Market Timing Brief™ for the 6-14-2019 Close: “Bulls Must Push Upward or Say Hello to the Big Red Wave Down. Stick with Gold and Treasury Positions and Buy Pullbacks.”

A Market Timing Report based on the 06-14-2019 Close, published Saturday, June 15, 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.

NOTE: The summer appears to be distracting investors enough to warrant a speedier read unless otherwise warranted.  I’ve mainly curtailed the “risk section” to make it more succinct. 

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):

Where is the market as of the end of the week?

  1. The SP500 Index failed to scale the Wave 2 high this week (F.Y.I 5-16 high = top of Wave 2 UP wave), despite a couple of tries.  That means the next wave could be the Big Red Wave 3 down (see last week’s issue; link to upper right).  Close of SPX was 2886.98, below that Wave 2 Up top.   The SPY’s closed just barely above target, but it’s within the margin of error so to speak, and I’ll go with SPX on this call.  No, 0.05 points over for the SPY with the SPX below target is a “no go” to me.  Not good enough.
  2. I will be adding exposure to the market if it can make it through the top of Wave 2. (see my VIX comments at the bottom of this report)
  3. Emerging markets (EM) appear to be rolling over in some cases.  Examples are INDA and EWZ.
  4. The Greater China indexes (H Shares: FXI, A Shares: CAF/KBA, and Hong Kong (a “developed market”): EWH) have slipped back a notch after starting to post gains, but it appears to be in a weak holding pattern, waiting to see if the Trade War can be resolved.  If this drags on and on, they will likely break to lower lows.  There is no China agreement in sight, although Trump said they’ll arrive at one.  It just won’t happen at the G20 at the end of June, because Xi probably won’t show up we are told by Trump, and that’s all OK of course.  😉  Not really!
  5. Interest Rates (10 Year Yield is what we follow most of all along with the shape of the yield curve) have stabilized at an impressive low that says the U.S. economy is definitely going to slow down.
  6. The Fed decision comes out on Weds.  What’s in the market?  Three cuts of 0.25% are in the market to occur with over a 50% probability in July, Sept, and December.  No other meetings reach that 50% threshold all the way out to April 2020.  Unless the stock market is down 15% or the Treasury market dives to another extreme, the Federal Reserve will probably move slowly.  I laid out the consequences of not cutting rates in June through Sept or the opportunity in the market if they do cut rates last week, so please review that if you have not.
  7. About 30% of participants are off-sides going into the Fed meeting expecting a June cut.  The Fed does not likely have enough to support a cut in June, so rates should pop a bit on Weds. and allow a buying opportunity for BOTH bonds/Treasuries AND gold (GLD/GDX) to develop on Weds. or within a few days.  That would be nice!

Let’s check in with the earnings trend again…

Earnings Risk: what is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 6-14-19 (details HERE)…

We now have new U.S. earnings and revenue estimates this week for Q2 2019 through Q2 of 2020.  Q2 earnings are reported starting in mid-July.

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%.

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%.

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%.

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%.

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%.

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%.

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%.

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%.

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

and revenue growth of 6.2% -> 6.1%.

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

and revenue growth of 6.8% -> 6.8%.

Are the Bulls serious?  As I asked nine weeks ago…

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

Let’s check that list once again…  1/5 Positive

1. New high.  Negative.  No new high, and failed to scale the top of Wave 2 UP.  If not overcome soon, it will usher in quite a bit of downside.

2. VIX below the “Bull Nirvana Number” AND my bonus number?  Positive.  Not great exactly, but Bulls have a slight edge, having overtaken the “fulcrum,” so I’ll score this as a positive.  The VIX Game Score as I call it is Bulls 4/Bears 4 (Game numbers are at the base of this report).  That means the Bulls are below the key “fulcrum target” range, so they have an edge without the price technical view to match it yet.

3. AD % Line: Negative.  Now at 16,371, above the close of 16,341 last week, and still above the 9-21-2018 high of 16,175 as well as the Feb. 25th high of 16,258, so you could argue this one, but I’m scoring it negative, because of the failure to make a new high above the 5-16 high.  It confirms the inability to scale the Wave 2 high for the SPX.

4. Volume: Negative. The Bulls did not had the volume at any point in the recent 5 day rally.  It was a 5 day rally with poor volume and then 4 days sideways this week.

5. The “U.S. Index Matrix Signal” as I call it:  Negative.  IJH and IWM fell significantly more than SPY on Friday.  They usually lead to the downside.

Here’s a Brief Review of the Other Market Risks at Hand (with terse comments only where there is new information):

China Deal Risk: Meeting scheduled in three weeks, but little seems to be happening in terms of preparation per reports.  See above.

U.S. Iran War Risk Higher after Japanese and Norwegian tanker attack supposedly by Iranian forces.  Fortunately Trump cannot afford another big war and hates the waste of war of national resources for infrastructure and the like, as well as the killing and maiming of soldiers.  There could be a message sent by air to the Iranians however (a few missiles) as early as next week. 

Mueller Report/Impeachment Risk  Speaker Pelosi won’t move forward until the Dem ducks are in a row.  It’s a slow motion process.  Trump’s people are slow-walking every request.  Not only that, they are trying to turn the whole thing around to say the investigation was a conspiracy.  This is hogwash.  Goebbels would have been very proud of Trump and his people.  Nixon was an angel in comparison to Trump.  To be clear, I do not care about ANY President of our country or any party more than I care about the U.S. Constitution, the rule of law, a free press, and the truth.

2020 Election Risk Probably the biggest risk to the markets and most Americans are oblivious to this.  Many just want Trump gone, but if that happens, the markets will suffer as all Dem candidates say they’ll roll back the tax cuts on all but the middle class.  That means higher corporate tax rates again and lower earnings, and lower E’s mean lower P’s. The market will likely pull back at least 10-15% going into the election if the outcome is even “unclear.” 

Deficit/Debt Threat  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: See above and last week’s roadmap.

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):

SP500 Index Market TIming. Must push higher almost immediately to avoid huge decline.

Time to push up and through that Wave 2 top or else!

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Neutral signal due to mixed technical picture.  Some progress, but could as easily roll over.  On the positive side, while it looks like a lower high is forming (negative), INTC managed to close above the prior consolidation high of 45.95, which was “anointed” upon being tested.   It needs to stay above that number to make progress to the upside.

Bank of America (BAC) Market Timing Signal:  Negative.  Off the prior low, but turned down from the 200 day mav, which is negative.  It will rise more, however, if the Fed does not cut rates this coming Wednesday. BAC is at the top of the downward channel that started back in early 2018!  Stay away!

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  -7.36% vs. -20.1%We are at an important lower high for the SP500 Index and sentiment should be more Bullish.  At this point though, I don’t think sentiment helps too much other than to say we are not at EITHER extreme to the Bull or Bear side.  It means we could move either way from here.  The Bulls will have to increase their buying to take us above the Wave 2 top.

Bulls Neutrals Bears
26.74% 38.96% 34.20%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Look at where the small caps started rolling over on Friday.  They are below the 200 day mav.  Weak!  Stay away.  If they can push above the 5-16-19 high, that would be another thing.

A failure here would auger bad things for the overall market.  Small caps are 12.5% below their all time high, which means they are already in a full correction.  (See my “New Rules” HERE for useful ranges in thinking about market dips, corrections, and Bear markets.)

In a healthy economy, small caps outperform tremendously, but when the economy slows, that “beta” works directly against you – the losses are far bigger.  

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

US Smalll Caps IWM rolling over just below the 200 day moving average.

Rolling over from lower high, below the 200 day moving average. Weak!

 3. Gold Market Timing (GLD): Gold is pulling back from a prior high reached both in February and on June 7th.  This failure is due to a fear IMO (In My Opinion) that the Federal Reserve will NOT lower rates as about 30% feel they will.  That means rates could RISE to some degree driving down gold and causing the US Dollar to strengthen.  I’ll be waiting to buy the dip in gold/gold stocks if we are so lucky.

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

If the Fed does not cut rates next Weds. gold will fall a bit. Buy the dip IMO!

4. Interest Rate Market Timing – The 10 Year Yield lies in wait of the next Federal Reserve meeting where the Fed will likely NOT cut rates.  If it is extremely dovish vs. what has been said previously, rates could continue their dive however.  Just follow rates and you’ll know what to do in regard to both bonds/Treasuries and gold/gold stocks.  (read the last few issues and my key gold trading post HERE if you haven’t).  

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 10 Year Treasury Yield. Bounce or no bounce after the Fed meeting?

June 19th will decide a bounce vs. no bounce 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).

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.

Caveat: If this is the end of Wave 2 up as discussed above, the SP500 Index will not be looking Bullish next week.  If the Wave 2 top is taken out, the market can retop or MORE. 

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!) closed at 15.28 vs. 16.30 last week.  These are the other 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.  With the VIX below that target, but the SPX below the Wave 2 top, I’d say it’s a crap-shoot as to which way the market turns, but the economic picture would suggest it will fall.  The weak earnings won’t come out until mid-July, so the Bulls could attempt a further rally before then.  That’s the upside risk. 

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 would 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 I’ve repeated multiple times on social media as well as 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 52.51 vs. 53.99 last week.  Oil looks like it could revisit the January low at this point.  The Middle East could interfere with that outlook should the Iran situation ignite. 

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.

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… 

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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.

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Market Timing Brief™ for the 6-07-2019 Close: “Is the Stock Market Bounce on Peace with Mexico and Hope on China Sustainable? The Five Things I’ve Done to Protect from More Downside. Gold Still Strong as ‘Negative Rate Shock I’ Pauses.”

A Market Timing Report based on the 06-07-2019 Close, published Saturday, June 8, 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.

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

I posted on StockTwits and Twitter Friday evening that President Trump signed a deal with Mexico to not impose punitive tariffs in exchange for their sending 6000 National Guard troops to their southern border, but these efforts may be delayed until 2021 in terms of full deployment as noted HERE.  In addition:

“The agreement did not include a demand from the U.S. that Mexico agree to a “safe third country” designation, requiring the country to permanently accept most asylum seekers from Central America.”

Trump plans to ship the asylum seekers back out of the U.S. to Mexico to await decisions on their claims, which they had already been doing.

“The U.S. promises that those asylum applicants will be “rapidly returned” to Mexico as they await the result of their claims. Mexico agrees to accept them and offer jobs, health care and education.”

The results of this “agreement” are iffy, given the built-in delay, but perhaps we can assign a partial victory to Trump.  I’m sure we’ll no longer hear about the problems at the border, since that’s now “been solved.”  I wrote that last line on Friday night, and this morning I saw via a Fox news quote (I search on multiple sites, fake and otherwise  ;)) that Chuck Schumer said THIS.  Otherwise, if Trump keeps yapping about the Mexicans, the problem has not been solved, right?

Although Mexican responsibility is good, the more important point is the way Trump went about it should be unconstitutional if it isn’t, as using tariffs as threats to accomplish legislative goals is not the way a President should act…and the GOP leadership was starting to get riled up about that very fact including Texas Senator Ted Cruz.  Having the Congress impose tariffs on Mexico to secure the borders is the way Democracy is supposed to work.  Remember that Trump used the EMERGENCY Powers Act to invoke tariffs in the first place, but much of the solution won’t be fully deployed until 2021!  Some “emergency.”

Importantly, the markets were spared damage that did not have to be inflicted in the first place.  Trump proved he can drive the markets down and then up at will through his antics.  But what’s the net result?  Do these “solved Tariff problems” created by Trump mean the stock market should move higher?  Investors thought so from Tuesday through Friday apparently.

The market turned around from the prolonged May decline this week.  It had a very good week after dropping over 7% in just a few weeks.  The second up day this week on Wednesday shifted the immediate trend from down to up as shown HERE for XLK, the SP500 Tech Sector ETF and for SPY HEREThe rally then continued Thursday and Friday.

Some of the perma-Bulls out there (remember, I’m an independent both in political and market terms!) will tell you, you were stupid to raise any cash and should hold stocks for the long term and never sell anything.  Why is it that Jack Bogle who founded Vanguard warned before his death that stock market returns for the next decade would likely be half of normal or worse?  Read on if you are thinking “Mexico being out of the way solves everything, so I’m back to 100% invested!” 

Go to all cash?  No way.  I share my investment allocation to stocks regularly on social media and posted it last week.  I believe investors who can afford to lose money on paper for a while should always be at least 30% invested in stocks long term That is a “raw percentage” of investable net worth (means minus your house, but not investment properties), not the percentage of usual max. exposure I share with you – I do that so you will think for yourself!

Even “old people” should have at least 30% in stocks, unless their money could run out if they take on that risk.  At any time point, you must assume it will take up to 10 years to “get your money back” from a paper loss.  What you NEVER want to do is SELL LOW.  This is how most investors underperform the markets.  You only sell low if you MUST protect your capital from further loss or “Susan won’t be able to go to college” for example.

Why 30%?  Because 1. stocks make more over the long term than bonds do and 2. A 50% loss on your stocks at 30% exposure means you only lose 15% of your capital, which is not hard to come back from.  If you lose 50% of your capital, you have to have a 100% return to get back to even as investors did in 2009.  That is a tough climb!

You say you can get out and back in in time if you are wrong about your exit?  Some of you can (less than 5% of you at best), but you are major exceptions.  Most investors who leave the market sit there like deer frozen in the headlights of a car that never hits them and fail to re-invest in the market, when it turns out they sold the exact low in the market!

I promised on my stream this week, I’d share “What to do now” so you can protect yourself against a further downturn in the markets, despite the bounce.  What have I done to face off the risks listed on this blog including earnings risks for Q2? 

1. I lowered my stock exposure. You can take some off each time the market moves up or use stop losses to protect profits on the way down.  Your choice. 

2. Added REITS like AMT at the December 26th low, and re-entered Realty Income (O) more recently. 

3. Bought long term munis (which have risen about 5% in just a couple months of averaging into them as rates have crashed).  Rates down, bonds up (for the newbies)!

4. Increased my gold exposure by adding gold stocks (GDX, by buying outright and being assigned shares on a put sale, and did an option play on FNV recently). Buy the dips and be willing to trade your non-insurance gold positions or don’t buy any to begin with!  Gold stocks are not things to ride up and down like a pony at a fair.

5. Invested cash by laddering out month by month to about 1 year in Treasuries, which is easy to do on Schwab or Fidelity among other brokers.  Do it yourself, using the Treasury Yield Curve page as a guide or you’ll pay commissions.  That way I can move money back into stocks to increase my exposure on a larger pullback, because Treasuries are very liquid.  You may have to give up a little bit of return if you need to sell, which is why I have a chunk of cash in money markets paying 2.20%, down from 2.31% just a couple of weeks ago as rates fall.  Because rates will likely fall further, it will pay to lock in some Treasuries going out a number of months, because those yields are most likely headed back below 2% for money markets.  

So what’s the technical challenge for the Bulls?  The Bulls now face what is know in Fibonacci terms as a Double 2 Wave UP, which can either be violated to the UPSIDE or can turn downward into a big, red 3rd wave down.  (The pattern is wave one down, two waves up, and then the 3rd down wave starts…) The top of Wave 2 for X*LK is 76.54 with a high of 76.64 and a close of 76.19 and an S*PY Wave 2 top of 289.21 with a high of 288.85 and a close of 287.65.  Some of the selling into the close could have been related to the perceived risk of the Mexico deal falling through, so we cannot count the Bulls out.

But IF that 3rd down wave starts, watch out, because it is the largest wave of the standard 5 wave pattern.  Beyond Mexico there are many other issues facing this market, not the least of which are the upcoming Q2 earnings!  After clocking in a negative Q1 for earnings, the SP500 Index is set to repeat “negative earnings growth” for Q2 as well, unless companies surprise enough to the upside to turn the numbers positive again.  You’ll also note from the sequences noted below that 2020, which compares against the current slow 2019 will look better to the market.

Let’s check in with the earnings trend again…

Earnings Risk: what is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 6-07-19 (details HERE)…

We now have new estimates this week for Q2 2019 through Q2 of 2020.  There was no update to Q1 earnings this week.

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

For Q1 2019 (not updated this week), earnings growth of -3.6% -> -4.3% -> -3.9% -> -2.3% -> -0.8% -> -0.5% -> -0.5% -> -0.4% -> -0.4% .

and revenue growth of 4.9% -> 4.8% -> 5.0% -> 5.1% -> 5.2% -> 5.3% -> 5.3% -> 5.3% -> 5.3%.

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%.

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

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%.

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

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%.

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

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%.

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

For Q1 2020, analysts are projecting earnings growth of 10.5%

and revenue growth of 6.2%.

For Q2 2020, analysts are projecting earnings growth of 12.9%

and revenue growth of 6.8%.

The question you and the market may have is “Will the stock market favorably discount the re-acceleration of earnings and revenue growth in 2020 or only do so after a further correction?”   The answer likely depends on how close the current estimates are to the truth and if the likely coming rate cuts by the Federal Reserve (I’ll get to that in a bit) actually help goose the economy into 2020.  The honest answer by anyone given the risks stated on this blog today would be “I don’t know for sure.”  If you are the eternal blind optimist, go for it!  If not, find middle ground as I describe below. 

But above all do NOT believe anyone can guarantee the market will be at a new daily high before it hits a new daily low.  THEY DON’T KNOW!  I believe the best approach is to assess the degree of risk to returns and adjust market exposure, and sector exposure to some extent, accordingly. 

Factset pointed out that the earnings shortfall in Q2 for companies doing over 50% of their business abroad would be around -9.3% vs. -2.3% for all SPX companies and +1.4% for companies doing most of their business inside the US as noted HEREBe sure to look up your companies’ earnings projections now to be ready for the next earnings season.  Trim your losers on the bounce, or decide you will ride out an ugly period, your choice!

Not only are earnings due to slow more, employment did not look so great this past Friday.  The low ADP report at 27K jobs was weak, but is not always a reliable predictor of the Bureau of Labor Statistics (BLS) Friday number, which was 75K, well below the 180K expected.  Here is what the longer term trend looked like per the BLS on my stream HERE.  The Fed will watch this for a developing trend, but it is not what will cause the Federal Reserve to cut rates this summer, as I said in that message.

Are the Bulls serious?  As I asked eight weeks ago…

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

Let’s check that list once again…  3/5 Positive

1. New high.  Net Positive.  No new high, but the trend on an immediate basis is UP vs. down last week.

2. VIX below the “Bull Nirvana Number” AND my bonus number?  No and that’s a Negative.  The VIX Game Score as I call it is Bulls 3/Bears 5 (Game numbers are at the base of this report).

3. AD % Line: Positive.  Now at 16,341, still above the 9-21-2018 high of 16,175 as well as the Feb. 25th high of 16,258.  I said last week: “The most charitable view of that is that a bounce is due.  Since a Treasury yield bounce is also due, stocks could stage a minor counter-trend rally.”  In fact we got the stock market bounce and the 10 Year Yield did not bounce, but stayed above the Monday low into the Friday close.

4. Volume: Negative.  Although volume was not horrific, it did decline to a lower level than the prior negative day on the 1st day of the rally (Tues.) and then declined into Friday as the market rose.  That’s not what we like to see.  With each larger leap in price at least, volume should participate and confirm the move.

5. The “U.S. Index Matrix Signal” as I call it: Positive.  IJH and IWM were both trending up with the large caps. 

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

China Deal Risk:  Essentially Unchanged.  Trump will talk to Xi this month at the G20, June 28-29th.  Xi said Trump was his friend while making deals with Putin this week.   We’ve heard about his friends like North Korea’s Kim before, who went on to kill one of his negotiators and send others to hard labor camps for not delivering in negotiations with Trump.  The Mexico deal is a sign that Trump will be somewhat flexible and not insist on getting everything he wants.  He’ll have to make a deal prior to 25% tariffs or the 2020 Election Campaign period or else.  The market sees the overall risk as lower, but it may not pan out that way.  Trump likes to be unpredictable!

U.S. Iran War Risk:  No heated rhetoric at the moment.  Risk is low only because President “Bone Spurs” Trump hates wars.  He does not even like going to them when he’s legally obligated to do so, as during the Vietnam War!  My Dad went to Europe as a private not knowing his fate during World War II.  But he went!  Trump dishonored ALL veterans with his fake excuse from a dishonest doctor.  You can see the lie right across Trump’s face in the interviews asking him direct questions about his bone spur problem, not remembering which foot the painful spur was on!  100% #FakeNews!

Mexico Tariff Risk: Gone, because Trump gave them up to get some concessions as noted above.

Mueller Report/Impeachment Risk:  Moderate to High risk now.  Mueller will testify one way or another.  He will only recite what is in his report, but that will potentially move the public.  If it’s not public, the Democrats won’t be happy.  Speaker Pelosi said privately she would prefer Trump be jailed vs. impeached, which some took as meaning she would prefer to turf the whole thing to the courts after he loses in 2020.  Others took it to mean she wanted a case the Senate could agree with including Republicans that would lead to a conviction.  In the end, she won’t be able to withstand calls for impeachment IMO.

Key Conclusion: Without new evidence beyond the Mueller report, I do not believe the Democrats will be successful in convicting Trump in the Senate.  He will of course then claim “I’m vindicated of all fake charges.  I’ve been so maligned!”  And he knows how to sell that and win the 2020 election, particularly if the economy is strong.  If the economy is getting worse in a tangible way to the voting public by election day, there is no way he’ll win a second term. 

2020 Election Risk: The tax cuts for corporations and for the wealthy but not the middle class would be at risk if any Democrat is elected.  June Democrat debates are on their way with Joe Biden still the track favorite, although he’s had trouble adjusting his abortion views to the demands of the left, while still being a devout Catholic (former VP Candidate Kane also flipped as a Catholic in 2016). Let the flip-flopping begin!  Biden is slipping a bit vs. the other Democrats in recent Polls.  If anyone but Biden is nominated, Trump will win the election, unless the economy is awful just prior to the election.  It will simply be a rerun of Nixon vs. McGovern in 1972.  The leading alternatives to Biden are all to far left to stand a chance in a general election.  If the Democrats as dumb now as they were then, they’ll stand on principle and allow Trump to rule for eight full years.

Deficit Threat: Moderate, but more an issue when rates are rising, not when falling.  The fool Laffer who created what I call “tinkle down economics” under Reagan (a scam as Laffer and Reagan created the first multi-trillion dollar deficits and claimed that does not matter)  says debt servicing is low vs. GDP.  Just wait until rates rise, when the U.S. dollar is no longer the top reserve currency.  That’s the prize China wants most of all – the currency crown.  This is an ongoing threat to our current system, and fiscal liberal Trump and Congress seem to care less about it by their actions.  Stock buybacks based on debt will be long gone by the time China’s yuan is the top currency (if nothing is done!).

Fed Rate Cut Risk:  This week Powell says he’ll make sure the expansion continues.  That a boy!  Now you’re talkin’!  That’s what the market wanted to hear.  Still, how fast the Fed acts is important as I went over HERE. Now 85.2% believe the Fed will cut 25 or 50 basis points from the Fed Funds rate per CME.

Here’s the “Rate Cut Reaction Map”

1. No rate cut in June -> Market slips a bit more.

2. No rate cut in July -> Market fall accelerates

3. No rate cut in Sept -> Market crashes (so Fed won’t allow that).

4. Rate cut of 25 bp or more in June -> Rally back to prior highs or higher

5. Rate cut of 25 bp in July -> market stabilizes and may rally

6. Rate cut of 50 bp or > in July -> market rallies significantly.

7. Rate cut of 50 bp in Sept. after NO earlier cut -> market rallies from much lower level than today.

The next Fed “statement day” is just 8 market days, which now routinely comes with the TV dog and pony show by Powell. 

This is the Federal Reserve FOMC meeting schedule for the rest of 2019:

June* 18-19 July 30-31 September* 17-18 October 29-30 December* 10-11.  The * means the meeting comes with an economic projection update.

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):

SP500 Index Market Timing of the Mexican Bounce

Bouncing into slowing Q2 earnings.

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Neutral now but below the consolidation high of 45.95.   It needs to rise above that number to make progress to the upside.

Bank of America (BAC) Market Timing Signal:  Negative.  Was down 1.26% today with the market up 1%.  The only plus is that it held the March low.  If things deteriorate in the economy further, rates will move still lower and drag the banks down with them. 

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  -20.1% vs. -15.29 last week. This was low enough to allow for a bounce, but it’s not a major sentiment low.  Nevertheless, this bounce could continue for a while as Q2 earnings reports don’t hit the fan until mid July.  The Fed has to keep the rate cut ball high in the air before then.

Bulls Neutrals Bears
22.53% 34.89% 42.58%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): In an uptrend and somewhat favored now with multinational earnings at risk, BUT they are still higher beta stocks, and have badly lagged the SP500 Index, so be careful to take profits on time if you buy them.  There is still earnings risk.  I prefer sticking to high quality large caps that are going to meet their earnings goals. 

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

Market TIming: Small caps are still lagging despite the bounce.

Small caps bounce, but from a big drawdown.

 3. Gold Market Timing (GLD): Our gold trade is working nicely though approaching the Feb. high.  As long as rates continue to fall, gold will continue to rise as the US dollar falls.  That is the way the dance works.  Buy pullbacks.

Now if the economy starts to re-accelerate into 2020, gold may decline, so other than your long term “gold insurance,” this trade should be seen as temporary.  Preserve profits at some level on all gold trades!

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

Market timing gold (GLD). Still rallying, but near a resistance level.

Rally is on, but GLD just tested Feb. high. Rates are stretched LOW, so gold could pull in a bit before a higher high is reached.

 

4. Interest Rate Market Timing – Last week I said, “The 10 Year Yield is now stretched to the downside and due for a bounce.”  There was no bounce as there were still too many worries.  The Mexico tariff resolution could perpetuate the market bounce we are seeing in equities, so bonds could suffer from that.

As you have seen of late, rapidly FALLING rates are disliked by the market as well.  You could say we’ve had “Negative Rate Shock I” in the month of  May.  That shock is what has the Fed’s attention!  The yield curve at both the 3 and 6 month levels vs. 10 year level has gone kaput

Remember if the Federal Reserve lowers rates, they don’t just lower them once.  If only one cut were needed, they might not even act.  They will lower rates multiple times if they do so.

Long rates should continue to fall as they lower the Fed Funds rate until the market worries about the inflation that can create.  The long bond trade will work until inflation re-accelerates.  Then the Fed will follow the bond market back up by tightening (if they can), and Treasuries will start to generate losses.  Buy longer term Treasuries on the bounces – until it stops working when inflation comes back (that will take a while!).

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 10 Year Treasury Yield. Stretched to downside.

Market timing the US 10 Year Treasury Yield (TNX, TYX, TLT, IEF). Stretched to the downside now.

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.  I’m not calling the IWM Trend Bullish at this level, despite the short term uptrend/bounce.  It’s tradable, yes, but as a signal, it’s not there yet.  Those are different things.

Caveat: If this is the end of Wave 2 up as discussed above, the SP500 Index will not be looking Bullish next week.  Watch the market’s decision on Monday (and in the futures Sunday).  If the Wave 2 top is taken out, the market can retop or MORE. 

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!) closed at 16.30 vs. 18.71 last week.  These are the other 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 3 of 8 targets.   

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 would 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 I’ve repeated multiple times on social media as well as 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).”  We are below that high at the moment, but the trend is UP.   

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.  It closed at 53.99 vs. 53.50 last week.

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 of late has been “Negative Rate Shock I” 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.

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

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Market Timing Brief™ for the 5-31-2019 Close: “From Blood in the Alleyways to a Bloody Wall Street. Gold Breakout on Crashing Interest Rates and Down Dollar.”

A Market Timing Report based on the 05-31-2019 Close, published Saturday, June 1, 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.

1.  SP500 Index Market Timing (S&P 500 Index®; SPY, SPX): I warned you in early May the market was overvalued.  They went away in May, right on schedule with much help from President Trump and his hawkish trade policies.  Now we are in a trending Bearish stock market.  How far we go down is unknown to all guessers.   How the market behaves at certain levels and when a positive catalyst shows up is much more useful than predicting a bottom.  Get your shopping list ready.

Remember that if this becomes a bigger market decline, ALL sectors go down, even Consumer Staples (XLP) and Utilities (XLU). They may not go down as much depending on the inflation rate. Since inflation is falling, they likely would hold up better than the S&P500 Index®, but they’ll still fall.

The only way to protect oneself from a redo of the December decline and make money by buying low is to raise cash ahead of time (which is why I already hold a lot of it) and hold longer term bonds/Treasuries as a hedge (you can own a ladder from short to long durations, but trade at least part of the longer end perhaps).  Gold will do well as long as the lift the USD gets from foreign assets sales is overwhelmed by the Fed devaluing the U.S. dollar.  Sale of U.S.  assets by foreigners during a decline can also hurt the dollar, and help gold.  Our market is more overvalued than EM markets, so the selling of U.S. assets could prevail in pushing the dollar down.

How much farther interest rates have to fall is always a question, but many questioned the wisdom of owning bonds when TLT was 120 and it’s now 131.83 as investors finally pile on (plus the coupon!).  The best approach is probably to trade the swings in bonds if you have the temperament, or just hold money market funds making 2.23% as I do.  TLT could easily make it back to 138 or so as an initial upside target, but it looks extended right now.

I have bond exposure through munis and corporates, but admittedly could have had more!  If the Fed is forced to cut rates, which the market now believes it will as soon as September with an over 50% certainty, rates will continue to decline – your window of opportunity is from now to then and for some time beyond if they cut multiple times to keep the economy afloat.

Let’s check in with the earnings trend again…

Earnings Risk: what is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 5-31-19 (details HERE)…

An additional 1% of companies in the SP500 Index reported this week (98% in total have reported), and earnings growth for Q1 was steady at -0.4%, which if unchanged would represent the first quarter of earnings recession.  Companies are selling more products and making less money on the sales. 

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

For Q1 2019, analysts expect (98% reported!) earnings growth of -3.6% -> -4.3% -> -3.9% -> -2.3% -> -0.8% -> -0.5% -> -0.5% -> -0.4% -> -0.4% .

and revenue growth of 4.9% -> 4.8% -> 5.0% -> 5.1% -> 5.2% -> 5.3% -> 5.3% -> 5.3% -> 5.3%.

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%.

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

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%.

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

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%.

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

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%.

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

I did the math on earnings growth for the year using data for quarterly 2018 earnings and applying the earnings growth projections for Q1 through Q4 of 2019 and calculated a 2019 earnings growth rate of 1.02%, not the 3.2% growth rate analysts project per FactSet.  One would have to assume analysts are either coming to their annual numbers differently than they are their quarterly numbers OR the analysts making 2019 annual estimates are different analysts!

A 1.02% earnings growth rate means a trailing 12 mo PE of 21.66 for the SP500 Index is unreasonable (data HERE)!  It means the stocks in the index are starting to act like bonds rather than stocks.  The yields on bonds do not have the organic growth that stocks of growing companies have.  If you are not getting growth from stocks, you turn to bonds.  A bond gives you a set yield as long as the company or country is not going out of business.  If it remains in business, it pays the c0upons due on its bonds.  What is happening in the market is that economic growth is slowing to a point that stocks look like risky bonds.  In these circumstances, the stocks you own need to be the strongest ones around, not the high beta, highly indebted companies that may not be able to pay back their debt when due. Many of those are small caps.  Check each stock you own for its debt level.  Sell all highly leveraged stocks that lack growth to match the leverage!  

A new growth company is by definition making new products, which are not yet perceived as “required for business” by many companies trying to cut back on expenses as tariffs hit their bottom lines.  That means they choose to forego adoption of these products for as long as they can.  If they can’t, then the companies who sell to them could continue to do well in a slowing economy, but be sure to make those distinctions with accuracy, or you’ll lose several times as much as you would holding the SP500 Index by holding the high beta stock of a company selling products that are not needed on a pressing basis.

Are the Bulls serious?  As I asked seven weeks ago…

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

Let’s check that list once again…  5/5 Negative!

1. New high.  No.  We are already in correction territory with the market at -6.85% from the ATH (all time high).  A 7% correction is not a dip in my view!  Where that commonly used 10% number for corrections came from I don’t know, but it’s a dumb rule.  See my Oct. 26, 2018 issue for the “New Rules” on various market decline definitions (dip vs. correction etc.)

2. VIX below the “Bull Nirvana Number” AND my bonus number?  No.  The VIX Game Score as I call it is Bulls 0/Bears 8.  All out Bearish.

3. AD % Line: No go. This is the forth week of declines, now at 16195, although it’s still above the 9-21-2018 high of 16175 after testing it this Friday 5-31.  The most charitable view of that is that a bounce is due.  Since a Treasury yield bounce is also due, stocks could stage a minor counter-trend rally.

4. Volume: Negative.  SPX Volume rose dramatically on the Monday selling and was up again on Friday selling.  SPX volume reached a level similar to Oct 23, 2018 (Ref.), which was followed by another 5% drop in the SP500 Index before the bounce to the November high.  Investors were dumping stocks this week.

5. The “U.S. Index Matrix Signal” as I call it: No go.  IJH breaching March support.  Same for IWM.  Both have breached the 38.2% retracement level of the advance from their respectively December lows and are headed to the 50% level.   

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

China Deal Risk:  Unchanged.  President Xi supposedly reneged on his prior agreements and President Trump called foul.  They are not talking for now with no dates set.  Negative for all companies doing business in China.

U.S. Iran War Risk:  Higher.  But still low only because Trump hates wars.  1500 Troops are following the aircraft carrier and B52 deployment. However, the risk is still relatively low, because Trump hates the waste of money that wars are, and he hates blood (talks big, but he’s squeamish as his repeated “bone spur” repeated deferments proved, not to mention being afraid of germs).

Mexico Border Closing Risk Becomes Mexican Tariff Risk: After President Trump folded under Republican pressure, he continued to scheme and decided to impose an initial 5% tariffs on Mexican products if they don’t comply with his demands to control their border with the U.S. by June 10th. These tariffs would rise to 25% over a period of months without Mexican compliance with his demands.  If enacted, the tariffs would drive up prices for importers, decreasing competitiveness of those products vs. U.S. manufactured products.  That hurts companies like GM who have farmed out their production to Mexico.  This will cause inflation to the extent that either producers and/or importers do not eat the tariffs themselves.

Peter Navarro, who is Trump’s super hawk on trade is an outright liar. He claimed Mexican producers would absorb the tariffs entirely.  That is a gross exaggeration.  Many companies won’t, and inflation will rise in the U.S.  This provides a counterbalance of some degree to falling inflation by the way.  

Mueller Report/Impeachment Risk:  Moderate to High risk now.  Mueller made it clear Weds. that he did NOT exonerate President Trump, and had essentially referred the obstruction case to Congress, as the Justice Dept. cannot indict a sitting President.  So they say.  That DOJ policy has not been testing in court.

The DOJ and, hence the Special Prosecutor could under DOJ rules only render an opinion such as “there was no organized conspiracy to work with Russia to influence the election.”

Note the specificity of the “no organized conspiracy.”  The Trump campaign clearly flirted with breaking the law multiple times and that is why they were being monitored by the FBI.  If you want to call that spying, go for it.  What Trump et. al. did was fully worthy of being monitored.  The FBI did the right thing.  They did their job.

AG Barr is the most partisan fool one could imagine the way he discusses “spying” in his public appearances.  He’s acting as Trump’s personal lawyer and obstructing justice himself at this point.  I smelled a rat when Nixon was President, and I smell a rat now.  Partisan talk?  Nope.  I see what I see and look at the possible consequences for the market.

Trump is clearly in danger of impeachment and the stock market will not like that.  Clinton’s lying about his affair was nothing compared to what Trump has done.  Remember that attempting to obstruct justice equals the crime of obstruction of justice in legal terms.  If two or three witnesses testify you attempted to bribe them, you’re guilty of obstruction of justice.  Scroll down when you click HERE to read about what the market did around the time of Clinton’s successful impeachment in 1998.  It was not pretty.  Buying low paid off! 

2020 Election Risk: June Democrat debates are on their way with Joe Biden still the track favorite.  Read my comments on this HEREBiden is still about 8% ahead of Trump in a one-on-one poll.  Please note that this is about the same lead Clinton had prior to her defeat.  The Dems have no chance of coasting to a victory.  They must work hard for it.

Deficit Threat: Moderate, but more an issue when rates are rising, not when stable to falling.  This is an ongoing threat to our current system, and fiscal liberal Trump and Congress seem to care less about it by their actions.  There are no high profile GOP leaders who are deficit hawks.  That species is extinct. 

Fed Rate Hike Risk to Fed Rate Cut Risk:  Much lower risk of a hike for now.  The market now expects a rate cut by September due to economic slowing accompanied by a profit recession.  Some expect two cuts in 2019, the second in December.  A cut is a risk because it’s the opposite of what happens in a growing economy.  It could obviously goose the market for a while.  Quick and/or large cuts would help the market.  Look what “going dovish” did in 2019!  In the end, the economy could slow enough that the Fed will be back in a race toward zero interest rates.  That would mean huge gains in bonds still lie ahead.  Buy long bonds/Treasuries when rates bounce.   Be ready to dump a lot of that exposure if Trump swoops in with China and Mexico trade deals and buy some stock exposure. 

What’s my SP500 Index downside market timing target?  I covered that several weeks ago at the end of the SP500 section #1: HEREI have more cash than I would normally in a Bull market, because of the catalyst risks noted above.  I’ll update my current allocation to equities by Sunday on social media (links below).  My belief currently is that my cash will pay off when I’m able to add to equity exposure at lower prices (at least 10-20% off the top).  It has NOT paid to hold extra cash recently other than to collect interest of about 2.3ish%. 

You can ALWAYS perform “with the market” if you always stay fully invested in your maximum Bullish equity exposure to the SP500 Index and other indexes in your investment plan (small cap, mid cap, and foreign exposure etc.) and rebalance those exposures when they slip or rip.  That means to outperform the market using the indexes themselves via ETFs, you must sell exposure higher and buy it back lower.  

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):

SP500 Index market timing. Stock decline continues.

The decline continues.

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Outright Bearish but has already entered its very own Bear Market at about 26% off right now.  It’s attempting to find some support at this level.

Bank of America (BAC) Market Timing Signal:  Negative.  Fell on increased volume as rates dropped further – again this Friday.   As long as rates move lower, so will BAC.  It has already corrected over 50% of the move from the Dec. low, and is at the center of its downtrend channel.

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 34,011 investors are following the markets with me…

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Join the Conversation in the StockTwits “MarketTiming” Room

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of  -15.29 vs. -11.37% last week.  This is negative, as virtually no Bears have been added vs. two weeks ago when the market was higher and just below the 50 day mav.  Now it’s below the 200 day mav. and investors still are not fearful enough for us to call a bottom.  You will see a bounce in stocks when rates bounce, however, but don’t be sucked in too easily.  Rates are stretched to the downside now and are due a bounce. 

Make sure to read the following sections, because they will give you two more clues as to where the stock market will trade! 

Bulls Neutrals Bears
24.79% 35.12% 40.08%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Stay out.  How’s that for simple? 

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

Small caps are the worst place to hide in a downturn.

Not a good place to hide when the market is correcting.

 3. Gold Market Timing (GLD): Gold broke up and out from the downward Bullish wedge.  It’s about time!  Look at that beautiful volume confirmation as well.  Stay with that trend for now.  123.19 is a reversal number and the close was just above it on Friday. 

Caveat?  Things can change on a Trump tweet dime, but will require substance this time in the form of trade dispute resolutions with China and/or Mexico.  Either now would cause a market counter trend rally.  The trend is down, so the counter moves can be strong and then be faded.  Clearing up both Mexico and China trade deals would induce a major bounce though, so be aware of that in your trading. 

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

Gold breaks out.

Above the wedge and then some…

4. Interest Rate Market Timing – The 10 Year Yield is now stretched to the downside and due for a bounce.  A further collapse would trigger a cascading sell off in stocks.  Watch interest rates closely this week!  Stocks have room to fall another 5% or more from here for sure, but it does not happen in one move necessarily.  The latter requires real panic, and investors are not panicked yet.

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):

Interest rates collapse further.

Rates collapse further but are now stretched to the downside (TLT is stretched to the upside). Due for a bounce!

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

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

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

Stock Signal RED for a further U.S. stock market rally with a Bearish SP500 Index trend.  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!) closed at 18.71 vs. 15.85 last week.  These are the other targets: 13.31, 14.04-14.08, 15.04, the “fulcrum” point = [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 ZERO of 8 targets.   

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. 

STILL HOLDS 4-26-19: G*LD has to rise above 123.19 on an immediate basis (* added to throw off the “crawlers,” as I don’t like being part of “consensus.”)   IT HAS NOW!  Close was 123.33 Friday. 

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 would hurt U.S. stocks. 

Rate Signal RED for a further stock market rally with a Bearish 10 Year Yield Trend.  Rates usually RISE slowly in a strong recovery and the stock market rally continues, as I’ve repeated multiple times on social media as well as 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  is collapsing and closed at 53.50 vs. 58.63 last week. term (weeks to a few months). 

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.

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, go HEREIt makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.  Check it out with a free trial at the link above.  I am an affiliate of Worden Brothers, though oddly I’ve never been paid a cent by them.  If you HAVE subscribed to their service, please send me a message. 😉

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 5-17-2019 Close: “A Tentative Stock Market Bounce. But There’s Blood in the Alleyways. Gold Back to Wedging Down as Rates Test Recent Lows.”

A Market Timing Report based on the 05-17-2019 Close, published Saturday, May 18th, 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.

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

As FactSet put it this week:

“The market has rewarded positive earnings surprises less than average and punished negative earnings surprises more than average during this earnings season.”

The losers dropped 1% more than they have in the past 5 years and the winners rose only an additional 0.3% per their dataWhat I meant by that “Blood in the Alleyways” expression was that alleyways lead into streets, given the common expression in a crashing market of “There is blood in the streets.”

There is certainly no “Blood in the streets” of late, but there are individual stocks (alleyways) that are flowing with blood.  Gruesome, yes if you have held a stock such as Intel of late.

I’ve been emphasizing for weeks now to pick your stocks carefully.  The market will reward solid growth and solid balance sheets.  It will punish the losers mercilessly. Why?  Because growth is slowing globally.  Stagnating stocks are sold quickly and money is moved to the reliable growth companies.  Examples of the “bloody alleyways”?  INTC -24.7%.  KLAC -15.8%.  XLNX -26.0%.   These are individual stocks in their own Bear markets.

How bloody will it get?  We will check up on the technical strength of the market, but I gave you my “greater pullback” target in the issue from the first week in May (see links to upper right).  This is simply a level where I believe buyers would step in with greater certainty.

This week we had a bit of a bounce after Monday and then a slight rollover back below the 50 day moving average (mav) of the SP500 Index.  Since President Trump can induce a recovery rally with a few positive words about the China negotiations, it’s pointless to claim the market will reach any lower target in the near term.  If the situation were to grind on and on and on, the market could suffer another leg down.

There is a big divide in the market between growing and shrinking companies in 2019.  One growth stock mentioned two weeks ago, VEEV, with an off-the-charts valuation of EV/EBITDA of 83.01 is down only 2.70% from its all time high. That’s nearly the same pullback the SP500 Index has seen of 2.77%.  Since VEEV has a beta of 1.67, we’d expect it to be down 1.67 X 2.77% or 4.63%.  That means that despite the recent market dip, VEEV investors are still convinced that VEEV is a winner and will grow its revenue and earnings much faster than the SP500 Index, which is struggling to grow earnings at all amid higher costs and a deceleration of growth of the global economy.

Selling a stock because it’s expensive is not a successful strategy, because successful companies always become more expensive than they were when they were fumbling around.  You could take off some profits, although that will blunt your returns.

Here’s the math.  If you take off 100% of your principle at 100% gain, you would clear a profit of $550 from a $100 investment by the end of a 10-bagger run (you make 10 times your initial investment, but since you took out half at the 1-bag spot and pocketed $100, that means only $50 (half of your investment) makes it the whole way to the 10-bagger point. That becomes $500 minus your initial investment of $50, with your $100 profit added = $550.  A full 10-bagger on $100 = $1000 (ten times your initial inv.) and that leaves a profit of $900.

That means “taking 100% profits when they accrue” would leave you with 61.1% of the profits vs. holding the position from a zero gain to a 10-bagger gain.  Remember though, you’ve reduced your risk by selling some “early,” because you are playing with house money (profits).  Your principal is secure and you may be less tempted to sell your position due to a temporary spike in volatility.  That means you may make MORE money in the end by taking the 100% profits off the table. 

Say you kept the stock until it was a 6-bagger (worth $600) and sold it all because the market then corrected and your stock, being more volatile (higher beta) fell much farther, say 20% vs. the market’s 10% fall.  That would mean your position would be worth 80% X $600 or $480.  So you bail from the entire position at the very bottom, because you just can’t take watching it fall any more, and your gain is $480-$100 (orig. investment) = $380 profit or $380 vs. $550 or 31% less in profit than if you sold your principle at 100% profits and rode the house money all the way, because you bailed early on your 10-bagger.

What creates very high tech stock valuations?  Why would investors pay up so much for the stock?  For comparison sake, MSFT and AAPL both sold for an EV/EBITDA of about 10 a few years ago.  Now?  MSFT is at 18.06 and AAPL is at 11.66.  Apple is not growing its unit sales in iPhones of late, hit hard by falling purchases in China, while MSFT is still benefiting from cloud expansion and its Windows 10 upgrade cycle, major contributors to its growth. MSFT has control of 82% of the operating system market.

What’s the leading smartphone producer in the world?  Samsung is the leader in unit sales with 27% share vs. Apple’s 24% share as of Sept. 2018 as noted HERE.   That means the “moat” Apple has is worth somewhat less than Microsoft’s.  Apple made $11.89 over ttm/$189 current price = Earnings Yield of 6.29% (Data HERE).  That means if Apple can just maintain its profit margin and keep the replacement cycles going over time, and innovate enough to keep up with Samsung and others, and does not grow it’s revenues much, it could act like a bond for investors, supplying income without much growth at all.  However, analysts are now expecting revenues to decline by 3.5% from 2019 to 2020.  The stock is in a correction, now 12.2% off the top.  

Investors are seeking growth and are willing to risk a market valuation readjustment (fall) that could impact the premium they are paying for MSFT vs. AAPL.  The good news for VEEV, which has a valuation 4.6 X that of MSFT, is that the company would not likely be bid up to that valuation if it were not a solid company with a solid story (short of fraud of course), but the bad news is that the price can adjust severely in a general market sell-off.  I’ll let you decide if the VEEV story is solid or not.  I do not own the stock currently.

Is there risk embedded in the high valuation of VEEV’s growth?  Yes. VEEV fell 26.9% from its Sept. 2018 high to its Dec. 2018 low.   MSFT fell 19.1% by comparison, while SP500 Index fell 20.2% (intraday #s used).  That gives you an idea of what could happen again, if the market corrects again as it did from Sept. to Dec. and almost all stocks become correlated in a rapid market decline.  Investors are paying for VEEV growth from 2019 to 2020 of 17.8% in earnings and 17% in revenues.  Is the price too high for that level of growth?  This is the question the market asks of every company, every day.

If the PEG ratio were 2.0, that would mean the forward PE of VEEV would be 35.6.  It is 64.14 on a forward basis per Yahoo Finance.  The valuation is stretched and if the stock fell 44.5% it would arrive at a PEG ratio of 2.0.  MSFT is expected to grow earnings by 18.3% from 2019 to 2020 and revenues by 11.o%. At a PEG of 2.0, the PE would be 36.6, and it’s 25.06 now.  So comparing VEEV to MSFT and assuming the market would allow for a PEG of 2.0, one would say for current growth, VEEV is overvalued by 44.5% and MSFT is undervalued by 46%. 

That “undervaluation” is relative remember, because I’m assuming  PEG of 2.0 for MSFT.  If we assume a more modest 1.5 PEG, MSFT implied PE = 27.45 vs. a current forward PE of 25.06.  That means upside of  9.5%.   That tells me that unless growth slows dramatically from here, MSFT does NOT look expensive.  VEEV does look expensive. 

I would protect profits in VEEV, take out 100% profits if I had them using a fairly tight stop, and check the volatility level, and decide how much slack to give the house’s money (decide how much of your profits you are willing to lose; your principle is now off the table).   If you set a 5% stop on VEEV other than to preserve profits with a partial sale, you’ll never make it to a 10-bagger on your remaining “house money” position.  It’s too volatile for such a stop.  But you could set a stop for preserving 100% profits if you have them and then another wider stop to account for significant volatility along the way.

All your stocks need this sort of checking, so use the link above to be sure you are getting the growth for which you are paying.  Facebook will grow its revenue by 21.2% from 2019 to 2020, but its earnings per analysts will fall by 6.9% over that period.  Should investors pay for an EV/EBITDA of 17.98 with earnings falling?  If so, why?  Do you believe the “why”?

Again, after the action this week, despite these concerns about areas of overvaluation in the market, I do yet do not believe the market has topped, even if it pulls back into a full correction (definitions I use are here; scroll to : “New Rules”)

Let’s check in with the earnings trend again…

Earnings Risk: what is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 5-17-19 (details HERE)…

Only an additional 2% of companies in the SP500 Index (92% total) reported this week, and earnings growth for Q1 remained at a -0.5%, which if unchanged would represent the first quarter of earnings recession.  Companies are selling more and making less money on the sales.  Q2 is already expected to show an earnings contraction and Q3 could turn negative over time.

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

For Q1 2019, analysts are projecting (mostly reported!) earnings growth of -3.6% -> -4.3% -> -3.9% -> -2.3% -> -0.8% -> -0.5% -> -0.5%.

and revenue growth of 4.9% -> 4.8% -> 5.0% -> 5.1% -> 5.2% -> 5.3% -> 5.3%.

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

and revenue growth of 4.6% -> 4.2% -> 4.4% -> 4.3% -> 4.3% -> 4.3% ->4.2%.

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

and revenue growth of 4.4% -> 4.1% -> 4.4% -> 4.4% -> 4.4% -> 4.3% -> 4.3%.

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

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

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

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

Are the Bulls serious?  As I asked six weeks ago…

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

Let’s check that list once again…

1. New high.  Nope.  The SP500 Index failed a breakout above the 9-21-2018 high and is now down 3.21% off the new ATH of 2954.13 (it’s a dip, so far, as defined by my “New Rules” HERE).

2. VIX below the “Bull Nirvana Number” AND my bonus number?  No.  With a 15.96 close on Friday, just as last week, it’s landed exactly within the “fulcrum range”  (see VIX targets at base of report) once again.  The market can cut either way from here.

3. AD % Line: No go. 16,277 vs. 16,385 vs. the prior high of 16471 on 5-01.  Needs a new high now, although it did bounce with the market after the Monday drop.

4. Volume: No go. Actually notably negative as volume was higher on ALL days the market fell from the top, and it did not rise on the up days.  The story is the same for IWM and for IJH, except on Friday, when IJH volume fell as the market fell, and its price dropped 1.11%.

5. The “U.S. Index Matrix Signal” as I call it: No go.  Both small caps and mid caps have rolled over to fall below their 50 and 200 day mav’s.  

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

China Deal Risk:  President Xi supposedly reneged on his prior agreements and Trump called foul!  They are not talking for now with no dates set.  Negative for all companies doing business in China.

U.S. Iran War Risk: From NBC on why Congress, even Republicans are not happy with the Presidential use of war powers without Congressional approval. Ref.  The risk of war continues to rise.   You can see bubbles in the pot, but it’s not boiling fully yet.  Iran says it’s not interested in a war.  If attacked, it would be.

Mexico Border Closing Risk: President Trump folded under Republican pressure.  It’s not going to happen unless things get much worse.

Mueller Report Risk: I covered this HEREThe likelihood of a Trump impeachment has fallen.

2020 Election Risk: June Democrat debates on their way with Joe Biden still the track favorite.  Read my comments on this HERE

Deficit Threat: Moderate, but more an issue when rates are rising, not when stable to falling.  This is an ongoing threat to our current system, and fiscal liberal Trump doesn’t have a fiscal conservative bone in his body.  He warned us saying “I love debt!” before he was elected. 

Fed Rate Hike Risk: Low.  The Fed is stuck in neutral with opposing forces of rising oil prices and falling global inflation.

What’s my SP500 Index downside market timing target?  I covered that last week at the end of the SP500 section #1: HEREI have more cash than I would normally in a Bull market, because of the catalyst risks noted above.  I’ll update my current allocation to equities by Sunday on social media (links below).  My belief currently is that my cash will pay off when I’m able to add to equity exposure at lower prices (10-20% off the top).  It has NOT paid to hold extra cash recently other than the interest of 2.3ish%. 

You can ALWAYS perform “with the market” if you always stay fully invested in your maximum Bullish equity exposure to the SP500 Index and other indexes in your investment plan (small cap, mid cap, and foreign exposure etc.) and rebalance those exposures when they slip or rip.  That means to outperform the market using the indexes themselves via ETFs, you must sell exposure higher and buy it back lower.  

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

NOTE: The last volume bar is not correct.  SPY volume was higher vs. the prior day on Fri.   The close Friday was just barely above the low of the prior consolidation beginning on 5-07.  Being above trend (downward slanting yellow line) is good, but the market could cut either way on Monday with this set-up.  I call that “NEUTRAL” as a trend as noted in the signal section below, based on my net technical assessment.

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

Not out of the woods yet.

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Outright Bearish.  Discussed above.

Bank of America (BAC) Market Timing Signal:  Negative.  Fell on increased volume as rates dropped further.  Down on Mon. and failed to rally with market, because rates fell back to test the prior lows.

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 33,951 investors are following the markets with me…

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Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of  -9.48% vs. +19.93% last week.   Investors could become a lot more Bearish than this, and this is the first negative number since sentiment turned positive in the 1-09-2019 poll reported on 1-10-2019.  The swing was big enough to allow for a bounce, but we’ve had that, and now small and mid caps are leading the way down.  I read the sentiment numbers as negative for the near term, which would lead to a deeper correction, not just a “dip” as I define it in my “New Rules.”

Bulls Neutrals Bears
29.82% 30.88% 39.30%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Small caps had a Bullish engulfing day that did not produce gains.  As I said last week, candlestick signals work a certain percentage of the time, more than not, but the not is what we got!  Have been staying out of most small caps for a reason (see prior issues).  Stick with the growth winners, but if they fail to produce, cut them from your roster. 

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

Leading the market down.

 3. Gold Market Timing (GLD): Rates fell but the dollar rose for the past 5 days. That has pressured gold again.   It’s back in a Bullish wedge, but less Bullish for having lost its trend.  GLD failed a milder looking downward wedge back in April to July 2018 and just kept falling, so I’d call GLD at least short term Bearish.  That says investors are “running to” dollars and U.S Treasuries, not gold.  When our dollar strengthens gold drops.

When financial panic occurs, gold and USD can go up together, but we’re not there yet.  If the Fed cuts rates should things unravel further or even if led by the nose by the bond/Treasury market, the dollar will weaken and gold will rise.  So I choose to be patient for now with my smaller trading gold position and of course, my core long position.

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

Slipped back into the downward wedge (yellow lines). Not what we wanted to see, though it still could be resolved to the upside.

4. Interest Rate Market Timing – The 10 Year Yield FELL this week from 2.455% to 2.393% from Fri. to Fri or 6.2 basis points after falling 7.6 basis points the prior week.  This is a Bearish signal for the U.S. economy.  The test above 2.554% failed on 5-03-19, the first target for the Rate Bulls.  

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):

10 Year Treasury Rates Falling

Testing the prior low.

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

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

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

Stock Signal RED for a further U.S. stock market rally with a NEUTRAL SP500 Index trend.  The 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!) closed at 15.96 vs. 16.04 last week.  These are the other targets: 13.31, 14.04-14.08, 15.04, the “fulcrum” point = [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 still have 3 of 8 targets.  Bears 4. And one tie. Same as last week, though the score went to Bulls 0/Bears 8 this past week, and then recovered. 

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

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

STILL HOLDS 4-26-19: G*LD has to rise above 123.19 on an immediate basis (* added to throw off the “crawlers,” as I don’t like being part of “consensus.”) 

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 would hurt U.S. stocks. 

Rate Signal RED for a further stock market rally with a Bearish 10 Year Yield Trend.  Rates usually RISE slowly in a strong recovery and the stock market rally continues, as I’ve repeated multiple times on social media as well as 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 was stable this week and closed at 62.92 vs. 61.66 last week. term (weeks to a few months). 

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.

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, go HEREIt makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.  Check it out with a free trial at the link above.  I am an affiliate of Worden Brothers, though oddly I’ve never been paid a cent by them.  If you HAVE subscribed to their service, please send me a message. 😉

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 5-10-2019 Close: “Bulls In A China Shop. Which Companies Will Rally Despite the U.S. China Trade War? Gold Rises on Rate Drop.”

A Market Timing Report based on the 05-10-2019 Close, published Saturday, May 11th, 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.

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

We’ve been monitoring a number of risks that have been percolating along, but as you are well aware since the January to February 2018 sharp decline in the markets, volatility does not send you a letter before appearing.  It rises quickly, sometimes with zero warning from very low to a very high.  This week our “VIX Game Score” went from Bulls 7/Bears 1 at the end of last week to Bulls 0/Bears 8 on Thursday and then at Friday’s close back to what I am calling the current “fulcrum point.”  The current score?  Bulls 3/one point a tie/Bears 4.  A split decision…

What was the volatility stimulus?  China risk rose dramatically this week as President Trump and company (U.S. Trade Rep. Lighthizer and Sec. Mnuchin) entered what was hoped to be a final negotiation battle to resolve the U.S. China trade dispute.  The President claims China changed its negotiating position at the last minute, about which he said “You can’t do that!”  Apparently, if you are Supreme Lifetime Leader of China, you definitely can do that.

Markets staged a nice reversal on Friday after hitting a fresh recent low earlier in the day based on one word Sec. Mnuchin had about the Friday China trade talks: “Constructive.”  The SP500 Index was only -2.46% from the all time intraday high at Friday’s close after being -4.36% at the low on Friday.

I had warned last week:

“The hyper-Bulls, and there are many today, will tell you the market will always go higher, and they never sell any exposure no matter how high their stocks go, at least until it’s “late to be selling.” The hyper-Bears have mud on their face for clinging to their Bearish stance after December.” 

I do not believe the market has topped, even if it pulls back into a full correction (definitions I use are here; scroll to : “New Rules”)

What about the predicted 2019 revenue growth rate for the SP500 Index?  Per FactSet it’s steady at 4.7% as of Friday.  

Let’s check in with the earnings trend again…

Earnings Risk: what is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 5-10-19 (details HERE)…

The earnings numbers for the SP500 Index improved slightly for Q1, now almost completely reported, but are, as last week, slightly worse for the coming three quarters.   Revenue estimates ticked up a bit for Q1, but were steady for Q2 and ticked down for Q3 and Q4. This new look is with 90% of companies reporting.   FactSet says “The percentage of companies issuing negative EPS guidance is 79% (65 out of 82), which is above the 5-year average of 70%.”

It’s interesting that only 82 of about 450 companies that have reported even bother to issue guidance to analysts.  Have you ever asked yourself why analysts estimates are often within a very small fraction on both earnings and revenues, when generally they receive no guidance?  There are surprises for sure, but there are many non-surprises.  It should only be easy to come close to the actual results if a company is not growing or is barely growing.  That they do far better?  Suspicious.

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

For Q1 2019, analysts are projecting (mostly reported!) earnings growth of -3.6% -> -4.3% -> -3.9% -> -2.3% -> -0.8% -> -0.5%

and revenue growth of 4.9% -> 4.8% -> 5.0% -> 5.1% -> 5.2% -> 5.3%.

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

and revenue growth of 4.6% -> 4.2% -> 4.4% -> 4.3% -> 4.3% -> 4.3%.

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

and revenue growth of 4.4% -> 4.1% -> 4.4% -> 4.4% -> 4.4% -> 4.3%.

For Q4 2019, analysts are projecting earnings growth of 8.1% -> 8.3% -> 8.2% -> 8.1% -> 7.5% -> 7.4%.

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

For CY 2019, analysts are projecting earnings growth of 3.8% -> 3.4% -> 3.4% -> 3.6% ->  3.4% -> 3.3%.

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

Are the Bulls serious?  As I asked six weeks ago…

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

Let’s check that list once again…

1. New high. The SP500 Index is off the prior high by 2.46% as said, but still above the 10-17-18 high, which was fairly closely tested with a low of 2825.39 and also above the Jan. 2018 high of 2872.87, which was a stretch back when it was achieved (the market then proceeded to collapse with a massive volatility volcano, as I called it then)  No check this week, but that the test of the Oct. high was successful is a positive.  A deeper test at least to the Dec. high of 2800.18 or the 200 day mav of 2776.04 (changes daily) would be healthier.  Without China resolution, we won’t be moving to new highs, unless the administration signals the delay will be relatively short to the endpoint. These are my short term target thoughts.  My longer term downside target is discussed below.

Whether the market consolidates while it waits (moves sideways) or falls another step lower is complete guesswork.  Don’t trade or invest based on guesses.  If you are doing any buying, find those companies that are not dependent on the China trade deal or global trade in general and that have strong revenue and earnings growth.  Those companies could have a bid, while the rest of the market stagnates or drops further.

Read the FactSet report which gives the returns on companies that are U.S. local vs. global.  HERE is one article from CNBC on thoughts by David Kostin on what to buy and what to avoid.  Of course, rotating out of China exposure works while the tariffs are on and then everyone will be pivoting to companies doing business in China, as well as to Chinese stocks.  Jack be nimble…Jane be quick…  I am not yet selling my China exposure as it is significant, but it’s sized well, meaning I could simply hold it on any pullback and add once things have stabilized. 

2. VIX below the “Bull Nirvana Number” AND my bonus number?  No with a 16.04 close on Friday, exactly within the “fulcrum range”  (see VIX targets at base of report).

3. AD % Line: 16,385 vs. 16,463 last week vs. the prior high of 16471 on 5-01.  The market could easily move into another wave down early next week if the China talk resolution date is moved out too far into the future. 

4. Volume: No check because volume FELL on Friday.  It should have spiked on such a big reversal.  For small and midcaps, however, the volume was decent.  Mixed review here.

5. The “U.S. Index Matrix Signal” as I call it:  The matrix is again supportive this week (e.g. small caps; see section 2 below).  Small, mid, and large caps on Friday reveal what are called Bullish engulfing patterns (IWM, IJH, SPX). Interestingly, SPY showed a Bullish piercing pattern at the close, but not an engulfing pattern in contrast to the index itself (SPX).

Candlestick signals are NOT 100%, and it’s hard to find statistics on all of the candlestick signals (if you have a reference that is comprehensive, comment below please).  I am not a candlestick focused investor, but I pay attention to the signals within the context of the market trend and the news context.  This week, they add a Bullish spin to the price action.

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

Mexico Border Closing Risk: President Trump folded under Republican pressure.  It’s not going to happen unless things get appreciably worse, as it would disrupt trade and U.S. GDP growth.  It’s interesting how fast certain issues are lost from the news flow.

China Deal Risk:  Center stage, as discussed in detail above.

U.S. Iran War Risk: From BBC: “The US said the moves were a response to a possible threat to US forces in the region by Iran, without specifying. Iran dismissed the claim as nonsense.” Meanwhile Patriot Missile system has been sent to the area and “the USS Abraham Lincoln passed through the Suez Canal on Thurs., US Central Command said.” B52 Bombers have also been deployed to the region.  BBC Reference

Mueller Report Risk: I covered this HERE.  My conclusion was Trump’s risk of impeachment has declined dramatically, but this could change suddenly WHEN Mueller shows up to testify.  He will testify.  Trump is simply delaying it as long as he can.  Congress has the constitutional right to oversight and the country deserves to know whether Mueller intended for the House to take up the impeachment case for obstruction acts that many former prosecutors say are criminal.  It is claimed the only reason Mueller did not indict the President is because of the DOJ rule that says you cannot indict a sitting President.  Here is their STATEMENT.

It’s the House’s job to impeach the President if they find grounds to do so, not Mueller’s job to indict him.  It’s that simple.  Trump saying “No obstruction” does not make the whole thing blow away.  Remember, Nixon was not the mastermind of the Watergate intrusion into DNC headquarters and did nothing EXCEPT obstruct justice, and he would have been convicted by the Senate had he not resigned. 

2020 Election Risk:  Read my comments on this HERE If the economy and the stock market are strong at the time of the election, it will be hard for any Democrat to beat Trump, especially if they lean toward greater socialism.  But socialist Sanders is far behind Biden.  This week Trump again trails Biden by 7.3% as reported HERE. Yes, Clinton also ran ahead of Trump for many months, and yes, it’s early.

The markets will not like it if Biden wins, as corporate rates would likely go up to at least Sen. Klobuchar’s suggested 25% from 21% and individual rates would rise as high as Obama’s 39.6% for those making over $418,000 per year.  I smell a million dollar tax bracket coming too, perhaps at 42%.  Estate taxes would also reappear under Biden: a 35 percent tax rate on estates worth over $5 million for individuals or over $10 million for families was the prior policy (tax tables HERE).  

The Democrat VP pick one of my loyal readers and I agree upon is Klobuchar, who can help Biden off the coasts where Trump won the 2016 election.  Harris is doing better in the polls than Klobuchar by a significant margin, but would be more suited to U.S. Attorney General in my view, and she’s West Coast.  Trump has already tweeted this week he expects to run against Joe Biden, calling him names of course. 

Deficit Threat: Moderate, but more an issue when rates are rising, not when stable to falling.  This is an ongoing threat to our current system, and fiscal liberal Trump (it’s a fiscal liberal who spends more than he has!) is guilty of adding to this ticking clock.  See my comments HERE.

Fed Rate Hike Risk: Low.  The Fed is stuck in neutral due to rising gas prices and globally falling inflation with negative interest rates in Europe and Japan.  China tariffs are paid by U.S. importers and are passed on to U.S. consumers (China does not pay them as Trump says; they are hurt by them, but do not pay a cent directly).  If that adds enough to inflation, the Fed will be forced to hike rates.  Trump could ironically be the cause of the next Fed hike.

The markets would NOT like even a 0.25% hike as we say in December in the wrong context – such as NOW.  From that experience, rate hikes are a threat to the Bull market, again, only if driven by higher inflation, which has been relatively tame.  Core CPI came in at 2.1% Y/Y, while CPI was 2.0%.  This is in contrast with the Core PCE Inflation Index, which has been trending down each Month from January to March as follows: 1.8%, 1.7%, 1.6%.  The next report is on May 31st when April data will be reported by the BEA.

What’s my SP500 Index downside market timing target?  I covered that last week at the end of the SP500 section #1: HERE.  We could definitely see a greater pullback, given the risk catalysts I’ve noted above.  Because of that risk I have more cash than usual, but not as much as I’d have in a Big Bear Market as I call it in my “New Rules.”

Write down the target numbers from last week’s issue.  It’s a good practice to keep a notebook as I have for years with these numbers, so you can refer to it during the week.  I use steno pads, but any other bound notebook will work.  Bound, not loose leaf, because you want to treat it as a record of your thoughts and actions.

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):

SP500 Index Market Timing Chart for 5-10-2019 Close

Down but not yet out.

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Outright Bearish.  Intel is down 13 of the last 14 days. Bearish enough?  Fell straight through 50.60 to 46.20.  It should continue falling to the December low…at least.  I would not short it personally.  It will rocket back up as soon as the U.S. China Trade Deal is announced.

Bank of America (BAC) Market Timing Signal:  Negative, but…  Although BAC closed back below the high of 30.14, and is now at 29.58, the upside for rates in the short to intermediate term is not great, so financials’ prospects are also not great.  A twist?  Because XLF is doing just slightly better than the SP500 Index, that tells me investors do not believe rates are headed much lower.  That assumes global economic healing and accelerating global growth in revenue and earnings in the coming months. Failing that, rates will fall still lower, the Fed will cut rates, giving up on being “neutral,” and financials will fall faster than the SP500 Index.

How about financials vs. tech in this little pullback? Tech is slightly trailing the SP500 Index, which is slightly trailing XLF off the last high.  I would still prefer buying tech over financials should the market drop another step down.  Tech (XLK) has outperformed all other sectors since the Dec. low.  I’ve also added some individual tech exposure on this pullback. 

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 +19.93% vs. +17.72 last week.  The highest sentiment has risen in the entire trailing year is 23.1% back on June 13, 2018, and the reading this week is close to that.  A similar level achieved on 4-10-2019 of 19.9% resulted in a sideways move followed by a very gradual inching up of the SP500 to the 5-01-2018 “Go Away in May” high.  And then the current drop started.  Bottom line?  Sentiment is at a relative high vs. recent history, but not at a “This is the Big Top” sort of high, which we last saw during the blow-off rally in Jan. 2018.

Bulls Neutrals Bears
43.12% 33.70% 23.19%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Small caps had a Bullish engulfing day Friday as mentioned above, but they lost the breakout above 159.50, which is a negative.  I’d call that picture mixed.  They are higher risk (high beta), so don’t load up the boat with small caps unless you are buying individual rapidly growing, well capitalized companies.  A further general market decline will take them down farther than large caps.  A plus?  Many of the companies are not China dependent. 

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

Small cap Bullish Engulfing Signal 5-10-2018

Stick with individual companies if you can tolerate the volatility.

 3. Gold Market Timing (GLD): Rates fell with the dollar flat, gold rose.  Any questions?  Keep some gold insurance, perhaps 5% of your investable net worth. Gold also likes a weak stock market.  Notice it rose to the top of the wedge shown (yellow lines)?  It must cut UP through there early in the week or it could easily slump again.

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

Market Timing the Gold ETF 5-10-2018

Gold up with rates down.

4. Interest Rate Market Timing – The 10 Year Yield FELL this week from 2.531% to 2.455% from Fri. to Fri or 7.6 basis points, as we say.  That is Bearish for the U.S. economy.  The test above 2.554% failed on 5-03-19.  The downtrend is still intact until that number is breached to the upside.

Prior: “Note: The key levels for the Rate Bulls to cross to the upside are 2.554% and the 1-31-19 low of 2.626%.”

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):

10 Year Treasury Yield Falling is a negative.

10 Year Yield back near prior low.

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 NEUTRAL SP500 Index trend.  The signal here 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!) closed at 16.04 vs. 12.87 last week.  These are the other targets: 13.31, 14.04-14.08, 15.04, the “fulcrum” point = [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 now have 3 of 8 targets.  Bears 4. And one tie.

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

Gold Signal YELLOW  for a further U.S. stock market rally with a NEUTRAL Gold Trend.   What gold does mostly as I’ve written HERE is follow real interest rates.  Testing the Bullish wedge as seen above.  Needs a push UP Monday.

STILL HOLDS 4-26-19: G*LD has to rise above 123.19 on an immediate basis (* added to throw off the “crawlers,” as I don’t like being part of “consensus.”) 

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 would hurt U.S. stocks. 

Rate Signal RED  for a further stock market rally with a Bearish 10 Year Yield Trend.  Rates usually RISE slowly in a strong recovery and the stock market rally continues, as I’ve repeated multiple times on social media as well as 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 was stable this week and closed at 61.66 vs. 61.94 last week.  I expect oil could rally again even if it eventually makes a lower low over the intermediate term (weeks to a few months). 

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.

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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 5-03-2019 Close: “Will the SP500 Bulls Fail Their Second Try at a New High? Gold Reverses Up in a Seventy-Four Day Downtrend. Rates Rise on Prudent Powell, Fall On Dovish Bullard.”

A Market Timing Report based on the 05-03-2019 Close, published Saturday, May 4th, 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.

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

Friday’s Employment Situation report on Jobs was good news for Trump and the country. The ADP Employment report gave it away ahead of time by being overly strong vs. consensus, but on Friday, the U.S. Labor Dept. numbers confirmed it, moving the SP500 Index back above a key market timing high, the prior ATH (All Time High).

New highs are POSITIVE, not negative as most investors believe who trail the market with a 3% average annualized return vs. the market’s typical return of 8-10%.  Don’t be a 3%-er!  When many investors see a new high, they say “I missed it.”  Sometimes that is the case, but only if you see a breakdown back below the breakout.  Yes, you must be willing to change your mind if things change, or you’ll risk being caught holding the bag. But if you continue to believe that higher stock prices mean you should not invest, you need to read and study the markets.

The hyper-Bulls, and there are many today, will tell you the market will always go higher, and they never sell any exposure no matter how high their stocks go, at least until it’s “late to be selling.”  The hyper-Bears have mud on their face for clinging to their Bearish stance after December.  You notice that most of them don’t recognize the market for what it is, but rather for what they assume it SHOULD BE?   As one of my mentors once taught, “Don’t SHOULD on yourself.”  You cannot change the past, but you can admit to it and learn from it, and then move on from it to higher highs in your net worth and overall happiness in life.

We know the market is a more frothy now as it was in early 2018, because we are back to the point in the market where cloud companies like Veeva Systems trades at a Price: Sales ratio of 24.2 per Yahoo Finance, while most would say a Price: Sales ratio over 10 is already “expensive.”  The chart of that company is tempting for sure, as after the 2018 drawdown into December of about 29%, it’s been a fairly steady climb.  The price corrected only 8% into March and then again by about 9% in April.   Meanwhile, it’s up about 80% from the December 2018 low.  Spectacular, right?  Yes, until they “miss” on their revenues and/or earnings and are pummeled by over 20% in two days as Xilinx (XLNX) was last week (and even it has bounced).  I bought some XLNX on the first day of that downturn by the way.  It is selling for 9.85 X Sales per Yahoo Finance.

Ten times sales is “rich” per most standards of valuation.  Many stocks reach higher values than “rich,” as VEEV has, because there are a limited number of companies that are growing sales by 14.3% as XLNX is or by 20.70% as VEEV is.  By comparison, Facebook sells for 9.47 X Sales.  Not cheap any longer, but not as extended as VEEV.   Facebook’s (FB) projected revenue growth this year?  A huge 24.3%. Does VEEV deserve a higher valuation.  Is its addressable market that much bigger?  Is its moat that much bigger?  That’s what you need to look at. Can you make money in stocks for the “wrong reasons”? Of course.

If you have not been comparing your investments, I’d start now.  Get rid of the ones that carry high risk with less revenue and earnings growth than other great growth companies, and add the latter to your portfolio.  As one person, you can only sanely follow 10-15 companies unless you are manic depressive, in which case you are feeding your illness!  If you depend on recommendations from others to invest, you had better be doing your own homework.  Many recommenders fall asleep on their positions and/or fall in love with them. Eventually, they are awakened by the market!  Better to “stay awakened.” 

You need to take 100% responsibility for what you own. If you don’t have time for each conference call the company holds, you do not deserve to own the company.  Sorry, but it’s the truth.  If you don’t have the time, you are an amateur and would be better off in index funds, because you will likely be beaten by the machines unless we are in a trending Bull market with no ups and downs like 2017.   Then came 2018!  2019 smells like 2017 or early 2018, which was followed by a sharp jerk down in the markets.

Don’t depend on ANYONE to tell you what to do. Listen and read, sure, but then decide for yourself, and again, take 100% responsibility for what you decide!  Do not blame Trump, the Fed, Fed Chair Powell, Pelosi, drug price controls, tsunamis, nuclear threats, or elections for your results!  Blaming others for your screw-ups is the way NOT to grow.  They are YOUR RESULTS alone.

What about the predicted revenue growth rate for the SP500 Index?  Per FactSet it’s 4.7%.   When growth is slowing around the world and earnings are falling (still -0.8% for Q1 2019 per FactSet after 78% of U.S. companies have reported), investors chase the best growth they find, wherever they can find it.  Highly valued companies can be bid still higher when such a chase is “on.” 

I would risk manage my profits in companies like VEEV, XLNX, and even FB, as no one can tell you when the market will turn over, and they cannot say whether the market will first rise another 30% before falling 25% or whether the current 2nd breakout for the SP500 Index will fail, and the market will correct significantly (you can read what I consider a “max correction” in a Bull HERE – scroll to “New Rules” and keep that page bookmarked for reference).

The SP500 Index is now testing once again ABOVE the prior Sept. 2018 ATH of 2940.91 (intraday high), closing on Friday,  May 3, at 2945.64. I predicted this retopping after the breakout above the Oct. 2018 high and invested accordingly.  I bought that breakout and bought on dips prior to that.  I told you I would, and I did.  

My exposure is lower than I would have advised for reasons that are specific to my financial picture.   I am deploying a cash infusion.  I would be OK with an exposure of 85-90% to the U.S. market and select foreign markets in terms of TOTAL equity exposure worldwide (e.g. see social media links above on what I’ve been buying in China and Hong Kong)  VERSUS my usual maximum exposure to equities.  I like the idea of having some excess cash now to buy the dips.  That 85-90% range of exposure means if you are usually at 60% stocks in a Bull market as your max. exposure, you would now be at 54% exposure to stocks worldwide if you choose to be at the 90% high end of the range vs. your usual “100% exposure” level of 60%.  And that’s only if you agree with me.  If not, just be sure to risk manage your under/over-exposure!  Remember, I give you my “% of max. exposure” because I want you to consider adjusting to YOUR situation and preferences, not mine. 

There is risk in being under-invested and in being over-invested.   Also, try to buy the dips in growth stocks, rather than chasing them.  I chased a stock on Friday, but it had specific news that explained its change in trend, which is why I bought it.  It was up another 11% or so after already being up roughly 12% earlier in the day.  I kept my position size small as you may have guessed.  If you don’t size your positions carefully, you don’t know what you are doing.  If you ignore position sizing, immediately run to the racetrack and put all your money on “Molly for Place.”  Same thing.  😉  Read about it if you don’t know what I’m talking about. Many of you do.

Let’s check in with the earnings trend again…

Earnings Risk: what is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 5-03-19 (details HERE)…

The earnings numbers for the SP500 Index improved slightly for Q1, but are slightly worse for the coming three quarters.   Revenue estimates ticked up a bit for Q1, but were unchanged for the rest of the year.  This new look is with 78% of companies reporting.   A total of 59 companies of the SP500 Index will report this coming week vs. 164 last week. 

For Q1 2019, analysts are projecting (mostly reported!) earnings growth of -3.6% -> -4.3% -> -3.9% -> -2.3% -> -0.8%

and revenue growth of 4.9% -> 4.8% -> 5.0% -> 5.1% -> 5.2%.

For Q2 2019, analysts are projecting earnings growth of 0.1% -> -0.4% -> -0.5% -> -0.6% -> -1.3%

and revenue growth of 4.6% -> 4.2% -> 4.4% -> 4.3% -> 4.3%.

For Q3 2019, analysts are projecting earnings growth of 1.8% -> 1.4% -> 1.3% -> 1.3% -> 0.8%

and revenue growth of 4.4% -> 4.1% -> 4.4% -> 4.4% -> 4.4%.

For Q4 2019, analysts are projecting earnings growth of 8.1% -> 8.3% -> 8.2% -> 8.1% -> 7.5%

and revenue growth of 4.8% -> 4.7% -> 4.7% -> 4.8% -> 4.8%.

For CY 2019, analysts are projecting earnings growth of 3.8% -> 3.4% -> 3.4% -> 3.6% ->  3.4%

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

Are the Bulls serious?  As I asked five weeks ago…

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

Let’s check that list once again.  I’ve added a 5th this week…

1. New high. Back to a new high. Check, but need to keep this going for more than a day or two!

2. VIX below the “Bull Nirvana Number” AND my bonus number?  Yes, 12.87 close on Friday, but above my Bull target #8, so only a partial check.  (see VIX targets at base of report).

3. AD % Line: 16,463 vs. 16,434 last week vs. the prior high of 16451 on 4-17.  But that’s only one day above that high as the market dipped for two days this past week. Partial check.

4. Volume: No check because volume FELL on Friday when the SPX closed UP 0.96%.  Volume has been declining most recently since 3-29-2019.  Good news?  Volume was UP for the week for the past two weeks, and the market was up for both weeks.  The last negative week was before Easter weekend and volume declined, which is positive too.

5. The Matrix Signal:  The U.S. Index Matrix is more supportive this week (e.g. small caps; see section 2 below).

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

Mexico Border Closing Risk: President Trump folded under Republican pressure.  It’s not going to happen unless things get appreciably worse.  To be fair, things have gotten worse due to the migration from Central America, but I’m sure we can deal with it without flipping out and alarming grandma into thinking she’ll be beaten up by a refugee next week.  Immigration is going to be needed if our country is going to pay its debts and keep Medicare and Social Security working and the U.S. dollar strong.  Our unemployment rate is low, and many of the people left don’t have the skills to fill the available jobs of which there are millions.

China Deal Risk:  Trump et. al. are very quiet lately, as trying to pump the market every week with more “It’s going well!” talk was starting to backfire.  There is going to be a “big, beautiful deal,” and if not, the markets may react mildly negatively.  They’ll like the fact that big tariffs are off the table in either case.

Mueller Report Risk: I covered this in full last week HERE.  My conclusion was Trump’s risk of impeachment has declined dramatically, regardless of how badly he’s behaved, which Mueller documented he had.  Even die hard Trump fans can understand Trump and company screwed up by not reporting the Russian contacts, instead of meeting with them.  And they can understand that telling Russia to hack us in a public speech is “not cool!”  We deserve better behavior from our leaders.  But being foolish and unethical is not apparently impeachable.  😉

2020 Election Risk:  Read my comments on this HERE If the economy is strong at the time of the election, it will be hard for any Democrat to beat Trump, especially if they lean toward greater socialism.  The risk went up though with Biden now in the race. This week Trump trails Biden by 7.3% as reported HERE, but it’s very early!  Remember coming from behind worked well for Trump in 2016 vs. Hillary’s coast to the finish, so the Dems have much work to do if they want the win.  And they’ll have to campaign up to the last minute this round to beat Trump.  I pointed out last week why the Senate races are so important.  That still holds!

Deficit Threat: Moderate, but more an issue when rates are rising, not when stable to falling.  This is an ongoing threat to our current system, and fiscal liberal Trump (it’s a fiscal liberal who spends more than he has!) is guilty of adding to this ticking clock. As said,Both parties intend to spend us into the ground and destroy the U.S. dollar, which is why I consider gold a long term hedge worth keeping.  The only thing that’s saved us is the US Dollar being the #1 reserve currency, which China intends to take from us.  If we lose that, our interest rates would skyrocket and cause a crash in the stock market.  It’s not a near term threat for the simple reason that the China, Japan, and Europe are simultaneously weakening their own currencies.”

Fed Rate Hike Risk: Low.  The Fed kept rates constant this Weds. at their meeting, and as I’ve been saying, Powell expressed he was not likely to either cut rates (as some had expected) or raise them immediately.  He is neutral, NOT dovish.  The market did not like that, but then liked the jobs report that was stronger than expected, making a big downturn less likely.  Also, Fed. Gov. Bullard who is a voting member this year said he thinks the Fed rate is about 0.4% too high.  It should be at 2% vs. 2.4% currently (range set at 2.25-2.50%).  From 4-18-19: “You know my stand on this.  The Federal Reserve is neutral, not dovish.”  Not cut, no hike, just neutral!  

So what’s my “SP500 Index Market Timing DownsideTarget”?  My loyal readers know I don’t like the concept of targets, because every market is an impeachment away, a tsunami away, or a World Trade Center away from a severe correction or worse (again refer to my “New Rules”; they make more intuitive sense than the “Old Rules.”).  Furthermore, the Bull is still running. 

So in that context, what do targets mean?  I think valuing the market and having less exposure when things get hyper-bullish makes sense, but not too much less, because that’s when you are making your money!  If you have too much excess cash you are blunting your returns.  Too little and you have no ability to respond to an abrupt crash.  That is why I’m keeping some excess cash right now, vs. in 2017 when I was above 100% of my usual maximum exposure to stocks worldwide.  

That said, what’s my guess at a target?  A return to the Dec. low would be unlikely in my view, as it was overdone.  If we get a sizable correction, I’d expect a Fibonacci retracement maximum of 50-61.8% back toward the Dec. low as the worst case scenario for the intermediate term (up to the election).

Possible SP500 Index Target: (Corrected 5-13-2019) That would be S*PX (using 5-01 intraday high) 2581 (61.8% pullback of the rally from Dec. low) to 2653 (50% pullback), which would encompass the Oct. 2018 low, which is a “natural target” on the charts. (Raw numbers: 5-01-19 SP500 Index Intraday ATH = 2954.13.  Dec. 24th low  2351.10.  Points in Rally = 603.03.  Oct. low = 2603.54.)

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):

SP500 Index Market Timing May 3 2019 Close

Back above the Sept. 2018 ATH.

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Negative.  Fell 8.99% on Friday 4-26-19 after they reported earnings and breached the weekly up trend line. The test of 50.60 was successful however.   Only a bounce above trend would erase this damage.

Bank of America (BAC) Market Timing Signal:  Positive. but…  Although BAC closed back above the high of 30.14, and is now at 30.71, the upside for rates in the short to intermediate term is not great, so financials’ prospects are also not great.  XLF is keeping up with the market, while Tech has been beating it. Which do you want to own? 

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 33,951 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 +17.72 vs. 13.35% last week. Sentiment is NOT maxed out, so the statement I made last week applies (link to upper right).

Bulls Neutrals Bears
39.02% 39.63% 21.3%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Small caps are making a move now.  Actually, the breakout this week was significant and the outperformance vs. large caps is also, so the move is tradable, but perhaps not investable.  Why?  The risk is higher than for large caps.  I still see inflation as ticking up over the longer term and small caps don’t care for that backdrop.  Use stops and pick the individual winners vs. investing in the index if you can.  Otherwise, stand clear for now unless you are going to risk manage a trade based on this breakout. 

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

Small Caps Break out

New breakout and outperformance recently.

 3. Gold Market Timing (GLD): Gold fell on Powell’s remarks, while rates rose, and then GLD rose on Friday as rates fell.  Still true: “Now it must rise above that upper wedge line (yellow).  The reversal number is shown on the chart.” Of course, the US dollar rallied then fell with rates.  The dance between gold, rates and the dollar was all as expected.  The gyrations up and down, not so expected.  😉

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

Gold still strugling.

Still struggling to reverse the recent decline.

4. Interest Rate Market Timing – The 10 Year Yield rose minimally this week from 2.505% to 2.531% from Fri. to Fri.  The test above 2.554% failed.  The downtrend is still intact until the lower number quoted below is breached to the upside.

Prior: “Note: The key levels for the Rate Bulls to cross to the upside are 2.554% and the 1-31-19 low of 2.626%.”

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):

10 Year Yield is still in downtrend until key targets are breached.

10 Year Yield still in downtrend until key levels are breached by the Rate Bulls.

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

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

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

Stock Signal GREEN for a further U.S. stock market rally with a Bullish SP500 Index trend.  The signal here is based on small caps, as they often lead the market down.  Small caps have confirmed the current re-breakout of large caps.

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!) closed at 12.87 vs. 12.73 last week.  These are the other targets: 13.31, 14.04-14.08, 15.04, the “fulcrum” point = [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 now have 7 of 8 targets.  Bears 1.

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

Gold Signal YELLOW  for a further U.S. stock market rally with a NEUTRAL Gold Trend.   What gold does mostly as I’ve written HERE is follow real interest rates.  A decline below 117.40 or a cut below the downward wedge lower line would turn the signal to GREEN for stocks.

STILL HOLDS 4-26-19: G*LD has to rise above 123.19 on an immediate basis (* added to throw off the “crawlers,” as I don’t like being part of “consensus.”) 

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 would hurt U.S. stocks. 

Rate Signal YELLOW  for a further stock market rally with a Bearish 10 Year Yield Trend.  Rates usually RISE slowly in a strong recovery and the stock market rally continues, as I’ve repeated multiple times on social media as well as 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 closed at 61.94 vs. 63.30 last week.  Last week I said the setup was “Negative for oil and Rate Bulls.”  Oil did drop.  It has broken trend but may retop as it did previously after the first break.

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.

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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 4-26-2019 Close: “SP500 Index Just Below All Time High. Is That It? Gold Rising in Bull Wedge as Rates Fall Again.”

A Market Timing Report based on the 04-26-2019 Close, published Sunday, April 28th, 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.

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

Friday’s GDP report was good news for Trump and the country in that Y/Y Real GDP rose to 3.2% from 3.0% the past two quarters, and SAAR GDP (headline number that attempts to project the entire year from one quarter’s seasonally adjusted results – it doesn’t work well btw) was also 3.2% well above the Atlanta and NY Federal Reserves estimates of 2.7% and 1.4%.  Maybe they should have their “NOWcasting” licenses revoked.  There were some nuances involving trade and inventories that call the full strength of the report into question, but the results still don’t reek of economic recession.

Econoday pointed out…

“A clearer look on underlying domestic demand comes from final sales to domestic purchases, a reading that excludes both net exports and inventories and where the growth rate was only 1.4 percent.” 

The consumer is not as strong as s/he should be with the labor market as strong as it is.  Inventory build-up adds to GDP, but also may mean sales are slowing.  This means there is underlying weakness not revealed by the headline or even the Y/Y number.

Here is the SAAR GDP Headline data:

2019-04-26-Q1 2019 SAAR Real GDP-gdp1q19-chart-01

Seasonally Adjusted Annualized Rate of Real GDP. Stronger than expected.

So the economy is doing OK, but not firing on all cylinders.  How about the markets? 

The SP500 Index is now testing the prior all time high of 2940.91 (intraday high), closing on Friday,  April 26th, at 2939.88.  As said here, the market was bound to complete the re-topping process if it was able to climb above all three lower highs of Oct., Nov., and Dec. 2018…and it did.  That is why I bought that breakout, and why I will likely buy the next breakout to new all time highs if it happens.  Sometimes, the market does not “let you in.”  The next 15% correction could come from 20% higher for all we know.  Adding slowly mitigates the risk, when there is no major discount in the market as there was in December. 

The SP500 Index is now in the 2017 upward channel, just above the up trend line, another healthy sign.  Still, a new high is needed and there is no point in buying at this point for most investors.  I’ll wait to add on the breakout move.

Let’s check in with the earnings trend again…

Earnings Risk: what is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 4-26-19 (details HERE)…

The earnings numbers for the SP500 Index improved slightly for Q1, but are slightly worse for Q2 and Q4. Revenue estimates ticked up a bit for Q1 and Q4, while they are a bit weaker for Q2.  This new look is with 46% of companies reporting.   A total of 164 companies of the SP500 Index will report this coming week vs. 150 last week. 

For Q1 2019, analysts are projecting earnings growth of -3.6% -> -4.3% -> -3.9% -> -2.3% and revenue growth of 4.9% -> 4.8% -> 5.0% -> 5.1%.
For Q2 2019, analysts are projecting earnings growth of 0.1% -> -0.4% -> -0.5% -> -0.6% and revenue growth of 4.6% -> 4.2% -> 4.4% -> 4.3%.
For Q3 2019, analysts are projecting earnings growth of 1.8% -> 1.4% -> 1.3% -> 1.3% and revenue growth of 4.4% -> 4.1% -> 4.4% -> 4.4%.
For Q4 2019, analysts are projecting earnings growth of 8.1% -> 8.3% -> 8.2% -> 8.1% and revenue growth of 4.8% -> 4.7% -> 4.7% -> 4.8%.
For CY 2019, analysts are projecting earnings growth of 3.8% -> 3.4% -> 3.4% -> 3.6% and revenue growth of 4.9% -> 4.6% -> 4.7% -> 4.7%.

Are the Bulls serious?  As I asked four weeks ago…

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

Let’s check that list once again…

1. New high. Re-topping is obviously Bullish but not making it to a new high in a short period of time would be Bearish.

2. VIX below the “Bull Nirvana Number.” 12.73 close on Thursday, but above my Bull target #8, so only a partial check.  It must fall below 12.17 again (see VIX targets at base of report).

3. AD % Line: 16,434 vs. 16,384 last week and still in consolidation vs. the prior high of 16451.  Partial check.  Needs a new market timing breakout as does the SP500 Index.

4. Volume: No check because volume FELL on Friday when the SPX closed UP 0.47%.  Volume has been declining most recently since 3-29-2019.  Some good news?  Volume was up this week for the first week following the last “Fed FOMC Meeting” week.

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

Mexico Border Closing Risk: President Trump folded under Republican pressure.  The Republican Congress has handed its family jewels over to Trump largely, but not where it comes to usurping their legislative powers.

China Deal Risk:  Trump et. al. are very quiet lately, as trying to pump the market every week with more “It’s going well!” talk was starting to backfire.  There is going to be a “big, beautiful deal.”  From 4-18-19: “We had better have a decent deal, and the talk is the results will be respectable.”

Mueller Report Risk: Congress will use the report as a way to get to Trump’s tax returns as well as pursue their direct and legitimate oversight mandate passed on to them by Special Counsel Robert Mueller.  Anyone with a brain cell can see that Mueller passed the issue of obstruction on to Congress as the legitimate place for Trump to defend himself if need be.  He said he could not come to a conclusion Trump committed criminal acts of obstruction, as DOJ rules say he cannot indict a sitting President.  That meant if he said “Trump committed the crime of obstruction of justice,” Trump could not then defend himself against that charge, as he would not be indicted by the accusing Mueller.  Note also, the public often fails to understand the difference between the law and the truth.  Trump and his people were negligent in not reporting Russian contacts to the FBI, but it did not rise to the level of a crime per Mueller.

In regard to the obstruction of justice issue, Mueller basically refused to “act like a judge,” given the constraints of DOJ rules.  Trump would not have ended up in court without an indictment.  He would have simply had Mueller saying he was guilty.  Therefore, it is Congress’ job rather than Mueller’s to determine whether the evidence rises to the level of obstruction of justice or not. No, Trump has not been exonerated as many pundits have falsely said along with Trump.  There’s been no “total exoneration.”  That is certain.

What is not certain is Trump’s eventual conviction by Republicans in the Senate.  A simple majority in the House could impeach Trump, but they know defeat in the Senate will make Trump out to be the victim of a “coup by the Democrats” and strengthen his support.  They know a failure to convict would be a trap for them. 

It will go on for many months.  Yet Trump’s risk of impeachment has declined dramatically, regardless of how badly he’s behaved by supporting the killer Communist Putin’s interference in our election (he publicly said the Russians should hack Clinton’s emails; what kind of a leader does that?), and by obstructing the investigation, which he obviously did, whether it can be proven as a criminal offense in a Senate trial or not.  It is claimed that his staff whom he now publicly hates and has fired (like his wise White House counsel, Don McGhan), saved his presidency, despite Trump’s attempts to destroy himself by ordering Don McGhan to fire the Special Counsel Robert Mueller through the AG.  

2020 Election Risk:  Read my comments on this HERE If the economy is strong at the time of the election, it will be hard for any Democrat to beat Trump, especially if they lean toward greater socialism.  The risk went up though with Biden now in the race as of Friday.  That would mean at least going back to Obama tax rates.  How many investors would sell stocks ahead of that change?  More than a few.  There will also be revenge for the high tax states now suffering under the Trump/GOP Tax Law due to the $10K limit on state and local tax deductions.  Those changes will be rolled back by a Democrat President.

One big catch: the Democrats must take over the Senate again, or everything they promise in the campaign will die in the Senate.  That is why GOP donors were focusing so much on control of the Senate.  They maintain control over changes from Trump/GOP tax policy, until 10 years after the tax law was passed, when it it phased out for individuals but not for businesses.  Another reason Republican donors will not let the Senate slip from their hands without a big fight is because they know what that means – a loss of power over the courts through Presidential appointment power.

Deficit Threat: From last week: “Both parties intend to spend us into the ground and destroy the U.S. dollar, which is why I consider gold a long term hedge worth keeping.  The only thing that’s saved us is the US Dollar being the #1 reserve currency, which China intends to take from us.  If we lose that, our interest rates would skyrocket and cause a crash in the stock market.  It’s not a near term threat for the simple reason that the China, Japan, and Europe are simultaneously weakening their own currencies.”

Fed Rate Hike Risk: From 4-18-19: “You know my stand on this.  The Federal Reserve is neutral, not dovish.”  Rates may have rolled over for the near term (see rate chart below), which takes the pressure off the Federal Reserve.  The GDP Price Index reported Friday (includes investment and consumer spending vs. only consumer spending for CPI) was low too.   

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):

The Jan. 2018 high was 2872.87 to be clear…

Market timing the SP500 Index as retests prior all time high.

Testing the prior top!

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Negative.  Fell 8.99% on Friday and breached the weekly up trend line.  The media acted as though they just heard what the CEO had warned several quarters back of in terms of H1 weakness in 2019.

Bank of America (BAC) Market Timing Signal:  Positive. but…  BAC closed back above the high of 30.14. Last week I said rates looked a bit stretched, and they fell, and yet BAC did not fall.  The trouble is lower rates mean economic weakness at a certain level (here) and that does not help banks just as lower rates themselves hurts their earnings.  If rates continue to move lower this coming week, BAC will likely fall.  And the market could pull back as well.

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 33,951 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 +13.35% vs. +15.73% last week. 

All still true this week as last: “The neutrals are [WELL OVER] 40%, which is highly correlated with an UP market 6 months later.  The odds per AAII research are above 80%.  The sentiment spread slipped this week, so the odds this is a top are low.  That does not preclude a pullback (a dip to a correction; see “New Rules“) in a Bull market.”  Sentiment says “The Bull market is not over.”

Bulls Neutrals Bears
33.52% 46.31% 20.17%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Small caps were leaning down last week as rates were rising and this week they have moved back up to the prior lower high as rates fell – but on less volume!  I have only specific stock exposure to small caps, not through index funds, the exception a software ETF that invests a bit across all capitalizations (hint: I mentioned the buy on my social media feed). 

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

Market Timing IWM US Small Cap Stocks

Still lagging large caps.

 3. Gold Market Timing (GLD): Gold rallied when it had to.  Now it must rise above that upper wedge line (yellow).  The reversal number is shown on the chart. 

The failure of gold of late is due to confidence in the U.S. stock market and economy, to not fall into recession, which would keep the Federal Reserve vigilant on rates,  vs. the current neutral stance.  If gold were completely tied to “real interest rates,” it would be UP not down as here is what happened since the 1.-20-2019 close to 4-26-2019… Realize that if real interest rates had been rising, gold would have fallen substantially.  

1/2/2019 4/26/2019 Change 
GLD 121.33 121.37 0.03%
Real 10 Year Yield 0.96 0.54 -43.75%
UUP 25.64 26.31 2.61%

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

gld-gold-etf-market-timing-chart-2019-04-26-close

Gold up with up volume. Positive.

4. Interest Rate Market Timing – The 10 Year Yield fell again this week.  I’ve been keeping track of a couple of key levels. The close Thursday was 2.505%, below both numbers mentioned on 4-01-2019:

“Note: The key levels for the Rate Bulls to cross to the upside are 2.554% and the 1-31-19 low of 2.626%.”

There is no rate shock in sight with a falling GDP Deflator Year/Year (See the chart at the bottom HERE).  The lift in rates we saw the prior few weeks was a counter trend move as it appears now.

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 10 Year Treasury Yield (TNX). Rates falling again.

Rates back to falling!

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 YELLOW for a further U.S. stock market rally with a Bullish SP500 Index trend.  The signal here 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!) closed at 12.73 vs. 12.10 last week.  These are the other targets: 13.31, 14.04-14.08, 15.04, middle “fulcrum” point = [15.94-15.95 to 16.09], 17.06, 17.27, and 17.89.  The bonus target is [12.-17-12.37].  The Bulls now have 7 of 8 targets.  Bears 1.

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

Gold Signal YELLOW  for a further U.S. stock market rally with a NEUTRAL Gold Trend.   What gold does mostly as I’ve written HERE is follow real interest rates, but I’ve explained more on that above. 

STILL HOLDS 4-26-19: G*LD has to rise above 123.19 on an immediate basis (* added to throw off the “crawlers,” as I don’t like being part of “consensus.”)  Once it breaks the nearest low, the trend turns Bearish. 

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 means the global economy is slowing.  That would hurt U.S. stocks. 

Rate Signal YELLOW  for a further stock market rally with a Bearish 10 Year Yield Trend.  Rates usually RISE slowly in a strong recovery and the stock market rally continues, as I’ve repeated multiple times on social media as well as here. Empirically though, rates that are “lower” (than 3.11%) and NOT rising rapidly have allowed the market to climb back to the prior all time high (ATH).  Rates fell rapidly in Dec. and stocks fell, but they fell as rapidly in March, and the market dipped a bit, but eventually only went sideways – they did not crash.  Rates have been climbing since the end of March, as the market rallied further.  Again, slowly rising rates is fine in a strengthening economy. 

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”  WTI closed at 63.30 vs. 64.07 last week.  Last week I said, “Oil is still in an uptrend, so either rates will keep rising now and the oil rally will continue, OR rates will resume their fall and oil will reverse.”  This chart shows the close was below the prior consolidation range for the first time in the entire rally: CHART.   The last consolidation was around 64.00 and the close was at 63.30.  Negative for oil and Rate Bulls.

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.

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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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