time highs from here, but I am positioning believing that is not the case.  At least you won’t miss out entirely on those gains if you switch from high risk to medium risk exposures.  If the market goes straight down, the switches won’t MAKE you money to be clear, but you’ll lose less.  Cash or short term Treasuries (individual Treasuries, not funds unless they cannot be avoided in a retirement account with your company for ex.) are a good place to wait for the turn.

C.   Long Term Treasuries: If interest rates do break down through my target as stated above, buying long term TREASURIES (not corporate debt; corporate debt may work out, but the risk is higher) can provide great returns.  This is a TRADE, I want you to realize, because after a fall in rates with falling growth globally, rates will climb again based on a variety of factors including government and corporate debt loads.

You’ll have to move in and then move out at the right time.  If rates go straight up and we end up with “Stagflation,” or slower growth and higher inflation, TLT and the like will be punished badly.  Then only cash works and very short term debt, where you can reinvest it rapidly as rates rise.

If you do keep corporate bonds, choose those of solid AAA companies, not corporate bond funds if you can help it.  When investors leave bond funds, they drag down prices as bonds are not as liquid as stocks.  Go back and look at what happened in 2008 if you don’t understand the risk bond funds represent in general.

D. Buy/Hold Companies that Can Sustain Growth Through a Lower Growth Economy:  I just pointed out that most growth companies don’t do well in a slower economy.  Also, investors often sell an entire sector these days, not individual stocks, so any stock caught up in the selling is less likely to continue its up trend.  It could, but that would take a strong investor belief in the company.

That means this a tough task, but an example would be a biotech company with a promising product in phase 3 testing with very positive phase 2 results.  A new product like that has demand no matter what.  It also entails high risk of course, but that’s what speculations are about.  Use a very small percentage of your capital for such speculations.  Some say use a half sized position vs. large cap positions you buy.  That could be too much.  I say use a quarter or an eighth size or less, and spread out your bets, as many fail badly.  If you can find companies that will grow whether we are at 1.5% or 3% GDP, great.  But watch their charts.  They must be outperforming the market.  If they don’t, there could be something amiss.  Sell speculative stocks that are breaking down in price performance terms.

Now let’s check in on two “Canary Signals” we’ve been following:

“Intel-igent Market Timing Signal” (Intel; INTC):  Negative. It closed at 44.88 near the prior September low AFTER a failed rally attempt.  I said previously: “46.19 is now the reversal point to watch,” but now it is the 200 day moving average that is the target.  It traded up to the 200 day mav and declined.  That’s classic behavior for a stock in a Bear market of its own.  (Reminder: INTC is our “tell” on 2nd half earnings in tech as noted HERE.)

Bank of America (BAC) Market Timing Signal: Negative.  As said, “Similarly BAC has failed to rise above both its 50 and 200 day mav’s, DESPITE the ramp in rates.”  Bank earnings were out Friday, and BAC was up far less than the SP500 Index.  Even XLF went up ONLY 0.11% vs. 1.42% for SPY!  BAC reports on Monday before the open.  They had better have good things to say…

Note on the chart below that the 2017 channel line (in orange) served as support, not the 200 day mav (white line on the chart).

Keep up-to-date during the week at Twitter and StockTwits (links below)…

Follow Me on Twitter®  Follow Me on StockTwits®.

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

sp500-index-spx-market-timing-chart-2018-10-12-close

More bounce? Watch the reaction to earnings and rates.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -4.84% vs. +20.55% last week. 

Last week I noted Sentiment was duplicating past tops: “Sentiment peaked at about 20% at both the June 13th and August 29th near highs in the SP500 Index.  The pullbacks were very shallow however, only 1.42% in August and only 3.63%.  The catch?  Interest rates were much lower at those times.  Interesting that sentiment made this lower high RIGHT NEAR THE TOP. So that fits with the last high being somewhat significant in sentiment terms.  Sentiment is no where near where it got at (actually a couple of weeks BEFORE to be precise) the Jan. 26th, 2018 high however.

I also said, “The Big Bull market is not likely to die here, but that does not preclude a correction of 6% or even a ‘Mini Bear Market’ as I’ve coined the term HERE of up to a -25% drop.” Read last week’s post if you have not for what would turn this into a “Big Bear Market.”

What does this level of sentiment spread mean?  Sentiment after this fall is not a wash out level at all.  We can expect far higher numbers at the ultimate low.  Still, after a long period of Bullishness, the first fall, which this is, often is met by smaller drops in sentiment as we see here.  Conclusion: A bounce can occur, but the selling is not over in my view, based on sentiment alone, which is only one thing we look at.  Still, it’s an important clue to add to the rest…

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
30.61% 33.94% 35.45%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Small caps I’ve already discussed for this week.  They are “high risk.”  They and midcaps will also lead the SPX by the nose in the near term, UP or DOWN.  

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

iwm-russell-2000-market-timing-chart-2018-10-12-close

Small caps told me the market was shaky in advance and will be the key clue on whether the entire market moves lower.

3. Gold Market Timing (GLD):  Gold is perking up as the markets around the world started to panic together AND U.S. rates FELL at week end.   I’ll leave this warning here: REMEMBER THIS from my last Sept. issue: “As rates fall again, gold may perk up a bit, but the dollar could rally at the same time, blunting the gains from falling rates.”  Gold will be tricky to trade, but will do best if a global panic occurs, say around Italy falling apart as previously said. 

Read my last few posts to catch up on gold.  The move this week says “maybe buy some GLD” as rates are falling.  If the dollar rallies too, gold can rise less, so I like Treasuries (provided there is no new high!) better than gold at this point.  I own GLD as insurance, so if you own none, you could buy some here (most say up to 5% of investable assets – actually they never say whether they are talking about investable assets or ALL assets including your house, but I’ll say up to 5% investable assets, because that is what I do!) and use a stop below the recent lows.  In the gold Bull market, I went to 12% max. of investable assets.

Newcomers should Google: “When does gold shine and when does it decline?”  Read the article I wrote, and you’ll know more than most people about how to avoid being a perma gold bug and actually make money on gold.  I doubled my gold position at around $380 when Barbra Streisand was shorting it!  I sold my entire principle at 1370ish, off the top, yes, but the rest is gravy now.

If gold breaks back down below that red line it’s now testing on a retracement of the breakout, wait for the next breakout above that line to buy it, in my view. 

If you buy here, you should consider using the lower red line, the 111.06 level, as your stop, or more aggressively and perhaps better, you could stop out below the 114.87 level (upper red line it is testing) to protect your capital.

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

gld-gold-etf-market-timing-chart-2018-10-12-close

Gold perks up.

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX):

Buy some TLT for leverage on duration if you wish, but that has not been my choice yet (20+ years; longer term Treasuries).  I am using IEF  for now (7-10 yr Treasuries), which moves less up and less down until I see the break below my “MUST #2,” the key number of the month or a break of that trend line shown in yellow if you want to buy a bit earlier.  I won’t be buying more (likely TLT this time) until my “MUST #2” level is taken out.  I may buy some intraday, but I want to move in stages and add on confirmation of a close below it and again on a second close below the number.

SELL if the 10 Year Yield breaks out at least 2 days above the prior high.  If the move is fast, you may decide not to wait more than one day.  Sometimes markets…change that…OFTEN markets subconsciously seek to fake us all out.  Just consider the head fake of the new 2018 high in stocks!!!  Yes, the market has a consciousness that is the collective consciousness of all market participants (heavily machine weighted, but the humans program them, so they are human surrogates!). 

Check out the “Market Signal Summary” below – after you review the following chart…

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

tnx-10-year-treasury-note-market-timing-chart-2018-10-12-close

Time to buy Treasuries. Sell if the 10 Year Yield breaks out again.

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

Stock Signal RED for a further U.S. stock market rally with a BEARISH SP500 Index trend.

Last week I said: “The small caps broke down badly, so the SP500 Index could follow them down (as I said, about 6% from the high to start).  The small caps are a better indicator of the health of the economy, as they are most vulnerable to economic changes, and hence, are the basis for this signal.”

One could argue about the SPX trend.  If it stays above the lower orange line shown, it is still in the 2017 upward channel; however, it clearly has broken the prior up trend, so let’s call it Bearish with a caveat.  In other words, one could say the prior trend was unrealistic, and this one is realistic.  If I were Bullish on INCREASING growth going forward, I’d say the market could be fine here.  It’s not going to do that it seems.  Growth will very likely slow into Q2 of 2019 at least.  That’s why I’m selling the bounces instead of buying the lows at my current level of exposure.

The VIX (which relates to SPX volatility) closed at 21.31 Friday vs. 14.82 the previous week.  This is BEARISH for the SP500 Index, but rising to the 26ish level and then falling could ironically be Bullish short term.  The Bulls must retake the 8-15 high of 16.86. The “Bull Nirvana Target” is our VIX # of the Year: 13.31.  As I said last week, “Super Bull Nirvana would be VIX below 11.22, but I have the feeling it will take a while to get back there.” 

The Bears need to take out the 26ish top that was tested this week for the market to  go into another big decline.  If they do it soon, it could last just a day or two.

Gold Signal  YELLOW for a further U.S. stock market rally with a NEUTRAL Gold Trend. 

Remember GLD is being used as an indicator for the ECONOMY here.  I am calling it a NEUTRAL trend, because there is another higher low in now and a breakout above the recent trading range.  It must hold above that red line discussed however.

Rate Signal  BEARISH  for a further stock market rally with a BULLISH 10 Year Yield Trend.  Until the trend breaks down again, the current  rate level can be seen as Bearish, in my opinion.

I said last week: “In fact, a legitimate Bullish signal would be rising rates with rising financials such as XLF and BAC as part of that.  Minus that second part, you can forgetaboutit.  The rate increase is NOT Bullish when the two don’t move up together.  Big banks like global stability.  Furthermore, high rates ARE normally good for banks, but NOT out of context.  WHY NOT?  Because this level of the 10 Year Treasury Yield, which is too high for current conditions as explained HERE, will eventually slow the economy.”

I’ll keep this here as a reminder from prior issues: The market seems to have adjusted to rates of up to 3% or so as said in the signal summary HERE” but NOT above there.  Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.”

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. 

A BEARISH trend signal does not mean we should not buy.  A BULLISH trend 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 trend 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: Please 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.

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 10-05-2018 Close: Rate Shock II. SP500 Index Mid-Dip. Small Caps Hit 200 Day Mav. Gold Stirring.

A Market Timing Report based on the 10-05-2018 Close, published Saturday, October 6th, 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):

Last week I warned: “Cracks in the Bull thesis are showing up now.  No big trend changes yet, but cracks, which could lead to more.  The SP500 Index made a new high and then pulled back below the prior breakout.”

I also said last week: “My concern is that the small caps are flirting with significantly more danger now, by slicing through their lower channel line noted in purple on the 2nd chart below.”

As I also warned you, small caps were saying investors were seeing rising risk in owning small cap, higher beta and higher momentum stocks…and they came crashing down this week.  The down trend in small caps was the clue I shared.  They began selling off on 9-04-18.  If you sold the breach of the purple line on the small cap stock chart on 9-24, you were ahead of the game.

The key to understanding “what is really going on” is interest rates.  They have been ramping up since the August low, and this week the rise accelerated, and went past the prior May high of 3.115%. 

I went over my concept of “#RateShock” in the 2-09-18 issue: HERE (see section 3 on gold)Rates are rising too fast for the current context of Ex-US slowing with extremely low rates still in both the EU and in Japan.  In addition, China has devalued its currency to counteract #Trump’s #TradeWar impact.  This means that this rise in U.S. rates is actually contractionary rather than accomodative in relative terms.

Now Chair Powell of the Fed openly says that rates should no longer remain “accomodative,” so this hawkishness has bond/Treasury investors all leaning to one side of the boat and there may have been some capitulation going on at the end of the week on the new breakout shown in the 4th chart below.  That just pushes rates higher even faster.

My sense is this: If the rise in rates continues at the steep rate of the past few days, continuing to trend upward quickly, the stock market will head into a much more significant correction.  Small caps have been hit the hardest, down about 6.48%, while the SP500 Index is down just 2.09% to Friday’s close off their highs, meaning small caps have fallen more than 3 times as far compared to the large cap decline off its top.

Now let’s check in on two “Canary Signals” we’ve been following:

“Intel-igent Market Timing Signal” (Intel; INTC):  Negative. Even though INTC closed Friday at 47.03, which is above the reversal number, the stock hit the 200 day moving average and turned back down, which indicates, the bounce may be over. I said previously: “46.19 is now the reversal point to watch.”  (Reminder: INTC is our “tell” on 2nd half earnings in tech as noted HERE. 47.42 was the second “checkpoint” we were following, and it has closed below that.

Bank of America (BAC) Market Timing Signal: Negative.  Similarly BAC has failed to rise above both its 50 and 200 day moving averages, DESPITE the huge ramp in rates.  The 10 minus 2 year spread in rates is still only 0.25 points vs. a spread of 0.23 on 9-27-18, so the spread has widened only a little despite the big move in the 10 year Treasury yield of 0.169.

Bank earnings are based on the spreads. The market was down 0.66% Friday (SPX), while BAC was down 0.55%.  That difference is not enough to say the market is confident in the ability of banks to withstand this rapid increase in rates.  The positive for the week for BAC?  It was up for the week, while the SP500 Index was down.

The next logical target if rates don’t simmer down or earnings projections sour (big banks start reporting next Friday Oct. 12)?  About a 6% fall for the SP500 Index to test the 200 day moving average.  As many of you know, we never know how a stock or index will behave at a “level” like that until we get there, so stay connected on social media during the week….

Keep up-to-date during the week at Twitter and StockTwits (links below)…

Follow Me on Twitter®  Follow Me on StockTwits®.

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

sp500-index-spx-market-timing-chart-2018-10-05-close

More downside ahead? Watch the 10 Year Treasury Yield.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +20.55% vs. +5.12% last week. 

Sentiment peaked at about 20% at both the June 13th and August 29th near highs in the SP500 Index.  The pullbacks were very shallow however, only 1.42% in August and only 3.63%.  The catch?  Interest rates were much lower at those times.  Interesting that sentiment made this lower high RIGHT NEAR THE TOP. So that fits with the last high being somewhat significant in sentiment terms.  Sentiment is no where near where it got at the Jan. 26th, 2018 high however.

The Big Bull market is not likely to die here, but that does not preclude a correction of 6% or even a Mini Bear market as I’ve coined the term HERE of up to a -25% drop.  The impetus for the bigger fall that I call a Big Bear Market, a drop of up to 50% or even more is not clear unless it is simply rates ramping relentlessly toward 3.5% then 4% from here. That would do it, as it would induce a recession in my view.  China tariffs ramping to 25% early next year could also do that as rates would be further pushed to the upside.

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
45.66% 29.22% 25.11%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Small caps could certainly bounce to a lower high, but I don’t believe the water is safe until the 10 Year Treasury Yield slows its rise and reverses.

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

iwm-russell-2000-market-timing-chart-2018-10-05-close

Small cap danger still as they do poorly when growth slows.

3. Gold Market Timing (GLD):  Review the issues a few weeks back for an explanation for the abysmal performance of gold.  REMEMBER THIS from my last Sept. issue: “As rates fall again, gold may perk up a bit, but the dollar could rally at the same time, blunting the gains from falling rates.”  Gold will be tricky to trade,  but will do best if a global panic occurs, say around Italy falling apart (its market already has fallen apart; the Italy ETF EWI is down 21.4% in its very own Bear market).  

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

gld-gold-etf-market-timing-chart-2018-10-05-close

Gold is pressing the top end of the recent narrow range.

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX):

Rates are accelerating too fast as detailed above.  This chart is a big key to following the stock market in the coming weeks.

Check out the “Market Signal Summary” below – after you review the following chart…

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

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

Rates are rising too fast.

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

Stock Signal RED for a further U.S. stock market rally with a NEUTRAL SP500 Index trend.

The small caps broke down badly, so the SP500 Index could follow them down (as I said, about 6% from the high to start).  The small caps are a better indicator of the health of the economy, as they are most vulnerable to economic changes, and hence, are the basis for this signal.  

The VIX (which relates to SPX volatility) closed at 14.82 on Friday vs. 12.12 the previous week.  This is BEARISH for the SP500 Index.  Volatility spiked to 17.36 intraday, above the 8-15 high of 16.86, which is the Bear target to watch. The Bull target remains the same: our VIX # of the Year: 13.31.  Super Bull Nirvana would be VIX below 11.22, but I have the feeling it will take a while to get back there.  

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.  Scroll up and read the blurb above the gold chart please.

Rate Signal  ??????  for a further stock market rally with a BULLISH 10 Year Yield Trend.  Why the  “??????”?  It is because things have become more complicated with rates in an ACCELERATED break to new highs, and the financials turning down at week’s end. 

In fact, a legitimate Bullish signal would be rising rates with rising financials such as XLF and BAC as part of that.  Minus that second part, you can forgetaboutit.  The rate increase is NOT Bullish when the two don’t move up together.  Big banks like global stability.  Furthermore, high rates ARE normally good for banks, but NOT out of context.  WHY NOT?  Because 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” but NOT above there.  Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.”

Welcome to #RateShock II.”  Scary in RED isn’t it? 

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 trend 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 trend 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: Please 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.

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 9-28-2018 Close: Cracks Showing Up. SP500 Index Testing Below the Last Breakout. Small Caps Slipping. Gold Still Weak After Fed. Rates Falling Again?

A Market Timing Report based on the 09-28-2018 Close, published Saturday, September 29th, 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):

Cracks in the Bull thesis are showing up now.  No big trend changes yet, but cracks, which could lead to more.  The SP500 Index made a new high and then pulled back below the prior breakout.  Since around July 10th, the SP500 has been tracking the upper 2017 channel line noted in orange on the chart below.  It is still above that upper channel line, so there is no way I can consider the index to be significantly weak yet.

Still, we are also below the prior green up trend line, so the market has weakened just a bit from the prior rapid incline.  My concern is that the small caps are flirting with significantly more danger now, by slicing through their lower channel line noted in purple on the 2nd chart below.  Small caps need to confirm the large cap move as the market rises, or the underlying health of the rally is called into question. 

This early weakness in small caps, which in terms of capital gains have lost people money since the 6-20-2018 high over 3 months ago, may be an indicator that if growth is in fact going to slow, investors want to lower their exposure to higher beta small cap stocks now vs. later, ahead of the Q4 slowing and even more dramatic Q1 and Q2 2019 U.S. slowing of earnings and revenue growth outlined last week and in early August on this blog. 

Pay some attention to the blow ups happening outside the U.S.  Italy fell 3.72% on Friday.  This is a bad sign about EU growth slowing that has started in advance of U.S. growth slowing.  This is a global economy.  We don’t grow as fast when growth is slowing in the EU, Japan, and China!   Meanwhile the canary is at least warming up its voice in the U.S. as there has been a big increase in negative pre-announcements for Q3, as discussed last week. 

Now let’s check in on two “Canary Signals” we’ve been following:

“Intel-igent Market Timing Signal” (Intel; INTC):  Negative, but on Friday there was an upside reversal that still kept INTC below its 50 day moving average.  I said previously: “46.19 is now the reversal point to watch.”  (Reminder: INTC is our “tell” on 2nd half earnings in tech as noted HERE. Micron (MU) is another tech stock to watch as it just gave negative guidance this past week.)  INTC closed at 47.29 Friday ABOVE the prior low of 46.19.  Moving up further and closing above 47.42 would add a higher high to the picture and strengthen the trading position of INTC.

Bank of America (BAC) Market Timing Signal: Negative.  No, actually “miserable.”  Friday’s action brought the stock back to 29.46 in a big sell off on Friday that was the 6th down day of 6.  Rates were falling again after the Fed FOMC statement that they would raise rates, and so were financials (XLF and BAC).  We’d expect the opposite in an economy the market expected to remain strong.  Rates above the prior high shown on the TNX chart below would be required to spark a strong financial sector rally.  That doesn’t look probable right now.

Keep up-to-date during the week at Twitter and StockTwits (links below)…

Follow Me on Twitter®  Follow Me on StockTwits®.

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

sp500-index-spx-market-timing-chart-2018-09-28-close

Still making higher highs though below the prior breakout.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +5.12% vs. 0.00% last week.  Sentiment is not very helpful in this range of spreads.  It says investors are only mildly Bullish just shy of an all time high.  If anything, that is somewhat Bullish for the 6 month outlook, which the survey assesses. 

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
36.22% 32.68% 31.10%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Small caps are weakening as discussed above.  A fall below the two converging yellow lines would not work out well.  The channel has already been broken to the downside.

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

iwm-russell-2000-market-timing-chart-2018-09-28-close

Small caps weakening.

3. Gold Market Timing (GLD):  Review the issues a few weeks back for an explanation for the abysmal performance of gold. As rates fall again, gold may perk up a bit, but the dollar could rally at the same time, blunting the gains from falling rates.  If financial panic ensues, both can rally together.  Last week I cited my prior article on gold: “When does gold shine and when does it decline?…Google that phrase and you’ll find it.  Read it serveral times, and you’ll know what makes gold move.

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

gld-gold-etf-market-timing-chart-2018-09-28-close

Gold still limping. Waiting for rates to fall more.

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX):

Rates are falling again having tapped the top of the recent trading range.  The trade is now back in the favor of the bond/Treasury Bulls.  The speculators looking for rising rates are going to be hurting in my view…

Check out the “Market Signal Summary” below – after you review the following chart…

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

tnx-10-year-treasury-note-market-timing-chart-2018-09-28-close

Not complicated. Rates topped out at the top of the range and are now falling again.

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 MARKET 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.

I will change my mind on the trend when the small caps move definitively below the lower yellow line in the small cap IWM chart above.  The small caps are a better indicator of the health of the economy, as they are most vulnerable to economic changes, and hence, are the basis for this signal.   The VIX (which relates to SPX volatility) closed at 12.12 on Friday vs. 12.07 the previous week.  This is still Bullish for the SP500 Index.

Same as last week: What must the VIX do this week?  As I said previously: “Any move back above VIX 13.31 again may indicate a developing Bearish trend.  A ‘test’ doesn’t count.   The last bigger spike was to 16.86, below the two previous spikes in volatility.”  The Bears must get through VIX 16.86 to spark a bigger correction.  The last little dip to the Sept. 7th low was only 1.73% which is more of a blip than a dip.  The Bulls need to take out the lowest VIX targets in the 11’s I shared on social media (links above) to keep the momentum going.

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 NEUTRAL for a further stock market rally with a  NEUTRAL 10 Year Yield Trend. I said, “I would be surprised to see a sustained new recent TNX high above 3.115%.”  It got to 3.110% and turned down.  TNX must fall back below 3.035% to turn Bearish again. 

This level of the 10 Year Treasury Yield, which is too high for current conditions as explained HERE, could 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.”  A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.  

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 trend 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 trend 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: Please 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.

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 9-21-2018 Close: SP500 Index at New All Time High This Week. Small Caps Holding Above Breakout. Gold Flat-lining. Have Rates Finally Peaked?

A Market Timing Report based on the 09-21-2018 Close, published Saturday, September 22, 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):

The SP500 Index tested below the prior breakout above the 1-26-2018 all time high (marked by the second green line from the top in the chart below) reaching a low of 2864.12 on Sept. 7th, and then resumed its up trend.  These retracement tests of breakouts are not uncommon.  We are now at a brand new all time high, but it’s been just 2 days.  Most traders like to see three days of confirmation of a breakout.  We cannot judge the volume due to the fact it was a big options expiration day, when volume always spikes.

You can see on the chart below that the up trend has lost some strength in getting to this all time high.  It is BELOW the green upward slanting line, which was the prior up trend.  It must rise above there to further prove the strength of this rally.  This is all happening at a time when the China tariffs have been set by Pres. Trump at 10% for most products pending a further increase to 25% should China not comply with U.S. demands and reach a trade deal that addresses U.S. grievances.

The market seems to interpret Trump’s strategy net positively for now as it has reached all time highs despite it.  There are certain companies/industries that may be disproportionately impacted of course, but overall the market has given a tentative thumbs up to the current strategy.  This is likely at least part of what propelled the market to a new all time high this week as I said it would several weeks in a row.

Remember that whatever Trump gets from China, he’ll call a win, although I am impressed by the extent of his brinkmanship on trade so close to the midterm elections that could render him essentially a legislatively powerless President.  The Democrats are said to more likely flip the House than the Senate, but if they flip either, Trump will be dead in the water, at least for two years, until he attempts to flip things back in 2020 along with his re-election.  Results still pending!

What stands in the way of this market now is NOT Trump or the Trump Trade War, but the relative slowing of growth that is due to occur to a lesser degree in Q4, but to a greater degree in Q1 and Q2 of 2019 as I went over in detail this past August (see Aug. 3 and Aug 10 issues).

FactSet has an updated summary of the approximate HALVING of earnings growth in 2019 vs. 2018 per analysts HERETo get a taste of what’s brewing they noted “Highest Percentage of Negative EPS Preannouncements for S&P 500 Since Q1 2016.”  Of the 98 companies in the SP500 issuing guidance, 74 have guided negatively (74/98 = 75.51%) and 24 positively (24.49%) or roughly a 76%/24% split in favor of negative guidance.

To put it simply, a halving of E growth (earnings) for 2019 vs. 2018 means PEs are suddenly too high, because they are indirectly based on earnings growth rates unless a stock is a “mature company” throwing off lots of earnings at a steady though barely increasing rate.  This is why high dividend, low beta stocks tend to do better in periods of slowing growth.

If you  believe the Trump tax cuts are going to read through and drive GDP much higher than analysts believe, then keep your current exposure where it is and don’t budge when the market falls.  If you don’t, consider cutting some exposure or doing so in steps as the market falls and attempting to capture further gains via “Passive Shorting” a term I coined HERE.

It’s hard to be out early, yes, but it could be hard watching this year’s gains in tech, consumer discretionary, etc. dissolve.  There could be a lag in the market response, and maybe the market will move up a few more percent before a correction starts.  That is impossible to predict, so I won’t bother trying!  It’s a waste of time.

I’ve cut my exposure a bit as shared on social media and have changed sector exposure levels to raise them in REITs and healthcare and lower SP500 Index exposure.

A bit of a warning is in order though: Only a lower exposure level OR being short, which most investors won’t ever do it seems, are ways to avoid an absolute decline in assets unless your stocks are those that can levitate through draw-downs (not many of those)!

The Bull warning is that this is still a Bull market.  In fact, all three of my signals for a continuing Bull market are green now (Rate signal is pending verification though as noted below). 

The trend in stocks is still up, so I am content with my current positioning, capturing the vast majority of equity gains vs. max exposure, largely avoiding foreign markets, and increasing exposure to SPX sectors that do better in “growth slowing” periods.  I will watch for a volatility spike most likely before selling more stock exposure.

Now let’s check in on two “Canary Signals” we’ve been following:

“Intel-igent Market Timing Signal” (Intel; INTC):  Negative, but let’s watch for a continued reversal to the upside.  I said last week: “46.19 is now the reversal point to watch.”  (Reminder: INTC is our “tell” on 2nd half earnings in tech as noted HERE. Micron (MU) is another tech stock to watch as it just gave negative guidance this past week.)  INTC closed at 46.66 Friday ABOVE the prior low of 46.19, but if it continues to turn downward on Monday, this reversal will likely be lost and we’ll see another lower low.

Bank of America (BAC) Market Timing Signal: Negative.  Friday’s action brought the stock back below 31.36, which was the lower high it was trying to exceed.  It got to 31.37 and reversed.  No coincidence there.  Just as last week:  “Rates were rising this week but this financial ‘tell’ could not make it over the lower high just mentioned.”

Keep up-to-date during the week at Twitter and StockTwits (links below)…

Follow Me on Twitter®  Follow Me on StockTwits®.

SP500 Large Cap Index (click chart to enlarge; SPX, SPY): We did get the fresh all time high (ATH) this week, so the trend is still up with the caveats noted above!

sp500-index-spx-market-timing-chart-2018-09-21-close

New all time high. Is this just a marginal new high or will the trend continue?

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of 0.00% vs. -0.75% last week.  The same comment applies this week as last: “Sentiment was flattened out to a flat spread.  There is plenty of room to both fall and rise.”  Since we are at another all time high for the SP500 Index this week, the sentiment spread by itself is more Bullish than Bearish.  Tops are not generally formed when investors are divided and likely confused!  Whether we get to a new high immediately or not, this says the Bull market is likely not yet done.

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
32.04% 35.92% 32.04%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Small caps are still in an up trend, which maintains my stock market signal as Bullish (see at end of report).  IWM closed just barely (0.20 points) above the prior breakout shown on the chart below (to the left in white numbers!).  This means a reversal to the downside could still occur.  The ETF is trading almost precisely on the lower channel line shown in purple.  A strong move up early in the week will reaffirm the up trend.  If not, there are plenty of potential downside targets.  I evaluate various levels in real time as we arrive at them, so stay tuned on social media via the links above. 

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

iwm-russell-2000-market-timing-chart-2018-09-21-close

Small caps are holding above our key breakout number still, but barely.

3. Gold Market Timing (GLD):  Review the issues of the prior weeks (3 weeks back at least) for an explanation for the abysmal performance of gold.  No life being shown.  This could change as economic growth slows.  Bonds will rally as rates fall.  If there is international panic, gold and the dollar can rise together.  Google “When does gold shine and when does it decline?” and you’ll find my article.

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

gld-gold-etf-market-timing-chart-2018-09-21-close

Gold remains in a slump due to the relatively strong dollar and higher rates.

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX):

If Ex-U.S. global growth has already slowed and is slowing further, and U.S. growth is also slated to slow slightly in Q4 and more dramatically in Q1 and Q2 of 2019, then rates should fall into 2019.  It’s not always possible to pick the exact top of a chart of course, and I am a bit early, but my assessment is that rates at this level given the what is happening in the rest of the world in terms of interest rates is unsustainable.

By the way, I picked IEF over TLT, because I thought there was some risk of being a bit early on this one.  TLT will provide a bigger bang as rates fall however.  This quarter’s SP500 Index earnings will still be strong, so this puts upward pressure on rates.  They assume the Fed will just keep raising rates for the next few years.  I do not assume that!

This is a trade that could be over within a few quarters...and of course, the thesis could be wrong.  My advice is to change your mind when you’re wrong.  There will always be another trade, but not for the stubborn.  They lose too much capital.  Only a new high above the top green line in the chart below would change this rate assessment.

Check out the “Market Signal Summary” below – after you review the following chart…

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

tnx-10-year-treasury-note-market-timing-chart-2018-09-21-close

Have rates finally peaked? CPI and PPI may have peaked as mentioned last 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 MARKET 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 small caps are a better indicator of the health of the economy, as they are most vulnerable to economic changes, and hence, are the basis for this signal.   The VIX (which relates to SPX volatility) closed at 11.68 on Friday vs. 12.07 the previous week.  This is Bullish for the SP500 Index.

What must the VIX do this week?  As I said previously: “Any move back above VIX 13.31 again may indicate a developing Bearish trend.  A ‘test’ doesn’t count.   The last bigger spike was to 16.86, below the two previous spikes in volatility.”  The Bears must get through VIX 16.86 to spark a bigger correction.  The last little dip to the Sept. 7th low was only 1.73% which is more of a blip than a dip.  The Bulls need to take out the lowest VIX targets I shared on social media (links above) this week to keep the momentum.

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 GREEN (tentatively pending a new high above that green line in the TNX chart above) for a further stock market rally with a Bullish 10 Year Yield Trend. My opinion has not changed.  I would be surprised to see a sustained new recent TNX high above 3.115%.

Why did I change the signal?  I said previously “This signal will be tentatively Bullish given a new TNX high on a close of TNX above 3.035%.”  This level of the 10 Year Treasury Yield, which is too high for current conditions as explained HERE, could 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.”  A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.  

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 trend 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 trend 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: Please 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.

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 9-14-2018 Close: SP500 Looking for Another All Time High. Small and Mid Caps Keeping Up. Gold Flat. Rates Rising. Are You Losing Money on Cash?

A Market Timing Report based on the 09-14-2018 Close, published Saturday, September 15th, 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):

Complacency has its rewards.  Fewer words…  I have telegraphed much of what is expected to go down over the next 3 quarters of earnings reports in the U.S. both in posts on this blog and on social media.  I recommend reviewing the posts going back to August, as there is no need to repeat what has been said.  This prior report is especially important: HERE.  And I assess the probable degree of decline HERE.  These briefs are supposed to be about “focused comments.”

Let’s check in on two signals we’ve been following:

“Intel-igent Market Timing Signal”:  Strongly Negative.  46.19 is now the reversal point to watch.  Previously it was 48.50, so things are getting worse.  (Reminder: INTC is our “tell” on 2nd half earnings in tech as noted HERE.)  The stock closed at 45.54 Friday below the prior low of 46.19.  Intel is in its very own Bear Market, down 20.94% from the all time intraday high, and that’s after a small bounce on Weds. and Thurs.

Bank of America (BAC) Market Timing Signal: Negative.  Rates were rising this week but this financial “tell” was not!  Something is off here.  I’m betting rates will not keep rising, at least not for long. The stock is holding just above the 8-15-2018 low of 30.16, which must hold.  A breach of that would mean a revisit of the Feb. low.

This is from THREE weeks ago but is still in play, so I’ll keep it here: “The China trade war peace treaty remains a hope for the market.  It is an excuse for a further rally if anything, as the key is the growth rate of both earnings and revenues for U.S. companies, which are projected to slow, as said.”  (If you are not aware by now that U.S. growth may begin slowing in the current quarter (Q3) (Pepsi begins with its report on Oct. 2nd, and the big banks report on Oct. 11th) and that it will start to get far worse by Q1 and Q2 of 2019, you should click the links to the upper right and read the pertinent prior issues!

The Bull caveat?  Increased capital spending from the Trump/GOP Tax Bill could mitigate some of the shortfall seen by analysts mentioned in my August blog posts.  How much of a boost this could provide is unclear, but it will add somewhat to GDP in the 3rd and 4th quarters of 2018 and could carry through into 2019.  This could reduce a potential pullback of the market over the next three quarters.  The guesswork is good out to about a year, but is less reliable the farther out you go in time.

The Bear caveat?  U.S. multinationals depend on foreign sales for about half of their revenue, which means the current global growth slowing will be reading through to U.S. GDP vs. the positive effects of the tax bill.

The US Dollar strength that is the result of Ex-US growth slowing will begin impacting U.S. multinational results in the current quarter as the dollar was HIGHER than the prior year starting in July 2018 and this will continue through the following June if the dollar simply stops at this level.  If rates do fall in the U.S. as U.S. growth slows, the dollar will slip and shorten the window of impact.

Keep up-to-date during the week at Twitter and StockTwits (links below)…

Follow Me on Twitter®  Follow Me on StockTwits®.

SP500 Large Cap Index (click chart to enlarge; SPX, SPY): Is another all time high coming prior to U.S. GDP slowing particularly in Q4 2018 and Q1 and Q2 2019?  The prior SPX dip was to just 1 point below the key breakout above the Jan. high. This by itself is positive and affirms the up trend, but another new high is needed soon to confirm the Bullish stance of the market.

sp500-index-spx-market-timing-chart-2018-09-14-close

Retest of top or more?

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -0.75% vs. +15.92 last week.  Sentiment was flattened out to a flat spread.   There is plenty of room to both fall and rise. Since we are approaching the all time high again, this by itself is more Bullish than Bearish.  Tops are not generally formed when investors are divided and likely confused!  Whether we get to a new high immediately or not, this says the Bull market is likely not yet done.  Remember this is just one piece of a much larger picture, and trading on sentiment is iffy, particularly when it is not at extremes.

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
32.09% 35.07% 32.84%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Small caps are still in an up trend, which maintains my stock market signal as Bullish (see at end of report).  Since the 8-15-18 low, small caps and mid caps have kept up with large caps.  Prior to that, off the 6-27-18 low,  small and mid caps both trailed the SP500 Index, so the recent behavior of the smaller stocks is an improvement.  This is Bullish for the overall market.

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

iwm-russell-2000-market-timing-chart-2018-09-14-close

Small caps rising in channel for now.

3. Gold Market Timing (GLD):  Review the issues of the prior weeks (2 weeks back at least) for an explanation for the abysmal performance of gold.  Zero progress this week.

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

gld-gold-etf-market-timing-chart-2018-09-14-close

Gold has no game.

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX): Rates ticked up within the recent range as I warned they could.  PPI and CPI were both weaker Y/Y, so the rise should be limited.  If not, I change my mind. I added to intermediate term Treasuries on Friday.  To see what ETF I used, please click the social media links above.

This chart shows how the ANNUAL Rate of Inflation is coming off peak (potentially): HERE

Note the inflation rate (CPI) is 2.7% Y/Y, which means if you made less than that on your cash over the past year, you have lost buying power.  Remember CPI is considered to underestimate true inflation, but for now, let’s use it as a guide.

How many years do you have to go out to make 2.7% or more in Yield to Maturity terms?  These are real Treasury notes I found in the market:

1. To make the CPI over the past year of 2.7% – you’d need to buy a Treasury Note maturing in 1 year, 5 months, and 14 days dated 2-29-2020 maturity.

2. 2.8%: 2 years and 4 months, 1-15-2021 maturity

3. 2.9%: 4 years, 2 months, 15 days, 11-30-2022 maturity

4. 2.994%: 10 Years. That’s the yield of the 10 Year Treasury Note currently.

Yield Curve: You can see the quotes in round years from the Treasury: HERE

You can see there is not much more you are getting by going out past 1 1/2 years, but if rates fall, the longer term bonds will appreciate in value.  You then need to trade out of them after the global economic slowing passes, as rates will then rise again, and bond prices will fall.  This is a trade only that could pay off within a few quarters and then end…

Check out the “Market Signal Summary” below – after you review the following chart…

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

tnx-10-year-treasury-note-market-timing-chart-2018-09-14-close

Rates ticking up. How far? PPI and CPI data are coming in weak Y/Y.

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 MARKET 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 small caps are a better indicator of the health of the economy, as they are most vulnerable to economic changes, and hence, are the basis for this signal.   The VIX (which relates to SPX volatility) closed at 12.07 on Friday vs. a Bearish 14.88 the previous week and is now Bullish.

What must the VIX do this week?  As I said previously: “Any move back above VIX 13.31 again may indicate a developing Bearish trend.  A ‘test’ doesn’t count.   The last bigger spike was to 16.86, below the two previous spikes in volatility.”  The Bears must get through VIX 16.86 to spark a correction.  The last little dip to the Sept. 7th low was only 1.73% which is more of a blip than a dip. 

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 NEUTRAL for a further stock market rally with a NEUTRAL 10 Year Yield Trend.  The signal goes to neutral this week, as it is challenging the top of an important range.  From 3 weeks ago: “It [TNX] is falling, because the world’s economy is not well.  Bond Bears could argue rates could remain range-bound for a while depending on U.S. inflation numbers coming in the next few months.  But then yields should head lower despite the Fed’s current hiking bias.  In fact, further Fed hikes will pressure the long end of the curve further.”  My opinion has not changed.  I would be surprised to see a new recent TNX high above 3.115%.

This signal will be tentatively Bullish given a new TNX high on a close of TNX above 3.035%.  As said before: “A more definitive rise above 3.035% would turn the rate trend back to Bullish for rates (Bearish for bonds) This level of the 10 Year Treasury Yield, which is too high for current conditions as explained HERE, could 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 trend 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 trend 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: Please 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.

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 9-07-2018 Close: SP500 Index Sags Below the January High. Gold on Life Support. Rates Rising on Employment/Wage Data.

A Market Timing Report based on the 09-07-2018 Close, published Sunday, September 9th, 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):

After reaching a new high, the SP500 Index this past week gave up that high by just a bit despite a strong employment number on Friday.  Wages were also up.  One can argue that the Fed MUST move rates up steadily now, but this does not account for the slowing of growth I’ve been discussing that is starting in Q4 2018 and in the first half of 2019 according to analysts as a group.

The SPX close was 2871.68 vs. the prior high on 1-26-18 of 2872.87, so this represents a test just below the prior high, which may succeed or fail to lead to yet lower prices.  The SP500 index is still stretched above the 2017 up channel (orange lines in the chart below), so it can pull back and still maintain the up trend as long as the dip doesn’t take it too low.  The last pullback into the end of June took the SP500 Index just below the 50 day moving average.  As many of you know, I don’t use moving averages as trading signals.  I observe the market when it reaches a moving average to determine its likely behavior in a pivot off such levels.

Let’s check in on two signals we’ve been following:

“Intel-igent Market Timing Signal”:  Strongly Negative.  Last weeks I said: The stock looks like it is forming a temporary base.  48.50 is a reversal point to watch.”  (Reminder: INTC is our “tell” on 2nd half earnings in tech as noted HERE.  The stock closed at 46.45 Friday and is testing barely above the prior low of 46.43.  Share buybacks could keep it levitated for a while, but remember that they can let it fall and reclaim shares at better prices.  Depending on buybacks at support levels like this is not a reliable strategy.

Bank of America (BAC) Market Timing Signal: Negative.  It should have rallied with rates this week, and it did not.  A series of lower highs with a failed breakout have been established.

This is from two weeks ago but still in play, so I’ll keep it here: “The China trade war peace treaty remains a hope for the market.  It is an excuse for a further rally if anything, as the key is the growth rate of both earnings and revenues for U.S. companies, which are projected to slow, as said.”  (If you are not aware by now that U.S. growth may begin slowing in the to-be-reported quarter (Q3) and that it will start to get far worse by Q1 and Q2 of 2019, you should click the links to the upper right and read the past 4 issues or so!

Keep up-to-date during the week at Twitter and StockTwits (links below)…

Follow Me on Twitter®  Follow Me on StockTwits®.

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

sp500-index-spx-market-timing-chart-2018-09-07-close

Testing below the Jan. ATH.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +15.92 vs. +19.11 last week.  Sentiment is mildly Bullish at these levels.  This week, it is not particularly helpful as a guide.  There is room to both fall and rise.

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
42.22% 31.48% 26.30%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Still in an up trend, which maintains my stock market signal as Bullish (see at end of report).  This week has brought a decline within the Bullish trend channel.  The purple line is the base of that channel, and it’s now running along side the 50 day moving average.  The line must hold to avoid significantly more damage to the Russell 2000 small caps.

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

iwm-russell-2000-market-timing-chart-2018-09-07-close

Falling in the channel so far…

3. Gold Market Timing (GLD):  Review prior weeks (2 weeks back at least) for explanation for the abysmal performance of gold.  With the economy still strong and Fed rates rising ahead of inflation, which may have peaked out at this point, gold has little reason to rally.  Further currency crises around the world and U.S. growth slowing could lead to better gold returns at the end of the year and in early 2019.

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

gld-gold-etf-market-timing-chart-2018-09-07-close

Could get even weaker if economy keeps booming. Only end of 2018 into 2019 slowing or world crisis can lift gold.

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX): Rates ticked up within the recent range as I warned they could, based on the strong employment report on Friday along with strong wage growth, but this does not mean we’re headed to new inflation highs, unless President Trump drives us into a global trade war.  As we know, he negotiates using strong arm tactics, but in the end, he cannot want to seriously hurt consumers who depend on cheap foreign imports.  This could lead to a period of stagflation if he does.  I doubt he’d be happy with his GDP numbers under those circumstances.

The Supreme Lifetime leader of China, Xi, has much more negotiating room than Trump has!  Check below in my signal summary to see the rate level when things begin to look Bullish again for rates rising.  When the market changes, we change our minds.  Being stubborn is a dumb practice in general, and it costs us big bucks in investing when we don’t adjust to the changes we see. 

Pay close attention to the PPI and CPI inflation numbers out this week on Weds. and Thurs., respectively!

Check out the market signal summary below, after you review the chart…

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

tnx-10-year-treasury-note-market-timing-chart-2018-09-07-close

Rates rising in the range on wage inflation.

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.  I won’t relabel the SPX trend based on a micro drop below the Jan. 2018 high. 

The small caps are a better indicator of the health of the economy, as they are most vulnerable to economic changes, and hence, are the basis for this signal.   The VIX (which relates to SPX volatility) closed at 14.88 on Friday vs. 12.86 the previous week and is Bearish.   From past week: “I would not be shocked to see some early Sept. upside action in the VIX.”  There you go… 

I also said: “Any move back above VIX 13.31 again may indicate a developing Bearish trend.  A ‘test’ doesn’t count.   The last bigger spike was to 16.86, below the two previous spikes in volatility.”  The Bears must get through VIX 16.86 to turn this dip into a correction.

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 RED for a further stock market rally with a BEARISH 10 Year Yield Trend.  From last week: “It is falling, because the world’s economy is not well.  Bond Bears could argue rates could remain range-bound for a while depending on U.S. inflation numbers coming in the next few months.  But then yields should head lower despite the Fed’s current hiking bias.  In fact, further Fed hikes will pressure the long end of the curve further.”

This Bearish signal will be voided on a close of TNX above 3.035%.  As said before: “A more definitive rise above 3.035% would turn the rate trend back to Bullish for rates (bearish for bonds) This level of the 10 Year Treasury Yield, which is too high for current conditions as explained HERE, could 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 trend 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 trend 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.

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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: Please 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.

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