Market Timing Brief™ for the 8-16-2019 Close: “Will the U.S. Stock Market Turn Up or Down from Here? Gold and Treasuries in Uptrends but Stretched.”

A Market Timing Report based on the August 16, 2019 Close, published Saturday, August 17th, 2019…

I deliver focused comments on market timing once a week.  These are supplemented with daily “Tweets/StockTwits” (see links below) and comments in the “markettiming” room on StockTwits.

I provide quite a bit of intraweek commentary, and if you don’t see it, you will miss out on quite a bit of context, so please click on the social media links below and have a read…  Thank you as always for being loyal readers and interacting on social media with your questions and comments! 

1.  SP500 Index Market Timing (S&P 500 Index®; SPY, SPX):

Up or down?  Good question!  Ahhh, what will the market do next?   The answer?  Before we get to that…

Let’s next check my “Bull Market Health Score”…

What would satisfy me that the Bulls are serious?

Let’s check the list once again… The Bull Market Health Score this week?  Bulls 0.5/Bears 4.5.  At the end of July we were at Bulls 2.5/Bears 2.5.  

For each checklist item below, I give you the points scored as Bullish or Bearish. 

1. New high?  Bears 1.0 point.  Answer: No.  Bulls must retake S*PX 2943.31 and S*PY 294.15 to be convincing that the current correction is over at least in getting us back to a test of the prior ATH (all time high).  (*’s added to throw off the “web crawlers”; it’s not my goal to become part of the “consensus.”  :)) 

2. VIX below the “Bull Nirvana Number” AND my bonus number?  Bears 1.0 point.  Answer: No.  At the Friday close, the VIX was 18.47.  The VIX Game Score as I call it is Bulls 0/Bears 8 as of the close Friday.  We should see the VIX fall through those targets listed at the base of this report AND the goal noted in #1 above achieved to be sure this rebound is real.

3. AD % Line in an Uptrend (proprietary stat; see base of report about this)?: Bears 1.0 point.  Answer: No.  It’s at 16,446 as of Friday.  Lower highs are seen with a descending triangle, which is Bearish.

4. Volume on Up Moves?: Bears 1 point.  Answer : No.  I said earlier this week, “Volume did not rise on the 1.88% up move in the market on Thursday, August 8th.  That was one signal to ‘sell some.'”  Volume also did not rise this past Friday on the rally, which makes it suspect.   The summer cannot be blamed as this assessment is relative to recent volume numbers.

5. The “U.S. Index Matrix Signal” (as I call it) Positive?  Bulls 0.5 point.  Answer : Split.  One day off a low is not an “all clear.”  Mid caps held a higher low than the June low, and small caps (small caps were the worst, as warned)  held the end of May low.  A breach of those levels would mean more pain for the large caps as well.  The bounce in small-mid caps indicates there is room for at least a general market bounce, perhaps of more than a few days. 

As I review the entire set of my indicators, beyond the above score, the picture is mixed.   Some say the pullback has been enough, and others say there is more downside ahead.  The worst performers have attracted new blood vs. the May 31st low – there has been a 67% rise in the number of horribly acting stocks vs. that prior low.  That means investors are dumping bad performers left and right.  The percent of stocks doing the best technically held above the May low.  In a panic out of stocks, “they sell everything.”  That’s not been quite the case yet, although it was when the 2 and 10 Year Treasury Yields inverted this week.  Everything fell.  That’s what a crash looks like.

The bounce that began on Friday could simply form a double 2 wave UP, meaning two bounce waves that reach the same level and lead to a larger 3rd wave down, which I call “The Big Red Wave.”  That level of correction would take us down to 2694 or -11.0% from the all time high (ATH).  Alternatively, the lower upward sloping SPX channel line (yellow in chart below) may hold.  That level is rising over time as it’s an uptrend line, but for now is at 2759, or a drop of 8.9% from the ATH.  The June low is in between those two numbers and is therefore a viable target as well. 

My guesstimate, therefore, is that a breakdown from the Friday close (as opposed to a continued rally, which I’ll get to next) would take us to around 2694 – 2759 for a drop of between about 9 to 11% from the ATH.  The drop to the 8-05 low was 6.8% for comparison.   That puts the drop in this leg down in “correction territory” per my “New Rules” for market correction naming HERE (scroll down to “New Rules”).  It’s already been in what I call correction territory; it will just have the chance to drop a bit deeper in correction range.

What if the market rallies from here?  First let’s ask what could CAUSE a sustained rally (rise of more than 2-3 days)? 

The market needs a bone to provide perceived “upside opportunity.”  Possible bones include:

1. The U.S. Federal Reserve lowers interest rates more quickly than suggested by their latest “mid-cycle adjustment” language.  That would be required to inflect the yield curve back to normal. The banks hate the idea of still lower rates as it impairs their profits.  Financial stocks have been a horrible investment for that reason.  BAC is just off its June low.

If the Fed acts aggressively the market may then look past what turns out to be temporary global slowing as central banks continue to attempt to stimulate their economies DESPITE the fact that Japan and Europe are both slipping toward recession WHILE interest rates are NEGATIVE!  No worries, the ECB will simply buy more debt they claim.  Real interest rates (adj. for inflation) are DEEPLY negative in these countries.  So if that does not work, just do more of it???  I’ve heard Rick Santelli rail against the dubious policy of negative interest rates.

Negative yielding global debt is now at a massive $15 Trillion (Ref. @ CNBC)  I am NOT very optimistic that this will do anything but chase more money into U.S. stocks for a last market rally before a crash.  I will admit that’s a rally you want to be a part of, although you had better have protection via cash, gold, and individual high grade bonds/Treasuries that you can hold to maturity.

There are Bulls that say that U.S. stocks are very cheap vs. the cost of money, specifically U.S. Treasuries.  But are rates low because the economy is sliding globally?  It would seem so.  So the low rates flash a buy signal to these “value investors” as the world slips into recession, which is the one time you absolutely need to have a lower exposure to stocks.  It is true that investors tend to run to stocks for yield when yields crash, but what they’ve done recently is buy bonds, because bonds rally as rates fall.  If we turn into Europe and Japan so to speak and head to negative yields, we will be in or be barrelling toward a recession.  Remember: Rates rise in a strong economy!  They at least stay flat AT HIGHER LEVELS, but they definitely don’t linger at the current historically low levels.

Decide what you believe, but this is why I am between a recessionary equity exposure and the full exposure I’d have in a strong Bull market.  We are navigating an uncertain period of weak earnings, tariff wars, and diving yields.  The market has had two 3% down days in the past 10 days.  That often leads to more downside.  It may not, but that’s the correlation. 

My Bull market exposure is what I call “100% of maximum exposure” during a strong Bull Market.  My recession exposure level is 60% of max exposure, although I reserve the right to drop it lower!  By the way, 60% does not mean being at 60% stocks in this context; it’s 60% of max exposure during a strong Bull Market.  If you are 20 years old and your exposure level is 100% normally in a strong Bull Market, then if you shifted to 50% of max exposure, you’d drop to 50% raw exposure.  That’s just an example.

I only share relative numbers, so you can adjust your numbers to taste.  I think it would be reasonable, given the current setup, to be 9% higher as a % of max. exposure than I am now (see social media on 8-14).

Read/consult with an advisor about where you should be in stock exposure risk at your age and then make your own decision.  Remember, if you have riskier stocks, that means your beta is higher than the market, and you need to lower your exposure level to compensate for that.  50% in high fliers is not equal to the risk of 50% in SPY.  My current exposure level is shared on social media (on 8-14-19).  Ray Dalio who manages $150 Billion says his team has “recession risk” for the U.S. at about 40% (@CNBC).

By the way, the yield curve just inverted as nearly everyone heard even in the mainstream press, but only for less than 1 day, so that may not even count, but let’s say the signal has been triggered and a recession is coming.  A recession could start between 6 and about 18 months from now based on the inversion event.  In 2000, it took about two years.  During that period the market typically goes on one last buying binge with very strong stock market returns.  Keep that in mind in adjusting your exposure level.  You can still have more cash than usual and participate in the last inning(s) of the Bull Market.

2. Europe and Japan provide FISCAL STIMULUS to their economies.  I am not saying they “should” do this, but it would help to create demand, while their debt levels rise. Germany has an inherited fear of debt, which has the ECB focused on inflation alone as their mandate and NOT full employment as well, as is the case in the U.S.  However, there is now talk the Germans may provide fiscal stimulus.  In the U.S. the Democrats won’t help Trump out with an infrastructure bill.  They want to pass it when they take over the Presidency and take credit for helping the economy and improving the nation’s infrastructure, something that is visible to voters as well.

3. Trump’s U.S. China Trade War Ends: A positive resolution to the impasse would encourage investment around the world.  My belief currently is that Trump knows his election chances will suffer if his trade policies lead to a recession, and he is in the process of pivoting toward a compromise solution with China (unless he’s politically suicidal, because subconsciously he just wants to build Trump Towers in Russia and Saudi Arabia).  Democrats will say he was directly responsible for the recession, if he does not change course soon and induces one.  The Democrats have an advantage numerically as proven in the last election in which Clinton won the popular vote and lost the electoral vote.  Trump cannot lose the farmers or the midwest manufacturers and win in 2020.

Much of our multinational company growth now depends on China’s growth, which Trump is impairing through tariffs.  Less uncertainty would provide a big boost to stocks, although then the Federal Reserve would be watching for inflation as things improved.  Let’s take thing one step at a time though.  On an immediate basis, the end of the trade war would boost global markets including the SP500 Index.

4. Timing is everything.  Things will be better on a comparative basis in Q4 2019 and Q1 2020, so buy stocks now.  Just the comparative improvement in earnings and revenues, IF the world does not in fact slip into a recession, would help the stock markets globally.  This is not only true in the U.S., but also is the case in Europe and China.  The issue is whether further weakness for Q3 results will drive stocks down more before they recover.

Let’s check in on the context around the price action of the market by looking at the current RISKS… 

No Earnings Update this week.  The FactSet writer is on vacation, so there is no new data this week.  😉

Earnings Risk: what is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 8-09-19 (details HERE)…  The last numbers for Q2 are numbers for the current reported earnings from 90% of SP500 Index companies to date.  The arrows “—>” indicate 3 weeks of of omitted data in order to compress the data.  

For Q2 2019, analysts are projecting earnings growth of 0.1%  —> -1.3% ->  —> -2.1%  —> -2.6% -> -2.6% -> -3.0% -> -1.9% -> -2.6%-> -1.0% -> -0.7%

and revenue growth of 4.6%  —> 4.3%  —> 4.1%  —> 3.8% -> 3.8% -> 3.7% -> 3.8% ->4.0% ->4.1% -> 4.1%

For Q3 2019, analysts are projecting earnings growth of 1.8%  —> 0.8%  —> 0.3%  —> -0.5% -> -0.5% -> -0.8% -> -1.4% ->-1.9% -> -2.2% -> -3.1%

and revenue growth of 4.4%  —> 4.4%  —> 4.2% —> 3.8% -> 3.8% -> 3.3% -> 3.2% ->3.2% -> 3.1% -> 3.0%

For Q4 2019, analysts are projecting earnings growth of 8.1% —> 7.5%  —> 7.2%  —> 6.3% -> 6.3% -> 6.0% -> 5.4% ->4.9% -> 4.5%  -> 3.9%

and revenue growth of 4.8%  —> 4.8%  —> 4.6%  —> 4.3% -> 4.3% -> 4.2% -> 4.0% ->4.0%-> 4.5%-> 4.0% -> 4.0%

For CY 2019, analysts are projecting earnings growth of  3.4%  —> 3.2%  —> 2.7% -> 2.6% -> 2.4% -> 2.3% -> 1.7% -> 1.9%  -> 1.5%

and revenue growth of 4.7%  —> 4.7%  —> 4.5% -> 4.4% -> 4.3% -> 4.4% ->4.4% -> 4.4% -> 4.3%

For Q1 2020, analysts are projecting earnings growth of 10.5% -> 10.7% -> 10.3 -> 9.9% -> 9.8% -> 9.5% ->9.2% >9.0% -> 8.5%

and revenue growth of 6.2% -> 6.1% -> 6.0% -> 5.8% -> 5.8% -> 5.9% ->5.9% -> 5.7% -> 5.6%

For Q2 2020, analysts are projecting earnings growth of 13.3% -> 13.3% -> 12.9% -> 13.2% -> 13.5% -> 12.0% ->12.6% ->  10.7 ->  9.9%

and revenue growth of 6.8% -> 6.8% -> 6.6% -> 6.6% -> 6.6% -> 6.7% ->6.6% -> 6.5% -> 6.4%

I’ll leave this from last week: Conclusion: Is it still the case that earnings are weak (about flat) for the 2nd quarter in a row and are due to be negative for a third quarter (Q3 2019). The market is waking up to the fact that the Federal Reserve does not see the level of risk it sees!  Hence, we have crashing 10 Year Treasury yields and falling stock markets around the world, when the Fed lowering rates aggressively should cause yields to rise at the long end.  The market sees the Federal Reserve as being behind the curve. 

Here’s a Brief Review of the Other Market Risks at Hand:

China Deal Risk: A deal is still promised, but the jawboning is not working at all anymore.  Trump withdrew much of the tariff threat that would have impacted U.S. consumers at Christmas.  That went beyond talking.  Without a strong Christmas, our economy would take a further BIG hit.  Q4 is the most important retail quarter of the year.

U.S. Iran War Risk: Simmering at a low boil, but not over.  A tanker was just released from Gilbralter that the U.S. had tried to prevent from leaving. 

Mueller Report/Trump Impeachment Risk: Ongoing.  Read my analysis in the July 26th issue HERE.

2020 Election Risk: No important change.  Probably the biggest risk to the markets and most Americans are oblivious to this from the markets’ point of view.  I’ll stand by this:  “The market will likely pull back at least 10-15% going into the election if the outcome is even unclear, meaning President Trump is NOT ahead by a wide margin (a likelihood, but not a certainty, depending on whether the Dems go for a “McGovern” candidate, as in Nixon-McGovern in 1972, a Democrat disaster.”  Bernie Sanders has fallen out of favor.  His message seems tired, and he appears to be very unhappy.  His campaign has attacked CNN for making negative comments about his demeanor!  He has the right to be unhappy!  😉  Warren’s ideas are actually his ideas with a more positive spin on them, and she’s taking away his support.  Same policies.  She smiles; he frowns.

Could a very left leaning self-proclaimed capitalist like Elizabeth Warren take Donald Trump in an election by promising the world to students (loan forgiveness), healthcare for all, and wealth taxes on the ultra rich, as well as higher taxes on the less than ultra-rich?  She is gaining ground on Biden who needs to strengthen his positive message vs. saying “I’ll take you back to the Obama era” with no vision of the future.  The African American vote may give Biden the edge.  Polling says that’s likely based on 1. his leadership experience 2. his being #2 to Obama, and therefore “Obama’s pick.”  This is a big barrier for Warren to overcome as she receives little support from African American voters. 

Deficit/Debt Threat: No important change.  I’ll leave this here as a monument to our monumental debt: “They all see the problem and do nothing about it.  They just keep spending.  Per the NY Times: ‘Within a decade, more than $900 billion in interest payments will be due annually, easily outpacing spending on myriad other programs.’  The 2018 defense budget was $800 B.  Medicare?  $582 B.  Think about that!  Trump and the GOP may be spending dollars meant for your future Medicare and Social Security today.”

Fed Rate Cut Risk: Fed Chair Powell talks at 10 am ET on Friday at Jackson Hole where he meets with all the other market saviors.  As said: “The decline in yields is getting worse.  The market is still leery of Federal Reserve Chair Powell’s ‘mid-cycle adjustment’ in rates statement, meaning it believes he won’t be aggressive enough in lowering the Fed Funds rate.”

Now take a look at the SP500 chart. 

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

Market timing the SP500 Index (SPY, SPX). Stocks could turn either way.

Meaningful bounce or not?

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Negative.  Just above the May low.  Trump has to fix the China Trade War soon, and Intel would benefit from that.  That means there is the opportunity for a pop.  A rise with volume above the 47.5 level would be the first step.

Bank of America (BAC) Market Timing Signal: Negative but up off of support. Back above the March and  May/June lows after being below both on Thursday.  May work out as a trade as rates are stretched to the downside and due for a pop.  Maybe Powell does that with his words on Friday. 

Notice both canaries are positioned for a rally?  But they must hold current support – or else.  That’s called a pivot point. 

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 34,101 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.

Join the Conversation in the StockTwits “MarketTiming” Room

Now let’s go on to review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -21.67% vs. -26.54% last week .  From last week: “The low in Sentiment in December was -28% for the poll ending on 12-12-18, but the price low was on December 26th intraday.  Sentiment has room to become more extreme, but the December comparison says to me there is more room for a further decline in the SP500 Index ahead, even if sentiment does not worsen.”  This is the same pattern as the December pattern.  Sentiment FELL after it peaked as the price of SPX fell.  Not a big help for the Bulls.  

Bulls Neutrals Bears
23.18% 31.97% 44.85%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM):

A trade perhaps, even if a quick one off the June low.  They are higher beta, so they’ll fall harder in a further market decline.  I’d rather stick to large caps at this point, but the small cap trade could work out.  Use a stop.  😉

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

Market timing the U.S Small Cap Index (IWM, RUT). Trade the bounce?

Trade the bounce or playing with “Beta Fire”?

 3. Gold Market Timing (GLD): 

I said on 7-26-18: “Still a Bull.  Add on dips.”   I think you can still do that soon, but the risk is a rise of long rates with Powell’s comments this Friday or even just a technical bounce in rates, which would further hurt gold/gold stocks along with Treasuries.  I would rather buy more gold/gold stocks after rates move back up in a counter-trend move.

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

Market timing the gold ETF (GLD). Gold Bull run continues.

Is a pause due for gold and rates after the steep rate plunge or more panic to come?

4. Interest Rate Market Timing (10 Year Treasury Yield; TNX, IEF, TLT):

As I said Monday: “The 10 Year Treasury Yield is still crashing, down 8.0 basis points just for Monday, which is a very bad sign for the stock market, and a very good sign for gold/gold stocks.  I exited TLT early, but did so knowing I still had exposure to long municipal bonds and gold/gold stocks as hedges.”

If the economy worsens from here, there will be more upside for TLT etc.  If not and/or if Powell cuts rates aggressively, watch out below.  Long rates will rise and bonds will be hurt.  If he does it too slowly, long rates may fall further.

Investors who are hiding in long bonds and running from stocks will suffer if the Fed acts aggressively.  Also, if the economy improves in late 2019/early 2020, rates will snap back UP and cause bond/Treasury losses.  Set your stops on profits on all interest rate sensitive investments.  Sell in stages perhaps to benefit from further panic.  That’s what I’ve been doing.

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):

Market timing the US 10 Year Treasury Yield (TNX, TYX, TLT, IEF). More panic ahead?

This chart is one of total panic. Will the panic continue?

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 BUYS and SELLS in as timely a way as possible 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.  The stock signal is based on small caps, as they often lead the market down.

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!)  These are the targets: 13.31, 14.04-14.08, 15.04, the “fulcrum” range = [15.94-15.95 to 16.09], 17.06, 17.27, and 17.89.  The bonus target #8 is [12.-17-12.37].  The Bears have 8 of 8 targets at a VIX of 18.47 (Friday close).   I consider the “fulcrum” the key decision point that turns the market from Bearish to Bullish, when the VIX falls below that entire fulcrum range.

The ‘Bull Nirvana Target’ is our V*IX # of 2018: 13.31.”  (That is target #7 for the Bulls.) 

Gold Signal RED  for a further U.S. stock market rally with a BULLISH Gold Trend.   What gold does mostly as I’ve written HERE is follow real interest rates. 

From before: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise, it means the market believes real rates will  fall, which in the current context means the global economy is slowing.  That will ultimately hurt U.S. stocks. 

Rate Signal RED for a further stock market rally with a BEARISH 10 Year Yield Trend.

For Reference: “Rates usually RISE slowly in a strong recovery and the stock market rally continues as they rise, as I’ve repeated multiple times on social media and here. Empirically though, rates that are “lower” (than 3.11%) and are NOT rising rapidly have allowed the market to climb back above the prior all time high (ATH).”

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”    It closed at 54.81 last week and is up off the May low, but in a Bearish descending triangle.  That means it could head lower.

Just a reminder (not a current problem, because rates are “too low” now on a relative basis): If TNX bounces too quickly and too high, this will give rise to Rate Shock III… As said before: “Watch the rate at which TNX climbs if the current trend reverses.  If it shoots up very fast, stocks will correct.”  In the Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.  That’s what I called ‘Rate Shock.'”  The period of rising rates in early October I called #RateShockII.

The risk lately has been “Negative Rate Shocks.”  (Not negative rates in the U.S. yet!  “Negative” refers to the direction of the shock.)  First we had “Negative Rate Shock I” in December 2018 (because rates FELL while the Fed raised the Fed Funds rate 0.25% in mid-December, in what was perceived as a policy error),  “Negative Rate Shock II” in May, and “Negative Rate Shock III” in August.

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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, contact me.  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.

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 or bought, 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 IWM and GLD charts for now as reference points only; they have historical value for us from the post-2016 election period.

Copyright © 2019 By Wall Street Sun and Storm Report, LLC All rights reserved.

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Market Timing Brief™ for 8-12-2019 Intraday: “U.S. Stocks Headed for More Downside. Gold Bull Run Continues. Rates Crashing in Negative Rate Shock III.”

A Market Timing Report based on the August 12 Intraday Data, published Monday, August 12th, 2019…

I deliver focused comments on market timing once a week.  These are supplemented with daily “Tweets/StockTwits” (see links below) and comments in the “markettiming” room on StockTwits.

I provide quite a bit of intraweek commentary, and if you don’t see it, you will miss out on quite a bit of context, so please click on the social media links below and have a read…  Thank you as always for being loyal readers and interacting on social media with your questions and comments! 

1.  SP500 Index Market Timing (S&P 500 Index®; SPY, SPX):

I’ve been writing this report today as the market continues to fall.  That’s real time confirmation of the trends I refer to below! 

Earnings reports are as of last Friday in for 90% of the SP500 Index.  Per FactSet, if earnings continue to be negative for the index, though only at -0.7% (see below), Q2 will be the second of two quarters said to be negative for earnings.

Let’s next check my “Bull Market Health Score”…

What would satisfy me that the Bulls are serious?

Let’s check the list once again… The Bull Market Health Score this week?  Bulls 0/Bears 5.  At the end of July we were at Bulls 2.5/Bears 2.5.  

For each checklist item below, I give you the points scored as Bullish or Bearish. 

1. New high.  Bears 1.0 point. Lower high for Bears.

2. VIX below the “Bull Nirvana Number” AND my bonus number?  Bears 1.0 point.  At the moment, (8-12-19 12:38 pm) the VIX is 19.45.  The VIX Game Score as I call it is Bulls 0/Bears 8 as of the close Friday and again today, while it was Bulls 8/Bears 0 at the end of July.  For the July 26th close, I said:

” The Bulls don’t have to be finished here, but they may be.  There has been a steady fall in the VIX from the lower VIX high achieved on June 3rd.   We are past the easy part of the Bull trade now.”

3. AD % Line Uptrend (proprietary stat; see base of report about this): Bears 1.0 point.  It’s at 16,414 now (Mon. 2:23 pm) vs. 16, 465 last Friday.  It’s now back below the May 1st high.

4. Volume: Bears 1 point.  Volume did not rise on the 1.88% up move in the market on Thursday, August 8th.  That was one signal to “sell some.”  I was looking for just a 1-3 day counter trend rally, which we got.

5. The “U.S. Index Matrix Signal” as I call it:  Bears 1 point.  Large, mid, and small caps are all rolling over. 

Let’s check in on the context around the price action of the market by looking at the current RISKS…

Earnings Risk: what is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 8-09-19 (details HERE)…  The last numbers for Q2 are numbers for the current reported earnings from 90% of SP500 Index companies to date.  The arrows “—>” indicate 3 weeks of of omitted data in order to compress the data.  

For Q2 2019, analysts are projecting earnings growth of 0.1%  —> -1.3% ->  —> -2.1%  —> -2.6% -> -2.6% -> -3.0% -> -1.9% -> -2.6%-> -1.0% -> -0.7%

and revenue growth of 4.6%  —> 4.3%  —> 4.1%  —> 3.8% -> 3.8% -> 3.7% -> 3.8% ->4.0% ->4.1% -> 4.1%

For Q3 2019, analysts are projecting earnings growth of 1.8%  —> 0.8%  —> 0.3%  —> -0.5% -> -0.5% -> -0.8% -> -1.4% ->-1.9% -> -2.2% -> -3.1%

and revenue growth of 4.4%  —> 4.4%  —> 4.2% —> 3.8% -> 3.8% -> 3.3% -> 3.2% ->3.2% -> 3.1% -> 3.0%

For Q4 2019, analysts are projecting earnings growth of 8.1% —> 7.5%  —> 7.2%  —> 6.3% -> 6.3% -> 6.0% -> 5.4% ->4.9% -> 4.5%  -> 3.9%

and revenue growth of 4.8%  —> 4.8%  —> 4.6%  —> 4.3% -> 4.3% -> 4.2% -> 4.0% ->4.0%-> 4.5%-> 4.0% -> 4.0%

For CY 2019, analysts are projecting earnings growth of  3.4%  —> 3.2%  —> 2.7% -> 2.6% -> 2.4% -> 2.3% -> 1.7% -> 1.9%  -> 1.5%

and revenue growth of 4.7%  —> 4.7%  —> 4.5% -> 4.4% -> 4.3% -> 4.4% ->4.4% -> 4.4% -> 4.3%

For Q1 2020, analysts are projecting earnings growth of 10.5% -> 10.7% -> 10.3 -> 9.9% -> 9.8% -> 9.5% ->9.2% >9.0% -> 8.5%

and revenue growth of 6.2% -> 6.1% -> 6.0% -> 5.8% -> 5.8% -> 5.9% ->5.9% -> 5.7% -> 5.6%

For Q2 2020, analysts are projecting earnings growth of 13.3% -> 13.3% -> 12.9% -> 13.2% -> 13.5% -> 12.0% ->12.6% ->  10.7 ->  9.9%

and revenue growth of 6.8% -> 6.8% -> 6.6% -> 6.6% -> 6.6% -> 6.7% ->6.6% -> 6.5% -> 6.4%

Conclusion: Is it still the case that earnings are weak (about flat) for the 2nd quarter in a row and are due to be negative for a third quarter (Q3 2019). The market is waking up to the fact that the Federal Reserve does not see the level of risk it sees!  Hence, we have crashing 10 Year Treasury yields and falling stock markets around the world, when the Fed lowering rates aggressively should cause yields to rise at the long end.  The market sees the Federal Reserve as being behind the curve. 

Here’s a Brief Review of the Other Market Risks at Hand:

China Deal Risk: No important change.  A deal is still promised, but the jawboning is not working at all anymore.  Heard about the boy who cried wolf?  The lack of progress, should it lead to higher tariffs, would be a big blow to global markets.  Trump and Xi need to reach an agreement before then…or else…

U.S. Iran War Risk: Simmering at a low boil, but not over as indicated by recent statements from Iran.

Mueller Report/Trump Impeachment Risk: Ongoing.  Read my analysis in the July 26th issue HERE.

2020 Election Risk: No important change.  Probably the biggest risk to the markets and most Americans are oblivious to this from the markets’ point of view.  I’ll stand by this:  “The market will likely pull back at least 10-15% going into the election if the outcome is even unclear, meaning President Trump is NOT ahead by a wide margin (a likelihood, but not a certainty, depending on whether the Dems go for a “McGovern” candidate, as in Nixon-McGovern in 1972, a Democrat disaster.”

Deficit/Debt Threat: No important change.  I’ll leave this here as a monument to our monumental debt: “They all see the problem and do nothing about it.  They just keep spending.  Per the NY Times: ‘Within a decade, more than $900 billion in interest payments will be due annually, easily outpacing spending on myriad other programs.’  The 2018 defense budget was $800 B.  Medicare?  $582 B.  Think about that!  Trump and the GOP may be spending dollars meant for your future Medicare and Social Security today.”

Fed Rate Cut Risk: No important change.  The decline in yields is getting worse.  The market is still leery of Federal Reserve Chair Powell’s “mid-cycle adjustment” in rates statement, meaning it believes he won’t be aggressive enough in lowering the Fed Funds rate.

Now take a look at the SP500 chart. 

SP500 Large Cap Index AT 11:02 am E.T. MONDAY (click chart to enlarge; SPX, SPY):

Market timing the SP500 Index (SPY, SPX). Rolling over again.

Rolling over again.

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Negative.  Nearly back to the May low.  Though a U.S. China Trade War resolution will eventually cause it to rally strongly, the delay of an agreement could cause a further decline. 

Bank of America (BAC) Market Timing Signal: Negative.  Broke down badly off the May top, while rates continue to collapse, ruining banking margins.  Testing near March and June lows.

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 34,101 investors are following the markets with me…

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Join the Conversation in the StockTwits “MarketTiming” Room

Now let’s go on to review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -26.54% vs -14.38 last week .  The low in Sentiment in December was -28% for the poll ending on 12-12-18, but the price low was on December 26th intraday.  Sentiment has room to become more extreme, but the December comparison says to me there is more room for a further decline in the SP500 Index ahead, even if sentiment does not worsen.

Bulls Neutrals Bears
21.66% 30.15% 48.20%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM):

Avoid them.  They are higher beta, so they’ll fall harder in a further market decline.  They are breaking down in lockstep with large caps after a brief bounce.

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

Market timing the U.S Small Cap Index (IWM, RUT). Avoid them.

To be avoided due to higher beta/risk.

 3. Gold Market Timing (GLD): 

I said on 7-26-18: “Still a Bull.  Add on dips.” I also said the ascending triangle should lead (with higher probability) to an upside resolution, and that happened.  It’s hard to chase when gold goes vertical/exponential, so wait for a pullback, or you’ll likely be part of a pullback.  That said, the run does not appear to be over as long as the Federal Reserve is going to be cutting rates.  When they STOP cutting and long rates start rising significantly, we’ll need to close the trade and keep core gold holdings only.  

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

Market timing the gold ETF (GLD). Bull run intact.

Bull run intact, but only a buy on dips.

4. Interest Rate Market Timing (10 Year Treasury Yield; TNX, TLT, IEF):

The 10 Year Treasury Yield is still crashing, down 8.0 basis points just for Monday, which is a very bad sign for the stock market, and a very good sign for gold/gold stocks.  I exited TLT early, but did so knowing I still had exposure to long municipal bonds and gold/gold stocks as hedges.

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):

Market timing the US 10 Year Treasury Yield (TNX, TYX, TLT, IEF). Rates crashing still.

Rates crashing to the prior lows.

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 BUYS and SELLS in as timely a way as possible 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.  The stock signal is based on small caps, as they often lead the market down.

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!)  These are the targets: 13.31, 14.04-14.08, 15.04, the “fulcrum” range = [15.94-15.95 to 16.09], 17.06, 17.27, and 17.89.  The bonus target #8 is [12.-17-12.37].  The Bears have 8 of 8 targets at a VIX of 20.52 (Monday, 2:39 pm ET).   I consider the “fulcrum” the key decision point that turns the market from Bearish to Bullish, when the VIX falls below that entire fulcrum range.

The ‘Bull Nirvana Target’ is our V*IX # of 2018: 13.31.”  (That is target #7 for the Bulls.) 

Gold Signal RED  for a further U.S. stock market rally with a BULLISH Gold Trend.   What gold does mostly as I’ve written HERE is follow real interest rates. 

From before: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise, it means the market believes real rates will  fall, which in the current context means the global economy is slowing.  That will ultimately hurt U.S. stocks. 

Rate Signal RED for a further stock market rally with a BEARISH 10 Year Yield Trend.

For Reference: “Rates usually RISE slowly in a strong recovery and the stock market rally continues as they rise, as I’ve repeated multiple times on social media and here. Empirically though, rates that are “lower” (than 3.11%) and are NOT rising rapidly have allowed the market to climb back above the prior all time high (ATH).”

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”   It is at 54.81 at 8-12-19 1:50 pm ET.  It closed at 54.50 last week after a bounce off the May low. WTI Oil is still below its 50 and 200 day moving average.  Minus a war with Iran or other disruptions, oil will move with the prospects of the global economy (Trump hates wars as he sees them as wasteful and doesn’t like the bloodshed either.  He’s right on those points!)

Just a reminder (not a current problem): If TNX bounces too quickly and too high, this will give rise to Rate Shock III… As said before: “Watch the rate at which TNX climbs if the current trend reverses.  If it shoots up very fast, stocks will correct.”  In the Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.  That’s what I called ‘Rate Shock.'”  The period of rising rates in early October I called #RateShockII.

The risk lately has been “Negative Rate Shocks.”  (Not negative rates in the U.S. yet!  “Negative” refers to the direction of the shock.)  First we had “Negative Rate Shock I” in December 2018 (because rates FELL while the Fed raised the Fed Funds rate 0.25% in mid-December, in what was perceived as a policy error),  “Negative Rate Shock II” in May, and “Negative Rate Shock III” in August.

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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, contact me.  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.

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 or bought, 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 IWM and GLD charts for now as reference points only; they have historical value for us from the post-2016 election period.

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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 7-26-2019 Close: “A Warning About the Fed. And I Answer: ‘What Do You Do when the Market Keeps Going Higher?’ Gold Still Bullish. Fed Cutting 0.25% Wednesday.”

A Market Timing Report based on the 07-26-2019 Close, published Saturday, July 27th, 2019…

I deliver focused comments on market timing once a week.  These are supplemented with daily “Tweets/StockTwits” (see links below) and comments in the “markettiming” room on StockTwits.

I provide quite a bit of intraweek commentary, and if you don’t see it, you will miss out on quite a bit of context, so please click on the social media links below and have a read…  Thank you as always for being loyal readers and interacting on social media with your questions and comments! 

1.  SP500 Index Market Timing (S&P 500 Index®; SPY, SPX):

Earnings reports are in for 44% of the SP500 Index.  Per FactSet, if earnings continue to be negative for the index, though only by a couple of percent (see below), this will be the second of two quarters said to be negative for earnings.  Another firm whose data I review says the earnings numbers are slightly positive (about +2%; that was on Monday, but FactSet was still reporting negative earnings growth).

Regardless, earnings are about flat, and the market appears to be discounting improving comparisons next year, which you can see below are much stronger.  Will those numbers be brought down?  That is the question!  Whether ’tis nobler to pursue a rising market despite the slings and arrows of lower earnings fortunes, or by a sleep to say this ends in heartache and the thousand natural shocks that markets are heir to?  That’s obviously what Shakespeare said about investing in an ever rising Bull market in the midst of multiple market risks!  😉

Sentiment has been the real guide to this market in my view.  Review that below.  Astoundingly, sentiment says we are nowhere near a top!  And that is why I added a bit of exposure even though the market is a bit stretched here on the new breakout to another all time high this week.  Individual investors, who are the best guide in my view, are still very skeptical of this rally.  The flow stats on investments in bonds vs. stocks are heavily skewed to bonds still despite ever lower rates.   That has worked out well in fact.  Lower rates and higher stocks.  Higher gold too by the way, because the endpoint of this is a disaster for fiat currencies.  I’ll say more about adding exposure as a market goes up, a bit later, but….

Let’s next check my “Bull Market Health Score”…

Are the Bulls serious?

What would satisfy me that the Bulls are serious about this advance?

Let’s check the list once again… The Score this week?  Bulls 2.5/Bears 2.5.  Last week it was Bulls 0.5/Bears 4.5.  Last week I erroneously said the score was neutral and no one noticed?  It was BEARISH after a minor dip off the 7-15 top.  This week we have a NEUTRAL score with a new all time high.  That means the new high is suspect.  The challenge to that statement would be that split sentiment (similar numbers of Bulls and Bears) has carried this market higher and higher and higher…  Based on the numbers below I could have foregone the last add on Friday, which I kept small.  I’ll comment further on adding to breakouts after we go over these numbers….

For each checklist item below, I give you the points scored as Bullish or Bearish. 

1. New high.  Bulls 1.0 point. The market is stretched to the top of the channel I pointed out last week (yellow lines in the chart below), but despite that, we have a new high.  The Bulls win this point!

2. VIX below the “Bull Nirvana Number” AND my bonus number?  Bulls 1 point.  Yes, but barely below point #8 (0.01 below the 8th Bull point).  The VIX Game Score as I call it is Bulls 8/Bears 0 as of the close Friday. Of course, being near the lows of the past two years may be a problem.  Even lower lows need to be achieved, or we’ll see a big summer spike in VIX.  I’ve grown to dislike summers for this reason.  😉  Usually between June and October, we see some turbulence.  The Bulls don’t have to be finished here, but they may be.  There has been a steady fall in the VIX from the lower VIX high achieved on June 3rd.   We are past the easy part of the Bull trade now.  

3. AD % Line (proprietary stat; see base of report about this): Bulls 0.5 point.  The close was 16,583 vs. 16, 511 last Friday.  The 6-20-19 high at a peak in SPX was 16,517, so this close was above there.  The 7-15 SPX high had an AD % of 16,615. which would be the next Bull target.  I withheld 0.5 points from the Bulls because the AD % did not go to a new high with the price of SPX.  That’s what is called a negative divergence, but so far, I’d say it’s not lethal.

4. Volume: Bears 1 point.  Volume went down vs. the day before, not up on the breakout.  Negative.   Look at the breakout volume on 6-20-19 for comparison.  THAT is what you want to see.

5. The “U.S. Index Matrix Signal” as I call it:  Bears 1 point.  The small caps and midcaps are both below their May highs.  That’s does not show broad market strength.  On social media, you’ll see me say “The U.S. Index Matrix shows strong buying.”  That means the small to mid caps are participating as they should, not following tentatively or even retreating.

I cannot vouch for the world recovering in a more robust way.  The numbers have not supported that.  U.S. GDP reported on Friday was goosed above 2% by government spending.  The SAAR GDP came in at 2.1% and the Year/Year GDP came in at 2.3%.  You can find a link to the Y/Y Chart HEREI wonder if Trump is using ammunition too early prior to the 2020 election.

Let’s check in on the context around the price action of the market by looking at the current RISKS…

Earnings Risk: what is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 7-26-19 (details HERE)…  The last numbers for Q2 are numbers for the current reported earnings from 44% of SP500 Index companies to date.  The arrows “—>” indicate 3 weeks of of omitted data in order to compress the data.  

For Q2 2019, analysts are projecting earnings growth of 0.1%  —> -1.3% ->  —> -2.1%  —> -2.6% -> -2.6% -> -3.0% -> -1.9% -> -2.6%

and revenue growth of 4.6%  —> 4.3%  —> 4.1%  —> 3.8% -> 3.8% -> 3.7% -> 3.8% ->4.0%

For Q3 2019, analysts are projecting earnings growth of 1.8%  —> 0.8%  —> 0.3%  —> -0.5% -0.5% -> -0.8% -> -1.4% ->-1.9%

and revenue growth of 4.4%  —> 4.4%  —> 4.2% —> 3.8% -> 3.8% -> 3.3% -> 3.2% ->3.2%

For Q4 2019, analysts are projecting earnings growth of 8.1% —> 7.5%  —> 7.2%  —> 6.3% -> 6.3% -> 6.0% -> 5.4% ->4.9%

and revenue growth of 4.8%  —> 4.8%  —> 4.6%  —> 4.3% -> 4.3% -> 4.2% -> 4.0% ->4.0%

For CY 2019, analysts are projecting earnings growth of  3.4%  —> 3.2%  —> 2.7% -> 2.6% -> 2.4% -> 2.3% -> 1.7%

and revenue growth of 4.7%  —> 4.7%  —> 4.5% -> 4.4% -> 4.3% -> 4.4% ->4.4%

For Q1 2020, analysts are projecting earnings growth of 10.5% -> 10.7% -> 10.3 -> 9.9% -> 9.8% -> 9.5% ->9.2%

and revenue growth of 6.2% -> 6.1% -> 6.0% -> 5.8% -> 5.8% -> 5.9% ->5.9%

For Q2 2020, analysts are projecting earnings growth of 13.3% -> 13.3% -> 12.9% -> 13.2% -> 13.5% -> 12.0% ->12.6%

and revenue growth of 6.8% -> 6.8% -> 6.6% -> 6.6% -> 6.6% -> 6.7% ->6.6%

Conclusion: Earnings have been weak for the 2nd quarter in a row and are due to be negative for a third quarter.  The market is looking past this weakness to something better, based largely on a minimum of three cuts of 0.25% each from the Federal Reserve.  If the market does not get the three cuts, it will NOT be happy.

These low rates help fund the buybacks that continue by the way.  Companies wanting to goose their earnings and also able to borrow (not the new small caps for ex.) can simply buy back more of their stock.

Here’s a Brief Review of the Other Market Risks at Hand:

China Deal Risk: No important change.  A deal is still promised.  Yet Larry Kudlow, Trump’s economic advisor, says don’t count on a big deal anytime soon.  Meanwhile, the chief negotiators are flying to China this coming week.  I have an intuitively based suspicion.   I believe that President Xi of China has threatened some “Armageddon” level of retribution against Trump should he impose 25% tariffs on China on an additional $300 B of Chinese goods.   The 10% Xi tolerated, as he fought it by debasing the yuan.  The current 25% sanctions on 250 B of goods is hurting more.  Xi hurt American farmers by taking his grocery shopping list elsewhere in the world.  Trump says he could impose those additional sanctions, but it would be suicidal, so he won’t.

What could Xi do at an “Armageddon threat” level?  Some ideas would be to madly dump long dated U.S. Treasuries into the market.  This could be coordinated between China and Russia and perhaps some of the smaller players.  Same day, same time – SELL!  If they can create a panic Rate Shock as I’ve called the big moves, it could shake the equity market badly.

Xi could also block all future sales of certain U.S. companies in China.  He does not have to seize their assets, just shut them down.  Apple has too many employees there to be attacked in my view, but others do not.  An example?  He could simply shut down all Starbucks locations.  What does he care if there are U.S. coffee/tea shops in China?  They have their own competitors now who can hire the displaced workers.  These are just some of the disruptions that could be dreamed up beyond cyber warfare, election interference etc.

Who do you think the Chinese might attack in the 2020 election cycle?  Trump is my wild guess.  China and the Russians could work together on this to hammer Trump on social media, and even seek to change digital election results.  The Russians give the appearance of liking Trump over Clinton, but my guess is they’d feel better with Biden over Trump.  P.S. that is why Trump had better see the light and make sure there is a paper trail for ALL U.S. election results.  Someone is going to pay for the lack of such an audit method.

U.S. Iran War Risk: Quieter this week.  Iran was acting out but did not escalate this past week.  Maybe they were threatened more directly.  Previously a British flagged oil tanker with Swedish ownership was seized by Iran.  Prior to that, an Iranian vessel was seized by the UK for violating the ban on oil shipments to Syria. 

Mueller Report/Impeachment Risk: Mueller stood largely by his report, which did not exonerate the president, nor did he indict him, as he chose (though he did not have to) to follow the DOJ memo stating that a sitting President cannot be indicted.

The assertion by Fox hosts that it’s all a big hoax, which is Trump’s standard message, is wrong.  Don McGhan testified he was directly ordered by President Trump to have Attorney General Sessions fire Special Counsel Robert Mueller.  That is obstruction of justice.  That we knew before the hearing occurred.  Obstruction of justice does not require the act be successful.  Intent is required to convict, but can be inferred from a series of acts by the party in question that imply corrupt intent.

The statute on removal of a Special Counsel: “The regulations further state the special counsel could be removed only “for misconduct, dereliction of duty, incapacity, conflict of interest, or for other good cause, including violation of Departmental policies.” (Ref.)   Even the attempt to remove Mueller simply because he did not like being investigated for obstruction is obstruction of justice.  Realize that Republicans under Nixon did think obstruction of justice was grounds for impeachment and removal of a President.  Nixon did not burglarize the Watergate Hotel.  He tried to cover up Watergate.  In contrast, today’s Republicans in Congress are tolerant of the crime of obstruction of justice.  And even the Democrats are afraid of turning off the public by proceeding with impeachment.

Ethics Tangent of the Week: Parenthetically, the treatment of Mueller by the GOP Congressmen was inexcusable.  The man is a decorated Marine who saved fellow marines from being killed in Vietnam under harrowing circumstances noted HERE.  He saved them while under enemy fire.  That’s no video game we’re talking about.  He risked his life. 

Here is an excerpt:
In July 1968, he was sent to South Vietnam, where he served as a rifle platoon leader as a second lieutenant with Second Platoon, H Company, 2nd Battalion, 4th Marines, 3rd Marine Division.[12][26] On December 11, 1968, during an engagement in Operation Scotland II, he earned the Bronze Star with “V” device for combat valor for rescuing a wounded Marine under enemy fire during an ambush in which he saw half of his platoon become casualties.[27][28] In April 1969, he received an enemy gunshot wound in the thigh, recovered, and returned to lead his platoon until June 1969.[29] For his service in and during the Vietnam War, his military decorations and awards include: the Bronze Star Medal with Combat “V”, Purple Heart Medal, two Navy and Marine Corps Commendation Medals with Combat “V”, Combat Action Ribbon, National Defense Service Medal, Vietnam Service Medal with four service stars, Republic of Vietnam Gallantry Cross, Republic of Vietnam Campaign Medal, and Parachutist Badge.

To me?  Mueller is a man a courage vs. President Bone Spurs Trump.  No contest.  He also served as FBI Director for 13 years after many years serving as a U.S. prosecutor.  The first time he was approved by the Senate in a 98 to 0 vote.  The second time, President Obama asked him to serve for two additional years and he was confirmed 100 to 0.  Knowing all this about the man, I watched the GOP questioning with a high degree of revulsion.  His metal capacity?  Trump, the “stable genius” [his words], made fun of him, yet the man was clear when it counted and remember, testifying and answering rapidly read questions from angry people can be disorienting, even to the young.

Another point… Leadership at his level does not require as much “quick brainpower” as it does wisdom.  He provided that wisdom to his team of investigators, and I take this honorable man at his word that his conduct was nonpartisan.  He was not born yesterday, remember.  He has spent a lifetime avoiding partisanship in his public duties.  Hence the extension of his Directorship of the FBI under Obama even though he was a Republican with a 100 to 0 vote for confirmation.

One day our brains may be less quick.  Let’s hope those around us are not making fun of us with the grotesque disrespect shown to Director Mueller by most of the Republicans.  Not a political judgment here.  This is a judgment of deeply flawed character, and my judgment is “guilty”! 

END of Ethics Tangent  😉

Here’s the problem for the impeachment path.

1. If the Democrats could not impeach Trump based on the Mueller report, without additional evidence, why would they be moved to do it now?

2. The public is not behind impeachment, and that is the litmus test House Leader Pelosi is using to proceed more formally.

Yet the investigations will continue, and the risk, should McGahn be allowed to testify, may move to moderate.   If McGhan testifies, the public will believe him is my guess.  Then Trump will find the polls shifting against him, as they did as the case against Nixon was pursued over a period of time.  McGhan would be the John Dean of the Trump era.

From last week: Remember also that the Clinton Impeachment drawdown created a Mini Bear market from which there was a fairly rapid recovery even before his Senate trial.  It was a big buying opportunity in one of the biggest Bull markets of all time.   When did the SP500 Index peak in 1998 when Bill Clinton was headed to his impeachment?  July 17th.

More risks…

2020 Election Risk: No important change.  Probably the biggest risk to the markets and most Americans are oblivious to this from the markets’ point of view.  I’ll stand by this:  “The market will likely pull back at least 10-15% going into the election if the outcome is even unclear, meaning President Trump is NOT ahead by a wide margin (a likelihood, but not a certainty, depending on whether the Dems go for a “McGovern” candidate, as in Nixon-McGovern in 1972, a Democrat disaster.”

Deficit/Debt Threat: No important change.  I’ll leave this here as a monument to our monumental debt: “They all see the problem and do nothing about it.  They just keep spending.  As mentioned last week: Per the NY Times: “Within a decade, more than $900 billion in interest payments will be due annually, easily outpacing spending on myriad other programs.”  The 2018 defense budget was $800 B.  Medicare?  $582 B.  Think about that!  Trump and the GOP may be spending dollars meant for your future Medicare and Social Security today.”

Fed Rate Cut Risk: No important change.  We are due for a 0.25% cut for July. Keep reading though…my “Fed Warning” I put under the TNX section #4 below…

As said three weeks ago, “No cut [in July] would cause the market to dive.  A cut of just 0.25% could disappoint the market as well, although the majority would be fine as they expect that cut.”  The majority are still looking for July, Sept. and Dec. cuts per CME Group Only the minority expect other cuts thru April 2020.

As I said five weeks ago, the Fed members actually don’t believe three cuts are going to be needed, as summarized HEREThey need to shift this during this meeting or three cuts just are not as likely.  The market will not like that.

GDP Risk: GDP was reported as discussed above.  It was “good enough” for now, though slowing vs. the July 2018 peak in the Y/Y number at 3.2%.   It’s been downhill to the tune of 0.9 GDP points since then. 

What do you do if the market just keeps creeping higher and higher and higher?  To someone with mostly cash, this can be like a teacher scratching her nails on the blackboard.  You want it to stop and there is no telling when it will!  Another nails on blackboard experience to avoid is going down for several years and then “never” making a new high.  Ask the Japanese about that.

Are you aware that EWJ, the Japan ETF is now at levels seen in 1991?  That is 28 years with no capital appreciation of those shares.  Can you see why it’s necessary to manage risk?  It’s easy to say “You should be 100% invested in stocks, because look at what the market has done you fool!” (that message is easy to find on social media, disguised in certain ways) and yet, if you invest in that way at a top of the market as in 2007, and suffer a 55% drawdown (2009 low), you have to make back over 100% to get back to even.  And if it the situation becomes like Japan, you may retire and never see your money move to new highs again.

Say you are 61 now.  You’ll see why I picked that age in a moment.  The average age of death for U.S. males is 78.69 years.  I know, we all believe we’ll live longer than the stats.  Yet, the average 61 year old would be dead prior the market making a new high, if our market (may God forbid it!  ;))  turned into what the Japanese market has been like for 3 decades.

There is a balance to strike between losing opportunity and losing money.  Where that falls is up to you!  Just make a conscious decision about it.

The only thing to do to manage that “lost opportunity risk” is to add slowly as the market rises if it fails to correct substantially.  As said, it DID correct in May, and that was one place to add.   I’d do it slowly in steps at this point, and leave some cash regardless unless you find specific investable stocks/other opportunities like gold.  Betting that interest rates will go SUBSTANTIALLY lower in the U.S. is now a tougher call than it was that rates would fall from 3.25% to “somewhere significantly lower.”  So Treasuries could bite us on the you-know-what.  The recovery cannot continue for too long until the Fed has to raise rates to control/prevent inflation moving above their 2% PCE Inflation Index target.  At that point, Treasuries won’t be doing well unless stocks are selling off in a big way.  Clearly that would also impact the gold/gold stock trade.  Be prepared to take profits in both.  Balance that with this thought: Taking profits too early is a mistake.  The Fed has to change direction again to void the bond/Treasury and gold trades in my view.  I’ll be patient, I promise!

As said, the time to “add more” is after pullbacks such as the one we saw in May.  I felt I had enough exposure for “what was coming,” but I did edge up my exposure on the rally back during June and again in July with my last add on this breakout.  I also had bought at the 3-08 pullback, so I would have been buying the same price point had I added at the May low.

Now take a look at the SP500 chart.  The first is the SPY chart showing the long term upward channel.  Note that the lower line of the channel ignores the out-sized volatility in December.  Ignore it for now.  It does not really matter as we’re most focused on the top channel line….

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

Market timing the SP500 Index (SPY, SPX). New all time high with neutral Market Health Signal.

New all time high with neutral Market Health Signal.

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Negative.  Initially the reaction was positive on the 25th after the close, but things turned negative by the 26th when the China deal was brought back into question.  The last price bar is a Bearish engulfing signal vs. the price range of the prior two days.  That means there was an attempt to attain a higher high that failed and it closed below the range of the prior two days AND on high volume by the way.  It looks like a reversal until proven otherwise (new high). 

Bank of America (BAC) Market Timing Signal:  Neutral.  Re-challenging the May high is not good enough.  And why is it rallying on supposedly a Fed that is now in a rate cutting cycle?  Hmmmm….  Someone is wrong!

Rates have gone nowhere since June 3rd, but one would think that if the Fed is lowering rates three times, TNX would fall further and drag down the banks or at least keep them from going very far.

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 34,055 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.

Join the Conversation in the StockTwits “MarketTiming” Room

Now let’s go on to review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of  just -0.28% vs. +7.29% the prior week.  That spread has been flattish for weeks! 

As I’ve said: “At the same time, we have not likely seen the ultimate top of this Bull market, at least for the large caps, because sentiment is just not positive enough.”  Sentiment is not high enough to say that this move up is finished.  The small and midcaps MUST now come along or this rally will fail.  Sentiment says the large caps, at least, are not at a top yet. 

Bulls Neutrals Bears
35.93% 35.43% 28.64%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Discussed above.  Not good enough and higher volatility, so be careful unless you know your companies inside and out.  The small cap index is not where the action is.  If it can exceed the May high, I’ll be impressed!

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

Market timing the U.S Small Cap Index (IWM, RUT). Small caps not coming along very well.

Weak still vs. large caps.

 3. Gold Market Timing (GLD): Still a Bull.  Add on dips.  The ascending triangle is Bullish and SHOULD lead to an upside resolution.  Buyers came in on the last attempt of a breakout and then sellers matched them the next day.  Gold is waiting to SEE what the Fed will do.  If the Fed cuts and does not balk on further cuts with questionable wording, gold will like it and stocks will too. 

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

Market timing the gold ETF (GLD). Failed breakout, but ascending triangle now, so Bullish still.

Ascending triangle is Bullish.

4. Interest Rate Market Timing:  The 10 Year Yield has moved sideways and closed Friday at the June 3rd close.  Same number!  The Fed will cut 0.25% this week, but no more, as GDP is good enough.  Again, if they hint at “one and done,” you’ll see selling of EVERYTHING but dollars.  Bonds, gold, and stocks will drop like rocks!  But if they do the opposite, and hint at more cuts in 2019, you’ll see the opposite.  I believe Powell will “behave” as he’s clearly been whipped into line by Trump now.  You could see the fear on his face in prior meetings when Trump’s attitude toward him and the Fed was raised.  It is not a great precedent by the way. 

I changed the trend signal to NEUTRAL below.  We’ve formed the kind of bottoming formation we saw back in January through March.  It is not impossible for rates to rise from here (see “one and done scenario” above), but after the Jan-Mar. period, TNX fell to new lows.  If Powell keeps to what the bond market wants, rates will drop to new lows off the current base.

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):

Market timing the US 10 Year Treasury Yield (TNX, TYX, TLT, IEF). Rates sideways since 6-03-19.

Rates sideways since 6-03-19.

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 BUYS and SELLS in as timely a way as possible (close to real time as much as possible) 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 NEUTRAL for a further U.S. stock market rally with a Bullish SP500 Index trend.  The stock signal is based on small caps, as they often lead the market down.  The weakness of small caps keeps me at neutral. 

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!) See above for the close this week and other comments.  These are the targets: 13.31, 14.04-14.08, 15.04, the “fulcrum” range = [15.94-15.95 to 16.09], 17.06, 17.27, and 17.89.  The bonus target #8 is [12.-17-12.37].  The Bulls have 8 of 8 targets this week at a 12.16 VIX close.   I consider the “fulcrum” the key decision point that turns the market from Bearish to Bullish, when the VIX falls below that entire fulcrum range.

The ‘Bull Nirvana Target’ is our V*IX # of 2018: 13.31.”  (That is target #7 for the Bulls.) 

Gold Signal RED  for a further U.S. stock market rally with a BULLISH Gold Trend.   What gold does mostly as I’ve written HERE is follow real interest rates. 

From before: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise, it means the market believes real rates will  fall, which in the current context means the global economy is slowing.  That will ultimately hurt U.S. stocks. 

Rate Signal RED for a further stock market rally with a NEUTRAL 10 Year Yield Trend.  I explained why I’m neutral above (7-26-19 post).

For Reference: “Rates usually RISE slowly in a strong recovery and the stock market rally continues as they rise, as I’ve repeated multiple times on social media and here. Empirically though, rates that are “lower” (than 3.11%) and are NOT rising rapidly have allowed the market to climb back above the prior all time high (ATH).”  Rates are bouncing in a downtrend until proven otherwise.

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”  WTI  had bounced, but has started weakening again.  It closed at 56.20 vs. 55.76 last week and is still rolling over.  At least that’s what it looks like now.  There’s a lower high below both 50 and 200 day mav’s.   We now have another slightly lower low.

For 3 Weeks Now – just a reminder – I don’t think this is the path from here: If the bounce in TNX continues too quickly and too high, this will give rise to Rate Shock III… As said before: “Watch the rate at which TNX climbs if the current trend reverses.  If it shoots up very fast, stocks will correct.”  In the Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.  That’s what I called ‘Rate Shock.'”  The period of rising rates in early October I called #RateShockII.  The risk lately has been the “Negative Rate Shock I” we saw in May.

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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, contact me.  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.

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 or bought, 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 IWM and GLD charts for now as reference points only; they have historical value for us from the post-2016 election period.

Copyright © 2019 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 7-19-2019 Close: “My ‘Bull Market Health Score’ Dropped. Was that a Major Top for Large Cap Stocks? Gold Investors Excited. Yield Bounce Fizzles. Fed Cutting Soon.”

A Market Timing Report based on the 07-19-2019 Close, published Saturday, July 20th, 2019…

I deliver focused comments on market timing once a week.  These are supplemented with daily “Tweets/StockTwits” (see links below) and comments in the “markettiming” room on StockTwits.

I provide quite a bit of intraweek commentary, and if you don’t see it, you will miss out on quite a bit of context, so please click on the social media links below and have a read…  Thank you as always for being loyal readers and interacting on social media with your questions and comments! 

1.  SP500 Index Market Timing (S&P 500 Index®; SPY, SPX):

Earnings reports started to pour in this week, and yet the markets were down across the board.  Yes, that means large, mid and small caps.

Microsoft reported on Thursday, and although it beat on both earnings and revenues, the stock was distributed.  What’s that mean?  There were lots of buyers, but also lots of sellers, which is something that can happen at a market top.  Since Microsoft (MSFT) is leading the market, this market may be about to move into a correction of 5-15% as I’ve defined it (about 1/3 of the way down) under my New Rules.  Let’s next check my “Bull Market Health Score”…

Are the Bulls serious?

What would satisfy me that the Bulls are serious about this advance?

Let’s check the list once again… The Score this week?  Bulls 0.5/Bears 4.5.  Bearish Score at new highs!  Last week it was Bulls 2.5/Bears 2.5.  For each checklist item below, I give you the points scored as Bullish or Bearish. 

1. New high.  Bulls 0.5 point.  There was a new high on Monday, but the close was negative for the week.  Only if SPX falls below both of the 2018 and 2019 highs, will I move to a full Bear point, but the SP500 did come off the top of a big channel (shown via yellow lines on SPY chart below).  SPX closed below the 7-3 high, which is negative, as that was the last breakout target.  The score for the Bulls of 1/2 point is based on large caps only however.  More on that below!

2. VIX below the “Bull Nirvana Number” AND my bonus number?  Bears 1.  Why?  Because the VIX Game Score has moved to Bulls 5/Bears 3, which is a backup.  The lowest close we’ve seen was 12.39, just 0.02 points above the TOP end of my 8th Bull VIX Target.  Not good enough.  Still, we are still below my “fulcrum” number (explained at base of report).

3. AD % Line (proprietary stat; see base of report about this): Bears 1 point.  The close was 16.511 vs. 16, 577 last Friday.  The 6-20-19 high at a peak in SPX was 16,517, so this close was below there.  Negative.  Next Bear target is 16,471.

4. Volume: Bears 1 point.  Volume went UP on Friday when price went DOWN.  Bearish.

5. The “U.S. Index Matrix Signal” as I call it:  Bears 1 point.  The small caps and midcaps have both rolled over from lower highs.  Bearish.

Why might this lead to a full correction at a minimum if not a Mini Bear market?  First, I favor a correction as being more probable, because even Bearish economic forecasters I follow don’t see a recession coming, just an earnings and GDP slowing.  This move down is likely, for this reason, to look like the 2015 and 2016 corrections of 12.55% and 15.21% from the 2015 top, respectively.  Technically, anything over a 15% correction would be a Mini Bear, but it’s too little to quibble about.  An impeachment could cause more damage as I cover below.  I don’t consider it likely at this point.   

Let’s check in on the context around the price action of the market by looking at the current RISKS…

Earnings Risk: what is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 7-19-19 (details HERE)…  The last numbers for Q2 are numbers for the current reported earnings from 16% of SP500 Index companies to date.  The arrows “—>” indicate 3 weeks of of omitted data in order to compress the data.  

For Q2 2019, analysts are projecting earnings growth of 0.1%  —> -1.3%  —> -2.1%  —> -2.6% -> -2.6% -> -3.0% -> -1.9%

and revenue growth of 4.6% -> 4.2% -> 4.4% -> 4.3% -> 4.3% -> 4.3% ->4.2% -> 4.1% -> 4.1% -> 4.0% -> 3.9% -> 3.9% -> 3.8% -> 3.8% -> 3.7% -> 3.8%

For Q3 2019, analysts are projecting earnings growth of 1.8%  —> 0.8%  —> 0.3%  —> -0.5% -0.5% -> -0.8% -> -1.4%

and revenue growth of 4.4%  —> 4.4%  —> 4.2% —> 3.8% -> 3.8% -> 3.3% -> 3.2%

For Q4 2019, analysts are projecting earnings growth of 8.1% —> 7.5%  —> 7.2%  —> 6.3% -> 6.3% -> 6.0% -> 5.4%

and revenue growth of 4.8%  —> 4.8%  —> 4.6%  —> 4.3% -> 4.3% -> 4.2% -> 4.0%

For CY 2019, analysts are projecting earnings growth of  3.4%  —> 3.2%  —> 2.7% -> 2.6% -> 2.4% -> 2.3%

and revenue growth of 4.7%  —> 4.7%  —> 4.5% -> 4.4% -> 4.3% -> 4.4%

For Q1 2020, analysts are projecting earnings growth of 10.5% -> 10.7% -> 10.3 -> 9.9% -> 9.8% -> 9.5%

and revenue growth of 6.2% -> 6.1% -> 6.0% -> 5.8% -> 5.8% -> 5.9%

For Q2 2020, analysts are projecting earnings growth of 13.3% -> 13.3% -> 12.9% -> 13.2% -> 13.5% -> 12.0%

and revenue growth of 6.8% -> 6.8% -> 6.6% -> 6.6% -> 6.6% -> 6.7%

Here’s a Brief Review of the Other Market Risks at Hand:

China Deal Risk: No important change.  Trump likes to keep saying “Mnuchin just called XYZ in China,” but the impact on the market of those statements has fallen to near zero.  The market wants a deal now, not promises of one. 

U.S. Iran War Risk: Less stable.  A British flagged oil tanker with Swedish ownership was seized by Iran.  They are talking apparently.“Our priority continues to be to find a way to de-escalate the situation,” British Foreign Secretary Jeremy Hunt said per BBCPrior to that, an Iranian vessel was seized by the UK for violating the ban on oil shipments to Syria. 

Mueller Report/Impeachment Risk: No important change but “Mueller Time” is July 24th, having been delayed one week.   Mark your calendar for market risk on that day.  Let’s hope one day the screaming on CNN, Fox News, and MSNBC can end one day.  Don’t hold your breath too long though!  The best they can hope for in my view is Mueller makes it clear that Congress has enough to push forward with their own investigation.  He is NOT going to state any new conclusions.  He has said very clearly, it’s Congress’ job to impeach the President if they so choose, because DOJ rules do not allow him to charge a sitting President with a crime.   When Trump leaves office SDNY could go after the President, which gives him plenty of incentive to remain in office and allow the statue of limitations clock to run out. 

Remember also that the Clinton Impeachment drawdown created a Mini Bear market from which there was a fairly rapid recovery even before his Senate trial.  It was a big buying opportunity in one of the biggest Bull markets of all time.  If the Mueller testimony goes South on Weds. there could be trouble, but I doubt he’ll give the Democrats too much help beyond his report as I’ve said.

When did the SP500 Index peak in 1998 when Bill Clinton was headed to his impeachment?  July 17th.  This year?  On July 15th the all time high (ATH) of SPX was set at 3017.80.  We cannot count out the Bulls quite yet, but the challenge level has risen. 

Tangent on Ethics:  One other thing… In regard to Trump’s involvement in violating campaign finance laws as investigated by the FBI/SDNY, the FBI determined he was very likely involved in the calls per the phone logs when the Trump Organization payments to porn star Stormy Daniels were being set up by negotiations involving Trump, Hope Hicks, Cohen, the National Enquirer, and the lawyer for Daniels (Clifford is her real name).  

Why were she and Trump not charged?  One less biased prosecutor I heard said it’s likely due to the inability to prove intent.  If she did not know the laws, oddly enough, the law says you cannot convict her of violating the campaign finance laws.  Funny isn’t it?  They don’t seem to allow that out for robbing a bank.  “Oh, I thought I was just taking money from the bank that I would return later!”  😉

At any rate, this proves Trump very likely broke the law with what I’d guess is about a 99.99% probability despite the absence of wire taps.  Remember that.  In addition, he has lawyers all around him to ask about the law, and he still broke it.  Put 2 and 2 together.  I would guess he did have intent, whether the FBI can prove it or not.  Yes, I do care that we have a President that follows the law.

END of Tangent on Ethics!

More risks…

2020 Election Risk: No important change.  Probably the biggest risk to the markets and most Americans are oblivious to this from the markets’ point of view.  I’ll stand by this:  “The market will likely pull back at least 10-15% going into the election if the outcome is even unclear, meaning President Trump is NOT ahead by a wide margin (a likelihood, but not a certainty, depending on whether the Dems go for a “McGovern” candidate, as in Nixon-McGovern in 1972, a Democrat disaster.”

Deficit/Debt Threat: No important change.  They all see the problem and do nothing about it.  They just keep spending.  As mentioned last week: Per the NY Times: “Within a decade, more than $900 billion in interest payments will be due annually, easily outpacing spending on myriad other programs.”  The 2018 defense budget was $800 B.  Medicare?  $582 B.  Think about that!  Trump and the GOP may be spending dollars meant for your future Medicare and Social Security today.

Fed Rate Cut Risk: No important change.  We are back to a 0.25% cut for July. 

As said two weeks ago, “No cut [in July] would cause the market to dive.  A cut of just 0.25% could disappoint the market as well, although the majority would be fine as they expect that cut.”  The majority are still looking for July, Sept. and Dec. cuts per CME Group Only the minority expect other cuts thru April 2020.

As I said four weeks ago, the Fed members actually don’t believe three cuts are going to be needed, as summarized HERE

GDP Risk: This could help the Bulls via more Fed rate cuts, but eventually it will backfire should we slip into a recession.  Not in the near term, but eventually.  GDP will be reported on July 26th prior to the Federal Reserve FOMC meeting.  

Now take a look at the SP500 chart.  The first is the SPY chart showing the long term upward channel.  Note that the lower line of the channel ignores the out-sized volatility in December.  Ignore it for now.  It does not really matter as we’re most focused on the top channel line….

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

SPY market timing chart. Note the channel.

Note the up channel (yellow lines).

And now the SP500 Index as the SPX:

NOTE: It’s the 7-19-2019 Close NOT the 7-12-2019 Close despite the label…

Market timng the SP500 Index. SPX. Near a top?

Coming off a top?

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Positive, but pausing before rising above the Dec. 3, 2018 high, a level reached just before the market FELL in a big way.  Earnings out July 25th.

Bank of America (BAC) Market Timing Signal:  Neutral.  No change from last week.  “This could be a head and shoulders formation (with subsequent failure to make a new high) unless rates keep climbing.”

Rates have been in a holding pattern since June 17th, but one would think that if the Fed is lowering rates 3 times, TNX will fall further and drag down the banks or at least keep them from going very far.  Earnings for BAC were out this week and there has been no breakout response thus far.

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 34,055 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.

Join the Conversation in the StockTwits “MarketTiming” Room

Now let’s go on to review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of  just +7.29% vs. +6.1 the prior week.   That’s still not that Bullish.  Recent tops have been 20ish, which themselves are not that extreme. 

As I’ve said: “At the same time, we have not likely seen the ultimate top of this Bull market, at least for the large caps, because sentiment is just not positive enough.”  Sentiment is not high enough to say that this move up is finished.  This conflicts with the idea that we’re moving into a correction already, even if we only see one more marginal new ATH.  

Bulls Neutrals Bears
35.93% 35.43% 28.64%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Discussed above.  Look at the breakdown in the chart…

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

Market timing the U.S Small Cap Index (IWM, RUT). Small caps failing again?

Small caps rolling over again?

 3. Gold Market Timing (GLD): Still a Bull despite being overbought short term, which is why it pulled back a bit.  I gave advice to a follower on StockTwits on how to trade around this IF you choose to: HERE.

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

Market timing the gold ETF (GLD). Gold is still a Bull, just stretched.

Still a Bull, just stretched.

4. Interest Rate Market Timing:  The rate bounce was weak.  If the Federal Reserve is in fact lowering rates 3 times, there should be more profits ahead in TLT, gold, and gold stocks.  The market is still about 40% UNconvinced that there will be three rate cuts in 2019.

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):

Market timing the US 10 Year Treasury Yield (TNX, TYX, TLT, IEF). Weak bounce!

Weak bounce. More downside for rates, upside for Treasuries.

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 BUYS and SELLS in as timely a way as possible (close to real time as much as possible) 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 NEUTRAL for a further U.S. stock market rally with a Bullish SP500 Index trend.  The stock signal is based on small caps, as they often lead the market down.  The weakness of small caps keeps me at neutral. 

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!) See above for the close this week and other comments.  These are the targets: 13.31, 14.04-14.08, 15.04, the “fulcrum” range = [15.94-15.95 to 16.09], 17.06, 17.27, and 17.89.  The bonus target #8 is [12.-17-12.37].  The Bulls have 5 of 8 targets this week at a 14.45 VIX close.   I consider the “fulcrum” the key decision point that turns the market from Bearish to Bullish, when the VIX falls below that entire fulcrum range.

The ‘Bull Nirvana Target’ is our V*IX # of 2018: 13.31.”  (That is target #7 for the Bulls.) 

Gold Signal RED  for a further U.S. stock market rally with a BULLISH Gold Trend.   What gold does mostly as I’ve written HERE is follow real interest rates. 

From before: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise, it means the market believes real rates will  fall, which in the current context means the global economy is slowing.  That will ultimately hurt U.S. stocks. 

Rate Signal RED for a further stock market rally with a Bearish 10 Year Yield Trend.  For Reference: “Rates usually RISE slowly in a strong recovery and the stock market rally continues as they rise, as I’ve repeated multiple times on social media and here. Empirically though, rates that are “lower” (than 3.11%) and are NOT rising rapidly have allowed the market to climb back above the prior all time high (ATH).”  Rates are bouncing in a downtrend until proven otherwise.

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”  WTI  had bounced, but has started weakening again.  It closed at 55.76 vs. 60.21 last week and is rolling over.  There a a lower high below both 50 and 200 day mav’s.   We now have another lower low.

For 3 Weeks Now – just a reminder – I don’t think this is the path from here: If the bounce in TNX continues too quickly and too high, this will give rise to Rate Shock III… As said before: “Watch the rate at which TNX climbs if the current trend reverses.  If it shoots up very fast, stocks will correct.”  In the Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.  That’s what I called ‘Rate Shock.'”  The period of rising rates in early October I called #RateShockII.  The risk lately has been the “Negative Rate Shock I” we saw in May.

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question or report a typo… 

Pay it forward 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, contact me.  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.

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 or bought, 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 IWM and GLD charts for now as reference points only; they have historical value for us from the post-2016 election period.

Copyright © 2019 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 7-12-2019 Close: “Large Caps Rise to New Highs. Small Caps Signal Possible Trouble Ahead. Gold Strong. Temporary Rate Bounce?”

A Market Timing Report based on the 07-12-2019 Close, published Saturday, July 13th, 2019…

I deliver focused comments on market timing once a week.  These are supplemented with daily “Tweets/StockTwits” (see links below) and comments in the “markettiming” room on StockTwits.

I provide quite a bit of intraweek commentary, and if you don’t see it, you will miss out on quite a bit of context, so please click on the social media links below and have a read…  Thank you as always for being loyal readers and interacting on social media with your questions and comments! 

1.  SP500 Index Market Timing (S&P 500 Index®; SPY, SPX):

Earnings start to flood in this week, starting with Citibank on Monday the 15th, and on the 16th with JPM, WFC, GS, etc.  In the meantime, large caps just rose to brand new all time highs (ATHs).

WARNING: Twitter is running its system in an autocratic and impersonal way, most likely AI driven, that can lead to sudden shutdowns based on false AI signals.  The President is right in my view about potential bias in their algorithms – and that’s coming from a diehard political independent who listens for solutions rather than “sides.”  Currently, any social media platform may lock your account and then not tell you when they will reinstate access.  I have already contacted my Florida legislators to encourage them to legislate a solution to this problem.  They have not properly self-regulated.  Please join the StockTwits list as well as the Twitter list (links below) to be sure to get my messages on an ongoing basis.  Systems fail at times and these random suspensions require a backup system for sure. 

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 34,055 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.

Join the Conversation in the StockTwits “MarketTiming” Room

Are the Bulls serious?

What would satisfy me that the Bulls are serious about this advance?

Let’s check the list once again… The Score this week?  Bull 2.5/Bears 2.5.  Neutral Score at new highs!  Last week it was Bulls 3/Bears 2.  That makes me suspicious of this breakout, but time will tell.  For each checklist item below, I give you the points scored as Bullish or Bearish. 

1. New high.  Bulls 1 point.  Based on large caps only however.  More below!

2. VIX below the “Bull Nirvana Number” AND my bonus number?  Bulls 0.5 point.  Why?  Because the VIX Game Score based on my 8 point system (see base of this report for the numbers) is Bulls 7/Bears 1, the same as last week with a VIX close on Friday of 12.39, just above point #8 for the Bulls.

3. AD % Line (proprietary stat; see base of report about this): Bulls 1 point.  New closing high. The close was 16, 577 vs, 16,571 last Friday.  The 6-20-19 high at a peak in SPX was 16,517.  The ATH was achieved on Weds. at 16,599.

4. Volume: Bears 1 point.  Tuesday was the first close over the prior high of June 21st after a retracement test of that initial breakout level.  Volume for the next three days above the breakout was weak.  The Bears win this point.

5. The “U.S. Index Matrix Signal” as I call it:  Bears 1 point.  The small caps are back BELOW the 6-20 high, so this is a clear Bear point.  The midcaps are doing a bit better, but still below the 4-24-19 S&P Midcap high of 1984.73.

Let’s check in on the context around the price action of the market by looking at the current RISKS…

Earnings Risk: what is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 7-12-19 (details HERE)…

There is a catch of course with earnings estimates, as I was considering privately last week.  The predicted earnings are only slightly negative at -3% now.  Companies often try to undershoot earnings in order to “positively surprise,” so FactSet now expects, based on the past 5 year average, a surprise increase in SPX earnings of 3.7%, the earnings growth corrected for the surprise would be a POSITIVE 0.7% per their math, meaning earnings could be marginally positive for Q2 once reported.  The data refers to Year over Year growth/decline. 

For Q2 2019, analysts are projecting earnings growth of 0.1% -> -0.4% -> -0.5% -> -0.6% -> -1.3% -> -1.7% -> -1.9% -> -2.1% -> -2.1% -> -2.3% -> -2.5% -> -2.6% -> -2.6% -> -2.6% -> -3.0%.

and revenue growth of 4.6% -> 4.2% -> 4.4% -> 4.3% -> 4.3% -> 4.3% ->4.2% -> 4.1% -> 4.1% -> 4.0% -> 3.9% -> 3.9% -> 3.8% -> 3.8% -> 3.7%.

For Q3 2019, analysts are projecting earnings growth of 1.8% -> 1.4% -> 1.3% -> 1.3% -> 0.8% -> 0.6% ->0.5% -> 0.3% -> 0.3% -> 0.2% -> 0.0% -> -0.3% -> -0.5% -0.5% -> -0.8%

and revenue growth of 4.4% -> 4.1% -> 4.4% -> 4.4% -> 4.4% -> 4.3% -> 4.3% -> 4.2% -> 4.2% -> 4.1% -> 4.0% -> 4.0%  -> 3.8% -> 3.8% -> 3.3%.

For Q4 2019, analysts are projecting earnings growth of 8.1% -> 8.3% -> 8.2% -> 8.1% -> 7.5% -> 7.4% ->7.3% -> 7.2% -> 7.2% -> 7.0% -> 6.8% -> 6.7% -> 6.3% -> 6.3% -> 6.0%,

and revenue growth of 4.8% -> 4.7% -> 4.7% -> 4.8% -> 4.8% -> 4.6% -> 4.7% -> 4.6% -> 4.6% -> 4.5% -> 4.5% -> 4.5% -> 4.3% -> 4.3% -> 4.2%.

For CY 2019, analysts are projecting earnings growth of 3.8% -> 3.4% -> 3.4% -> 3.6% ->  3.4% -> 3.3% -> 3.2% -> 3.2% -> 3.2% -> 3.1% -> 3.0% -> 2.8% -> 2.7% -> 2.6% -> 2.4%.

and revenue growth of 4.9% -> 4.6% -> 4.7% -> 4.7% -> 4.7% -> 4.7% -> 4.7% -> 4.7% -> 4.6% -> 4.5% -> 4.5% -> 4.5% -> 4.4% -> 4.3%.

For Q1 2020, analysts are projecting earnings growth of 10.5% -> 10.7% -> 10.3 -> 9.9% -> 9.8%.

and revenue growth of 6.2% -> 6.1% -> 6.0% -> 5.8% -> 5.8%.

For Q2 2020, analysts are projecting earnings growth of 12.9% -> 13.3% -> 13.3% -> 12.9% -> 13.2% -> 13.5%.

and revenue growth of 6.8% -> 6.8% -> 6.8% -> 6.6% -> 6.6% -> 6.6%.

Here’s a Brief Review of the Other Market Risks at Hand:

China Deal Risk: No important change.  Negotiation is happening we are told.  Meanwhile our markets head higher despite it all. 

U.S. Iran War Risk: No important change.  Trump supporters believe he is going to achieve peace with the terrorist leaders of Iran.  That would be nice.  An Iranian vessel was seized by the UK for violating the ban on oil shipments to Syria.  They are talking about this incident without further actions from Iran.  Maybe President Trump has them reconsidering their next hostile move. 

Mueller Report/Impeachment Risk: No important change but “Mueller Time” [WAS] THIS WEEK on Wednesday, July 17th [and is NOW delayed 1 week to July 24th (as of 7-15-19).   Mark your calendar for market risk on that day.  Just by repeating certain conclusions, he could influence public opinion against Trump.  That’s what the Democrats hope.

2020 Election Risk: No important change.  Probably the biggest risk to the markets and most Americans are oblivious to this from the markets’ point of view.  I’ll stand by this:  “The market will likely pull back at least 10-15% going into the election if the outcome is even unclear, meaning President Trump is NOT ahead by a wide margin (a likelihood, but not a certainty, depending on whether the Dems go for a “McGovern” candidate, as in Nixon-McGovern in 1972, a Democrat disaster.”

Deficit/Debt Threat: No important change.  Chair Powell discussed the debt as an issue that will tap out our system in the future.  It could be crippling to be paying more on our debt than we do on defense!  This has been building in the background, dollar by dollar – by BOTH irresponsible political parties.  This is a threat but won’t manifest until our interest rates climb and then it will put huge pressure on the U.S. economy and suppress corporate earnings through higher borrowing costs. Per the NY Times: “Within a decade, more than $900 billion in interest payments will be due annually, easily outpacing spending on myriad other programs.”  The 2018 defense budget was $800 B.  Medicare?  $582 B.  Think about that!

Fed Rate Cut Risk: No important change.  We are back to a 0.25% cut for July.  Without the 0.25% cut, the Fed’s credibility would likely be hurt, so they’ll do it unless GDP is overly strong vs. their long term view of the economy.  GDP will be reported on July 26th prior to the Federal Reserve FOMC meeting.   Mark that date on your calendar too!

From last week: “In my view, many investors are in LalaLand when it comes to rate cuts.  CME Group says 22.5% vs. 28.1% last week prior to Powell’s testimony this week believe the Federal Reserve will cut 0.50% in July.  The rest expect a cut of 0.25%.

As said last week, “No cut [in July] would cause the market to dive.  A cut of just 0.25% could disappoint the market as well, although the majority would be fine as they expect that cut.”  The majority are still looking for July, Sept. and Dec. cuts per CME.  Only the minority expect other cuts thru April 2020.

As I said three weeks ago, the Fed members actually don’t believe three cuts are going to be needed, as summarized HERE

Now take a look at the SP500 chart.  See how it’s rising in the up channel from 2017?  The orange lines are the 2017 up channel.  There’s plenty of room to the upside, if the Bulls want to bid up large caps further!

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

Market timing the SP500 Index (SPY, SPX). New highs, unconfirmed.

New highs unconfirmed by small caps.

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Positive.  Striking, because a breakout occurred even without a China resolution.  Volume was not great but that’s true for the entire market breakout.  Earnings are coming on July 25th (estimated date, so says Prof. Google). 

Bank of America (BAC) Market Timing Signal:  Neutral.  No change from last week.  “This could be a head and shoulders formation (with subsequent failure to make a new high) unless rates keep climbing.”

Now let’s go on to review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of  just +6.1 vs. -0.81% the prior week.   That’s still not very Bullish at all.

I said last week: “At the same time, we have not likely seen the ultimate top of this Bull market, at least for the large caps, because sentiment is just not positive enough.”  That was right…AGAIN…the market kept moving up. 

Bulls Neutrals Bears
33.61% 38.89% 27.50%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Discussed above, but I’ll add that the tops shown in the chart below are the LOWER highs in place.  Look at a longer term chart to see the prior ATH of 173.39.  The current target for the Bulls is that 156.22 number.  The failure there with large caps at new highs is a negative.  See the chart below…

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

Market timing the U.S Small Cap Index (IWM, RUT). Not good enough.

Not good enough!

 3. Gold Market Timing (GLD): Still a Bull.  If rates move up more by a significant amount, gold/gold stocks will not like it.

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

Market timing the gold ETF (GLD). Gold is a Bull.

Still a Bull.

4. Interest Rate Market Timing:  Rates have bounced…for now.  Gold, gold stocks, and bonds have fallen.  There could be more downside in this dip.  I will buy the dips for now.  I did on Friday (see above).  You can buy in stages.

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):

Market timing the US 10 Year Treasury Yield (TNX, TYX, TLT, IEF). Buying the dips.

Buy the dips in bonds/Treasuries (rips in rates).

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).

Parenthetically: As my long term followers realize, my main focus here is getting the major US stock market indexes right, as much as possible, (SPX, IWM) as well as gold (GLD) and interest rates (TNX using IEF, TLT, IIM -currently I own IIM and TLT and one other leveraged muni fund I would not recommend at this time), as well as individual munis bought long ago when rates were 4.5 to 5%.  Why use IIM of late vs. individual munis, which I also own?  I am not going to ever spend the time needed to evaluate lower quality munis, and I don’t buy high quality munis with returns as low as they are now.

In the realm of equity index exposure, I hold some IJH and other midcap exposure now (less, comparatively at the moment, due to the part of the cycle we’re in – late), but do not publish my reviews of the charts.  As it is, these posts take many hours to compile, so I must of course draw the line somewhere.  The same goes for international markets.  I have often shared my buys/sells on social media, but I don’t publish my research work other than what is presented there.  I have very little small cap exposure, mainly through individual speculative stocks.

In regard to stock picks, in my view, if someone does not have both a detailed fundamental analytical perspective AND a technical opinion on a stock, I cannot place high value on their opinion.  That is not to say big money cannot be made trading technically without any understanding of what a company does besides “they do cloud stuff and their earnings and revenues are growing.”

Unfortunately, the majority of the messaging on social media is at that level.  If you asked many investors about cloud companies in detail about the companies’ products, they would not have a clue.  If you do “have a clue,” great.  “Go there.”  Otherwise, you had better have a very proven and reliable sources, watch the charts, and watch your position sizes.

I do share certain individual stocks, as I have Apple, Microsoft, and Disney as examples, based on my own big picture view of the stocks and an analysis of the fundamentals.   Again, I am not an individual stock analyst as my major focus, and you should do your own homework on any individual stocks I recommend, regardless of the big picture I may share.  Some picks may be based in part on data from various sources I use, but for the big plays in dollar terms, I arrive at my conclusions independently.  I never depend on anyone else’s opinion where there is a bigger position involved.

In regard to the three stocks I mentioned specifically, I consider only Disney (DIS) to be a buy on pullbacks now – at least not without a good sized pullback for the other two.  I do not own Apple (AAPL) and would not recommend it currently, as they face too much China headwind and have decided they won’t share their unit sales for iPhone.  I find that close to dishonesty – maybe it would be kinder to call it “a lack of openness.”  I cannot own a stock when communications by the company are not open and honest.  Microsoft (MSFT) is still growing earnings and revenues, and I have exposure to it in one of my accounts, but I don’t consider it cheap.  It is too far ahead of the market at the current time to hold an out-sized position.  Owning some seems reasonable, and I do.

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

Stock Signal NEUTRAL for a further U.S. stock market rally with a Bullish SP500 Index trend.  The stock signal is based on small caps, as they often lead the market down.  The lack of progress small caps made (noted above) keeps me at neutral. 

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!) See above for the close this week and other comments.  These are the targets: 13.31, 14.04-14.08, 15.04, the “fulcrum” range = [15.94-15.95 to 16.09], 17.06, 17.27, and 17.89.  The bonus target #8 is [12.-17-12.37].  The Bulls have 7 of 8 targets this week at a 12.39 VIX close.   I consider the “fulcrum” the key decision point that turns the market from Bearish to Bullish, when the VIX falls below that entire fulcrum range.

The ‘Bull Nirvana Target’ is our V*IX # of 2018: 13.31.”  (That is target #7 for the Bulls.) 

Gold Signal RED  for a further U.S. stock market rally with a BULLISH Gold Trend.   What gold does mostly as I’ve written HERE is follow real interest rates. 

From before: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise, it means the market believes real rates will  fall, which in the current context means the global economy is slowing.  That will ultimately hurt U.S. stocks. 

Rate Signal RED for a further stock market rally with a Bearish 10 Year Yield Trend.  For Reference: “Rates usually RISE slowly in a strong recovery and the stock market rally continues as they rise, as I’ve repeated multiple times on social media and here. Empirically though, rates that are “lower” (than 3.11%) and are NOT rising rapidly have allowed the market to climb back above the prior all time high (ATH).”  Rates are bouncing in a downtrend until proven otherwise.

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”  WTI  had bounced, but has started weakening again.  It closed at 60.21 vs. 57.51 last week and still looks like it could be rolling over.  There a a lower high below both 50 and 200 day mav’s.   If that lower high is exceeded, expect a further rally. 

For Two Weeks Now: If the bounce in TNX continues too quickly and too high, this will give rise to Rate Shock III… As said before: “Watch the rate at which TNX climbs if the current trend reverses.  If it shoots up very fast, stocks will correct.”  In the Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.  That’s what I called ‘Rate Shock.'”  The period of rising rates in early October I called #RateShockII.  The risk lately has been the “Negative Rate Shock I” we saw in May.

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question or report a typo… 

Pay it forward 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, contact me.  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.

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 or bought, 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 IWM and GLD charts for now as reference points only; they have historical value for us from the post-2016 election period.

Copyright © 2019 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 7-05-2019 Close: “The Bulls Are Winning but Face Upcoming Bumps in the Road. Gold and Treasuries Dip On U.S. Jobs Bounce.”

A Market Timing Report based on the 07-05-2019 Close, published Saturday, July 6th, 2019…

I deliver focused comments on market timing once a week.  These are supplemented with daily “Tweets/StockTwits” (see links below) and comments in the “markettiming” room on StockTwits.

I provide quite a bit of intraweek commentary, and if you don’t see it, you will miss out on quite a bit of context, so please click on the social media links below and have a read…  Thank you as always for being loyal readers and interacting on social media with your questions and comments! 

1.  SP500 Index Market Timing (S&P 500 Index®; SPY, SPX):

We have new highs this week, so part of the answer to the next question, we already know…price is working for the Bulls, volume not so much, although it is summer, and there was the July 4th holiday this week.   At the same time, as you know from last week, earnings this season do NOT match the price of the SP500 Index.  They do not warrant a new high, yet investors are still buying as they are squeezed by the dovish comments of the Federal Reserve into the stock market to find a return and/or a dividend yield.

Remember that long-only funds have no place to go other than to rotate from one SP500 Index sector to another when their mandate is to be fully invested.  The question is “Do you want to be fully invested in front of a very weak earnings season?”  You have more flexibility than a mutual fund manager.  So far, being very long stocks has worked, as price has trumped any sense of logic in reference to earnings prospects, just as it did in the stock market leading up to the internet bubble, and just as it did in the housing market leading up to the housing bubble.  Eventually the last buyer arrives.

For the devout Bulls, I will share the sentiment numbers that say the top is not yet in.  Will it take another week to get there?  Months?  Or will the market go down in between by 15-25% as it did back in December (-20%), before reaching an even more remarkable all time high (ATH)?

Earnings don’t take off until the 15th with Citibank and the 16th with JPM, WFC, GS, etc.  Pepsi goes earlier on the 9th and there have been a few (net = weak) reports already.   But that gives the Bulls another week of potential gains until reality hits with the onslaught of earnings reports. 

Are the Bulls serious?

What would satisfy me that the Bulls are serious about this advance?

Let’s check the list once again… The Score this week?  Bull 3: Bears 2.  For each checklist item below, I give you the points scored as Bullish or Bearish.  The Bulls picked up a full point against the Bulls and shifted the score to Bullish.

1. New high.  Bulls 1 point.  We had a new ATH of 2995.84, and the price is back in the 2017 channel.  Obviously the up trend has been fully re-established for the SP500 Index of large caps.  We are above the May 1st high prior to the May decline of about 7.5%.  Even the most grumpy Bear would have to call a new ATH Bullish.  As you know, I’m an independent in both market and political terms!  My positioning is shared on social media usually the same day I change it. 

2. VIX below the “Bull Nirvana Number” AND my bonus number?  Bulls 0.5 point.  “Not quite” is the answer, because it should be below BOTH those VIX numbers at a new market ATH.   The Volatility Game Score as I call it is Bulls 7/Bears 1.  The close was 13.28, just below point #7 for the Bulls (numbers at the base of this report). 

3. AD % Line (proprietary stat; see base of report about this): Bulls 1 point.  New high. That is very positive for the Bulls, because it says the advance is not overly concentrated.  (That’s not to say that some stocks have been over-represented in the advance.) The close was 16,571 on Friday.  The 6-20-19 high at a peak in SPX was 16,517.

4. Volume: Bears 1 point.  SP500 Index volume was low on Friday, although it was a holiday.  I am not allowing for an excuse though for an all time high. It is subject to reversal without volume behind it. That UP volume must show up this coming week. 

5. The “U.S. Index Matrix Signal” as I call it:  Bulls 0.5 point.  The small caps are above the 6-20 high, so I’ll score that 0.5 points.  They must be above the May 1st high to score a full Bull point.  Some would argue a new ATH would be needed or at least a close over the Jan. 2018 high.  The small cap weakness is a cause for concern on the part of the Bulls.  In a strong economy, small caps are very strong, not lagging as they’ve been doing.   The same thing applies to midcaps.  Their lagging is a negative.

Let’s check in on the context around the price action of the market by looking at the current RISKS…

Earnings Risk: what is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 7-03-19 (details HERE)…

Here is the data updated for the last data point from this week.  There were very few changes vs. last week’s numbers  – analysts were off drinking and lighting fireworks.  😉  We are still looking at the 2nd and 3rd earnings seasons in a row with negative earnings growth…unless the numbers change and are better than expected. 

For Q2 2019, analysts are projecting earnings growth of 0.1% -> -0.4% -> -0.5% -> -0.6% -> -1.3% -> -1.7% -> -1.9% -> -2.1% -> -2.1% -> -2.3% -> -2.5% -> -2.6% -> -2.6% -> -2.6%.

and revenue growth of 4.6% -> 4.2% -> 4.4% -> 4.3% -> 4.3% -> 4.3% ->4.2% -> 4.1% -> 4.1% -> 4.0% -> 3.9% -> 3.9% -> 3.8% -> 3.8%.

For Q3 2019, analysts are projecting earnings growth of 1.8% -> 1.4% -> 1.3% -> 1.3% -> 0.8% -> 0.6% ->0.5% -> 0.3% -> 0.3% -> 0.2% -> 0.0% -> -0.3% -> -> -0.5% -0.5%.

and revenue growth of 4.4% -> 4.1% -> 4.4% -> 4.4% -> 4.4% -> 4.3% -> 4.3% -> 4.2% -> 4.2% -> 4.1% -> 4.0% -> 4.0%  -> 3.8% -> 3.8%.

For Q4 2019, analysts are projecting earnings growth of 8.1% -> 8.3% -> 8.2% -> 8.1% -> 7.5% -> 7.4% ->7.3% -> 7.2% -> 7.2% -> 7.0% -> 6.8% -> 6.7% -> 6.3% -> 6.3%.

and revenue growth of 4.8% -> 4.7% -> 4.7% -> 4.8% -> 4.8% -> 4.6% -> 4.7% -> 4.6% -> 4.6% -> 4.5% -> 4.5% -> 4.5% -> 4.3% -> 4.3%.

For CY 2019, analysts are projecting earnings growth of 3.8% -> 3.4% -> 3.4% -> 3.6% ->  3.4% -> 3.3% -> 3.2% -> 3.2% -> 3.2% -> 3.1% -> 3.0% -> 2.8% -> 2.7% -> 2.6%.

and revenue growth of 4.9% -> 4.6% -> 4.7% -> 4.7% -> 4.7% -> 4.7% -> 4.7% -> 4.7% -> 4.6% -> 4.5% -> 4.5% -> 4.5% -> 4.4%.

For Q1 2020, analysts are projecting earnings growth of 10.5% -> 10.7% -> 10.3 -> 9.9%.

and revenue growth of 6.2% -> 6.1% -> 6.0% -> 5.8%.

For Q2 2020, analysts are projecting earnings growth of 12.9% -> 13.3% -> 13.3% -> 12.9% -> 13.2%.

and revenue growth of 6.8% -> 6.8% -> 6.8% -> 6.6% -> 6.6%.

Here’s a Brief Review of the Other Market Risks at Hand:

China Deal Risk: Negotiation is happening we are told.  Meanwhile our markets head higher despite it all.  See last week’s post for further details (link at upper left).

U.S. Iran War Risk: Trump supporters believe he is going to achieve peace with the terrorist leaders of Iran.  That would be nice.  Meanwhile an Iranian vessel was seized by the UK for violating the ban on oil shipments to Syria.  Soon more sparks could fly. 

Mueller Report/Impeachment Risk: No change.  “Mueller Time” is Wednesday, July 17th.   Mark your calendar for market risk on that day.  Just by repeating certain conclusions, he could influence public opinion against Trump.  That’s what the Democrats hope. 

2020 Election Risk: No change.  Probably the biggest risk to the markets and most Americans are oblivious to this from the markets’ point of view.  I’ll stand by this:  The market will likely pull back at least 10-15% going into the election if the outcome is even unclear, meaning President Trump is NOT ahead by a wide margin (a likelihood, but not a certainty, depending on whether the Dems go for a “McGovern” candidate, as in Nixon-McGovern in 1972, a Democrat disaster.

Deficit/Debt Threat  No change.  Building in the background, dollar by dollar – by both irresponsible political parties.  This is a building threat but won’t manifest until our interest rates climb and then it will put huge pressure on the U.S. economy and suppress corporate earnings through higher borrowing costs.

Fed Rate Cut Risk: We are back to a 0.25% cut for July, because employment was stronger than expected.  Last week we had dovish Bullard saying 0.50% cut would be “excessive.”  Without the 0.25% cut, the Fed’s credibility would likely be hurt, so they’ll do it unless GDP is overly strong vs. their long term view of the economy.  GDP will be reported on July 26th prior to the Federal Reserve FOMC meeting.  

From last week: “In my view, many investors are in LalaLand when it comes to rat cuts.  CME Group says 28.1% still believe the Federal Reserve will cut 0.50% in July.  The rest expect a cut of 0.25%.  No cut would cause the market to dive.  A cut of just 0.25% could disappoint the market as well, although the majority would be fine as they expect that cut.”  Now 68% expect three cuts of 0.25% by December, the majority looking for July, Sept. and Dec. cuts per CME.  They don’t expect any other cuts all the way out thru April 2020.

As I said two weeks ago, the Fed members actually don’t believe three cuts are going to be needed, as summarized HERE

Now take a look at the SP500 chart.  The orange lines are the 2017 up channel.

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

Market timing the SP500 Index (SPY, SPX). New all time high.

New all time high and back in the 2017 up channel (orange lines).

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Negative. Failed a breakout above the 200 day moving average, which is not a magical number,  but is a place the market is pausing ahead of earnings estimated to be on 7-25.  The stock has not recovered half of the fall from the April 17th high yet.  Intel needs a China resolution to happen quickly, AND it needs the global economy to pick up soon. 

Bank of America (BAC) Market Timing Signal:  Neutral.  This could be a head and shoulders formation (with subsequent failure to make a new high) unless rates keep climbing based on stronger than expected economic data, as we saw with the strong jobs report on Friday.  That jobs number is why rates popped a full 9.5 basis points in one day, which is a big move.  It was above the average for the past 12 months as I reported on social media on Friday.

It’s good market timing practice to pay attention to highly volatile moves such as this interest rate move, meaning the move may not be over.  That rate move is also why gold and metal stocks sold off on Friday.  Higher rates mean higher real rates, even if temporary – a negative for gold.  Remember we’re SUPPOSED to be in a falling rate cycle with the Federal Reserve CUTTING rates!  So which is it?

Wouldn’t it be just super if the Bulls now shift their thesis to say, “The Federal Reserve will raise rates, because the economy is great and we’ll buy even more market exposure”?  They cannot have it both ways.  The Fed will NOT be cutting rates in a ramping U.S. economy.  We assume this Friday move was just a blip up in a downtrend in rates, which is why I suggested buying some gold GLD/gold stock GDX exposure (the latter riskier with more potential gain) on Friday if you had none.

Now let’s go on to review investor sentiment…

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Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of  just -0.81% vs. -2.46% the prior week.  Bulls and Bears seem to be locked in their views as the market rises! 

Short term, the position of that spread is not helpful.  There is room to convert more Bears to Neutrals or to Bulls and for the opposite. 

I said last week: “At the same time, we have not likely seen the ultimate top of this Bull market, at least for the large caps, because sentiment is just not positive enough.”  That was right…the market kept moving up. 

Bulls Neutrals Bears
29.59% 38.36% 32.05%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Discussed above. Study the chart…

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

Market timing the U.S Small Cap Index (IWM, RUT). Small caps make some progress, but still lagging.

Lagging large caps but making some progress. Will it hold?

 3. Gold Market Timing (GLD): Still a Bull.  See comments above please under BAC comments.  The next move up depends on interest rates heading lower.  That’s the Fed plan supposedly, so stick with the trade for now, perhaps setting a stop on profits IF you are willing to get back in quickly if proven wrong on an exit! 

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

Market timing the gold ETF (GLD). Pause in an uptrend...so far.

Pause or more? Depends on interest rates!

4. Interest Rate Market Timing: I warned last week: “This is a trade that could last just a few weeks or many months.  Why?  Because rates are very low and due to the current weakness globally.  As the world perks up eventually, so will interest rates, and both bonds and Treasuries will fall. “

This Friday rates shot up as said above and could go further still given the size of that move.  I’m not convinced the move is done, which is why I added short Treasury exposure on Friday, but not long maturity exposure (3 months vs. 10 years!).

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):

Market timing the US 10 Year Treasury Yield (TNX, TYX, TLT, IEF). Rates bounced this week.

A bounce of a day or more?

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 NEUTRAL for a further U.S. stock market rally with a Bullish SP500 Index trend.  The stock signal is based on small caps, as they often lead the market down.  The progress small caps made (noted above) moves me to neutral. 

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!) See above for the close this week and other comments.  These are the targets: 13.31, 14.04-14.08, 15.04, the “fulcrum” range = [15.94-15.95 to 16.09], 17.06, 17.27, and 17.89.  The bonus target #8 is [12.-17-12.37].  The Bulls have 7 of 8 targets this week at a 13.28 VIX close.   I consider the “fulcrum” the key decision point that turns the market from Bearish to Bullish, when the VIX falls below that entire fulcrum range.

The ‘Bull Nirvana Target’ is our V*IX # of 2018: 13.31.”  (That is target #7 for the Bulls.) 

Gold Signal RED  for a further U.S. stock market rally with a BULLISH Gold Trend.   What gold does mostly as I’ve written HERE is follow real interest rates. 

From before: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise, it means the market believes real rates will  fall, which in the current context means the global economy is slowing.  That will ultimately hurt U.S. stocks. 

Rate Signal RED for a further stock market rally with a Bearish 10 Year Yield Trend.  For Reference: “Rates usually RISE slowly in a strong recovery and the stock market rally continues as they rise, as I’ve repeated multiple times on social media and here. Empirically though, rates that are “lower” (than 3.11%) and are NOT rising rapidly have allowed the market to climb back above the prior all time high (ATH).”   

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”  WTI  had bounced, but has started weakening again.  It closed at 57.51 vs. 58.47 last week and looks like it could be rolling over.  There is a lower high already forming below both 50 and 200 day mav’s.

If the hard bounce on Friday in TNX continues, this will give rise to Rate Shock III… As said before: “Watch the rate at which TNX climbs if the current trend reverses.  If it shoots up very fast, stocks will correct.”  In the Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.  That’s what I called ‘Rate Shock.'”  The period of rising rates in early October I called #RateShockII.  The risk lately has been the “Negative Rate Shock I” we saw in May as discussed previously.

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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, contact me.  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.

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 or bought, 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 IWM and GLD charts for now as reference points only; they have historical value for us from the post-2016 election period.

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Market Timing Brief™ for the 6-28-2019 Close: “Deal or No Deal, Earnings Season Could Be Rough. Gold and Treasuries Poised for More Gains.”

A Market Timing Report based on the 06-28-2019 Close, published Saturday, June 29, 2019…

I deliver focused comments on market timing once a week.  These are supplemented with daily “Tweets/StockTwits” (see links below) and comments in the “markettiming” room on StockTwits.

I provide quite a bit of intraweek commentary, and if you miss it, you will miss out on quite a bit of context, so please click on the social media links below and have a read…  Thank you as always for being loyal readers and interacting on social media with your questions and comments! 

1.  SP500 Index Market Timing (S&P 500 Index®; SPY, SPX):

When the market is again within spitting distance of the April ATH (all time high), and Trump wrestles with Xi over our economic future, we must ask…

Are the Bulls serious?

What would satisfy me that the Bulls are serious about this advance?

Let’s check the list once again… The Score?  Bull 2: Bears 3.  For each checklist item below, I give you the points scored as Bullish or Bearish.  The Bulls picked up some strength this week, but we’re headed into a troublesome earnings season.  Not to mention other trouble spelled “Democratic Candidates.”  Even if you are Democrat (I’m an independent who has been known to vote for the best people!), you must realize the threat they pose to corporate earnings if tax rates are ratcheted back up.  

1. New high.  Bears 1 point.  Because the AD% Line (see below) made a new closing high, but price did not, I’ll score this as a negative.  The SP500 Index has been above the Wave 2 top, since 6-13-19.  That’s a positive.  We avoided marking a weaker lower high in doing that.  

2. VIX below the “Bull Nirvana Number” AND my bonus number?  Bears 1 point.  The Bears get this point, because of the lack of progress during a week when the market was close to re-topping.  Last week the VIX close was 15.40.  This week?  15.08.  The Volatility Game Score as I call it is still Bulls 4/Bears 4.  As before, the Bulls have a slight edge, having overtaken the “fulcrum,” which is that 4th Bull point.  

3. AD % Line: Bulls 1 point.  The prior high on May 1st when the market topped out was 16,471, and the prior closing high on May 20th was 16, 483.  The close Fri. was 16,495, which is above there.  It is a new closing high, but not a new intraday all time high.  Still, it is a positive.

4. Volume: Bulls 1 point.  SP500 Index volume was high on Friday.  There was quarterly options expiration, but the volume far exceeded that seen either last quarter or last year, so the Bulls win this one.    

5. The “U.S. Index Matrix Signal” as I call it:  Bears 1 point.  I score this on the MAJOR TREND.  Small caps hit support and bounced on Thursday and Friday, so it’s not enough to say the intermediate term trend has changed, but renders the immediate trend neutral – it could just be bouncing temporarily within a lower range.  A new high would be needed above 156.22 AND 161.11 on a close to change the picture to Bullish, on the immediate term time frame.  The Friday close was 155.50.  All we have so far is a set of two lower highs below two other lower highs.  Not good enough. 

What about mid caps?  The close for IJH was 194.26 with the two goalposts for a trend change to UP at 194.75 and 198.31.  The prior all time high (ATH) on 205.47 was on 9-21-2019 when the large caps, i.e. SPX, topped.  The small caps topped out earlier on 8-31-19.  The fact that the midcaps as well as the small caps are not tracking with the large caps in the recovery rally, tells us it is a weaker rally.

As I said last week: “The U.S. Stock Market Topped on August 31st, 2018!”  Read that issue (link upper left) if you haven’t…

Let’s check in on the context around the price action of the market by looking at the current RISKS…

Earnings Risk: what is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 6-28-19 (details HERE)…

Q2 earnings are reported in earnest starting in mid-July, although Pepsi will report on July 9th (See July Earnings Calendar).   Some companies like Apple have not announced their earnings report dates.  Note that earnings were negative in Q1 per FactSet and are slated to be negative for Q2 and Q3 unless something changes.  That means we are entering an Earnings Recession with Q2 earnings, unless companies beat the current estimates. 

The real question the markets face is whether the decline in earnings will find a softer landing than a recession, which by definition means two quarters of back to back negative growth.  GDP is estimated by the N.Y. Fed to be in the mid-1’s for Q2, but they’ve been way off before.   We get that big Q2 GDP number on July 26th.  Recessions are market wounders and killers depending on how bad they are in GDP negative growth terms. 

Are you tanked up on tech going into earnings?  I hope you’ve reviewed all the tech stocks you own, and they all plan on beating earnings, or their stock prices will drop like a rock, because as FactSet stated:

“The Information Technology sector is expected to report the second highest (year-over-year) earnings decline of all eleven sectors at -11.9%. At the industry level, two of the six industries in this sector are predicted to report a decline in earnings: Semiconductors & Semiconductor Equipment (-31%) and Technology Hardware, Storage, & Peripherals
(-22%).”

Here is the data updated for the last data point from this week:

For Q2 2019, analysts are projecting earnings growth of 0.1% -> -0.4% -> -0.5% -> -0.6% -> -1.3% -> -1.7% -> -1.9% -> -2.1% -> -2.1% -> -2.3% -> -2.5% -> -2.6% -> -2.6%.

and revenue growth of 4.6% -> 4.2% -> 4.4% -> 4.3% -> 4.3% -> 4.3% ->4.2% -> 4.1% -> 4.1% -> 4.0% -> 3.9% -> 3.9% -> 3.8%.

For Q3 2019, analysts are projecting earnings growth of 1.8% -> 1.4% -> 1.3% -> 1.3% -> 0.8% -> 0.6% ->0.5% -> 0.3% -> 0.3% -> 0.2% -> 0.0% -> -0.3% -> -0.5%.

and revenue growth of 4.4% -> 4.1% -> 4.4% -> 4.4% -> 4.4% -> 4.3% -> 4.3% -> 4.2% -> 4.2% -> 4.1% -> 4.0% -> 4.0% -> 3.8%.

For Q4 2019, analysts are projecting earnings growth of 8.1% -> 8.3% -> 8.2% -> 8.1% -> 7.5% -> 7.4% ->7.3% -> 7.2% -> 7.2% -> 7.0% -> 6.8% -> 6.7% -> 6.3%.

and revenue growth of 4.8% -> 4.7% -> 4.7% -> 4.8% -> 4.8% -> 4.6% -> 4.7% -> 4.6% -> 4.6% -> 4.5% -> 4.5% -> 4.5% -> 4.3%.

For CY 2019, analysts are projecting earnings growth of 3.8% -> 3.4% -> 3.4% -> 3.6% ->  3.4% -> 3.3% -> 3.2% -> 3.2% -> 3.2% -> 3.1% -> 3.0% -> 2.8% -> 2.7%.

and revenue growth of 4.9% -> 4.6% -> 4.7% -> 4.7% -> 4.7% -> 4.7% -> 4.7% -> 4.7% -> 4.6% -> 4.5% -> 4.5% -> 4.5% -> 4.4%.

For Q1 2020, analysts are projecting earnings growth of 10.5% -> 10.7% -> 10.3 -> 9.9%.

and revenue growth of 6.2% -> 6.1% -> 6.0% -> 5.8%.

For Q2 2020, analysts are projecting earnings growth of 12.9% -> 13.3% -> 13.3% -> 12.9%.

and revenue growth of 6.8% -> 6.8% -> 6.8% -> 6.6%.

Despite the slowing growth in earnings, analysts expect this from the SP500 Index over the next 12 months per FactSet: “The bottom-up target price for the S&P 500 is 3218.88, which is 10.1% above the closing price of 2924.92″ (they seem to have an error as the Friday close was 2941.76 for a 9.42% rise in the next 12 months).

Here’s a Brief Review of the Other Market Risks at Hand:

China Deal Risk: Chinese President Xi apparently agreed to step up farm product purchases, but wants the Huawei ban lifted by President Trump, who said he was OK with products being sold to Huawei by U.S. companies IF they don’t endanger our national security.  Both sides agreed to wait on further tariffs.  A Huawei ban lift is not a done deal yet though.  Trump cannot afford to wait too long to make a comprehensive deal.  Nothing was said at the G20 meeting about forced tech transfer and tech patent violations.  Much remains to be resolved.  More here @CNBC.

IMF Chief Lagarde said “While the resumption of trade talks between the United States and China is welcome, tariffs already implemented are holding back the global economy, and unresolved issues carry a great deal of uncertainty about the future.”

U.S. Iran War Risk: Things have calmed down even though President Trump threatened to obliterate the country of Iran should they attack Americans, military or otherwise.  Iran is a terrorism supporting country that needs to come out of the darkness.

Mueller Report/Impeachment Risk: “Mueller Time” is Wednesday, July 17th.   Mark your calendar for market risk on that day.  Just by repeating certain conclusions, he could influence public opinion against Trump.  That’s what the Democrats hope. 

2020 Election Risk: Probably the biggest risk to the markets and most Americans are oblivious to this from the markets’ point of view.  I’ll stand by this:  The market will likely pull back at least 10-15% going into the election if the outcome is even unclear, meaning Trump is NOT ahead by a wide margin (a likelihood, but not a certainty, depending on whether the Dems go for a “McGovern” candidate, as in Nixon-McGovern in 1972, a Democrat disaster.

Deficit/Debt Threat  Unchanged.  Building in the background, dollar by dollar.  This is a building threat but won’t manifest until our interest rates climb and then it will put huge pressure on the U.S. economy and suppress earnings through higher borrowing costs.

Fed Rate Cut Risk: Now this week we had Bullard, the super Federal Reserve dove that he is, come out and saying a 0.50% cut would be “excessive” for July.  Oddly enough, investors still believe the Fed cut cut 0.50% in July!  This is pretty amazing considering Bullard’s comment.

In my view, many investors are in LalaLand when it comes to rat cuts.  CME Group says 28.1% still believe the Federal Reserve will cut 0.50% in July.  The rest expect a cut of 0.25%.  No cut would cause the market to dive.  A cut of just 0.25% could disappoint the market as well, although the majority would be fine as they expect that cut. 

From last week: Three cuts are expected by December 2019.  The Fed members actually don’t believe that yet however, as I summarized HEREBullard’s view is not the majority view yet.

Now take a look at the SP500 chart.  The orange lines are the 2017 up channel.

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

Market timing the SP500 Index (SPY, SPX). Near prior All Time High.

Near the prior ATH.

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Neutral.  Now subject to economic gravity despite China.  It edged up to the 50 day moving average and has been playing with it for the past 3 days, not rising above it.  Negative.  47.32 was the last breakout that must be held with a Friday close at 47.87.  A China trade resolution would be very helpful to Intel, and that’s what the rally has been about.

Bank of America (BAC) Market Timing Signal:  Neutral.  Despite the Federal Reserve gearing up to lower rates several times, a negative for banks’ interest rate margins, BAC rose above the down channel, which was its first test.  It’s likely to stall out by the time it reaches the 2018 -2019 highs.  Don’t expect much until things start improving vs. deteriorating from an economic and rising rates point of view.  Only a strengthening global economy will help the banks recover. 

Now let’s go on to review investor sentiment…

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 34,055 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.

Join the Conversation in the StockTwits “MarketTiming” Room

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of  -2.46% vs -2.62% the prior week.  That could be the smallest change I’ve ever seen week over week. 

The rest is the same as last week: “As before, sentiment should be more Bullish at a test of a prior all time high.  Over the short term, I view this as Bearish, because the price action is failing to change sentiment in a positive way.  The other side of that coin is there are more investors to convert into being Bulls.  For this reason, sentiment is not too helpful here in the middle.

At the same time, we have not likely seen the ultimate top of this Bull market, at least for the large caps, because sentiment is just not positive enough.  Investors came closest to euphoria at the end of January 2018, but that was 7 months prior to the small cap market top on August 31st.   Remember we had a “Mini Bear Market” in December, but no “Big Bear” as defined HERE under “New Rules.”  A “Big Bear” is by definition required to terminate a Bull market.”

Bulls Neutrals Bears
29.59% 38.36% 32.05%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Discussed above including immediate Bull targets.

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

Market timing the U.S Small Cap Index (IWM, RUT). Still lagging large caps.

Another bounce, but still lagging.

 3. Gold Market Timing (GLD): Still a Bull.  I bought on this week’s pullback as I stated I would.  Follow the rate trend along with the gold chart!

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

Market timing the gold ETF (GLD). Gold in uptrend.

Gold is in an uptrend. Stick with it!

4. Interest Rate Market Timing  Still a Bear in rates, Bull in Treasuries.  Stay with the trend.  Buy the bounces in rates until the trend changes – then get the heck out! 

This is a trade that could last just a few weeks or many months.  Why?  Because rates are very low and due to the current weakness globally.  As the world perks up eventually, so will interest rates, and both bonds and Treasuries will fall.  

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):

Market timing the US 10 Year Treasury Yield (TNX, TYX, TLT, IEF). Rate trend is still down.

Rate trend is down for now with room for bounces. Buy Treasuries on the bounces.

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 Bullish SP500 Index trend.  The stock signal is based on small caps, as they often lead the market down.  Since the major trend is Bearish still for small caps, I’ll call the signal RED. 

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!) See above for the close this week and other comments.  These are the targets: 13.31, 14.04-14.08, 15.04, the “fulcrum” range = [15.94-15.95 to 16.09], 17.06, 17.27, and 17.89.  The bonus target #8 is [12.-17-12.37].  The Bulls have 4 of 8 targets.   I consider the “fulcrum” the key decision point that turns the market from Bearish to Bullish, when the VIX falls below that entire fulcrum range.  It’s still leaning Bullish, but with no progress made this week at a time we are near the SPX ATH.

The ‘Bull Nirvana Target’ is our V*IX # of 2018: 13.31.”  (That is target #7 for the Bulls.) 

Gold Signal RED  for a further U.S. stock market rally with a BULLISH Gold Trend.   What gold does mostly as I’ve written HERE is follow real interest rates. 

From before: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise, it means the market believes real rates will  fall, which in the current context means the global economy is slowing.  That will ultimately hurt U.S. stocks. 

Rate Signal RED for a further stock market rally with a Bearish 10 Year Yield Trend.  For Reference: “Rates usually RISE slowly in a strong recovery and the stock market rally continues as they rise, as I’ve repeated multiple times on social media and here. Empirically though, rates that are “lower” (than 3.11%) and are NOT rising rapidly have allowed the market to climb back above the prior all time high (ATH).”   

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”  WTI  has been weak but is stabilizing a bit at a lower level.  It closed at 58.47 vs. 57.43 last week and is losing steam just as the 50 day mav is almost down to the 200 day mav.  

I’ll keep this here as a reminder: this is not currently an issue… “Watch the rate at which TNX climbs if the current trend reverses.  If it shoots up very fast, stocks will correct.”  In the Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.  That’s what I called ‘Rate Shock.'”  The period of rising rates in early October I called #RateShockII.  The risk lately has been the “Negative Rate Shock I” we’ve seen as discussed above.

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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, contact me.  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.

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 or bought, 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 IWM and GLD charts for now as reference points only; they have historical value for us from the post-2016 election period.

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