Market Timing Brief™ for the 4-18-2019 Close: “SP500 Index Just Hit the 2017 Trend Channel and Fell. Gold in Tentative Bull Wedge with Rates in an Extended Bounce.”

A Market Timing Report based on the 04-18-2019 Close, published Sunday, April 21th, 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):

The SP500 Index rose to test the lower line of the 2017 upward channel.  And then it fell a bit.  That does not mean the Bull died, but it’s something to watch, as the small caps reversed back below their 200 day moving average again on Wednesday and Thursday.  After moving up a bit on Friday, April 12th, the SPX has gone sideways as it digests earnings. 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 and 4-18-19 (details HERE)…the earnings numbers improved slightly for Q1, but are slightly worse for Q2 through Q4. Revenue estimates ticked up a bit for Q1-Q3, while they are the same for Q4.  This new look is with 15% of companies reporting.  One hundred and fifty will report this coming week. 

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

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

What would satisfy me that the Bulls were serious about this advance?  A further rise of the market (above S*PX 2860.31 high; now 2905.03) with a move of the VIX below that “Nirvana” number, a higher close of the A/D % indicator (above 16258; now 16,384 at 10:11 am on a delay), and a kick of volume would be nice as well (at least higher than the prior day, but the more the better).

Let’s check that list once again…

1. New high.  Check. There is nothing like higher prices to confirm a rally’s strength.

2. VIX below the “Bull Nirvana Number.” 12.10 close on Thursday.  Still a check.

3. AD % Line: 16,384 and now in consolidation with the SP500 Index.  Check but needing a new breakout.

4. Volume: No check because Thursday was April options expiration.  Volume has been declining throughout this rally since December.  Higher prices without volume for an individual stock is considered highly suspect, but this has not been predictive for the S&P 500 Index since the Dec. low.  Still, higher prices requires demand from buyers, so we’ll see how long this disequilibrium can last.

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

Mexico Border Closing Risk: President Trump folded. What problem?

China Deal Risk:  There is going to be a “big, beautiful deal.”  We had better have a decent deal, and the talk is the results will be respectable.

Mueller Report Risk: The redacted report is out and was blessed by the Attorney General, who acted like a partisan.  Nevertheless, the Democrat buzz is leaning toward “no impeachment proceedings,” despite the remaining risk of further investigations.  If obstruction were a slam dunk case, Mueller would have made the case, despite the bias in the press that says he was just passing it on to Congress for evaluation, and he could not indict a sitting President per DOJ rules. 

Here is why they won’t proceed with impeachment.  The answer was pointed out by Democrat Congressman Emmanuel Cleaver on MSNBC on Saturday.  If Trump is impeached by Democrats and then exonerated in the resulting trial by the Senate, Trump will claim “I was cleared by Congress.”  And he would be telling the truth.  Impeachment of Trump is a trap for Democrats to fall into. 

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.

Howard Schulz, former CEO of Starbucks is running as an independent and could steal votes from both sides.  Trump cannot afford to lose many votes as the GOP base is smaller than the Democrat base.  Polls will tell us how the Schulz run for the Presidency threatens to throw the election.   Third party candidates have a clear history of “ruining it” for one of the sides as Perot did for GWH Bush in his second run for a second term against Bill Clinton.  I’ve listened to Schulz and I doubt he passes the “likability test.”  He was a great CEO, and has treated his workers well to his credit, but candidates have to appeal to voters on a personal level.  I’ve never seen that sort of charisma in him.

Governor Bill Weld is running against Trump for the slot on the GOP ticket as of a couple of days ago.  He was the stronger link of the Johnson ticket, and in the end defected from Johnson to support Hillary Clinton, while still remaining on the 2016 ballot as Johnson’s VP candidate.  By running as a GOP candidate, he’s already indicating he won’t run as an independent, which means his chances are slim.  Trump voters will brand him a Rhino, and a friend of Hillary, which he is – they served during the Watergate investigations together working a lawyers for the U.S. House Judiciary Committee during the Watergate impeachment inquiry.

Gov. Weld was a very successful Massachusetts Governor and a Criminal Prosecutor under Ronald Reagan, so his credentials are strong.  He was also popular in a Democrat state receiving 71% of the votes in his second run for governor against a Democrat.  That’s in Kennedy country mind you… He’s a fiscal Conservative unlike ANY Republican serving in Congress who has financed Trump’s big deficits.

Even Rand Paul caved to Trump’s fiscal irresponsibility and the proven failure of “Tickle Down Economics.”  It failed twice before, but you apparently can sell anything to gullible American voters.  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: Gone for the moment, but maybe not for as long as believed.  You know my stand on this.  The Federal Reserve is neutral, not dovish.  Rates are rising and the bond and Treasury markets will end up pulling the Fed along by its nose to higher rates IF the recovery continues. 

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):

Hesitation at the 2017 channel. A hesitating Bull though.

Now let’s check in on two “Canary Signals” we’ve been following: They are singing a Bullish song.

“Intel-igent Market Timing Signal” (Intel; INTC):  At a new all time high.  As Bullish as Bullish gets. A reversal would be a big negative as INTC is a leader.  Don’t bank on it though!

Bank of America (BAC) Market Timing Signal:  Speaking of banks.  BAC is testing a prior lower high of 30.14, and slipped under it last Monday. Rates look a bit stretched, but that’s not a clear call.  Follow TNX if you want to know how the banks will trade. 

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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Join the Conversation in the StockTwits “MarketTiming” Room

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +15.73% vs. +19.91% last week.  The neutrals are 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 in a Bull market.

Bulls Neutrals Bears
37.56% 40.61% 21.83%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): They are now leaning DOWN.  Although individual stocks with solid growth (earnings and revenues) stories can still perform well, the index is weakening.

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

Small caps slipping.

 3. Gold Market Timing (GLD): Rates could as easily rise a bit more as fall from this level, and so will go the fate of gold.  GLD needs to rally immediately.  Any further breach of that lower yellow line will be met by more serious selling.  At this point, one could argue (barely) that the chart represents a falling wedge, which is Bullish, but a Bull has to act like a Bull.  Monday would be the time.

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

Leaning lower. Needs to rally very soon or suffer a deeper slip.

4. Interest Rate Market Timing – I’ve been keeping track of a couple of key levels. The close Thursday was 2.560%, above the lower number, though barely, and still below the upper target 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%.”

If interest rates continue to rally further, it will bring into question whether the economy is actually going to accelerate in Q4 and continue to do so into Q1 of 2020.  Also, as pointed out multiple times, an acceleration of rates that is excessive creates Rate Shock conditions for the equity market.  The current bounce is the longest one since rates began falling in Nov. 2018.

Check out the “Market Signal Summary” below – after you review the following chart… It reveals 3/3 YELLOW signals this week.  Caution in expectations for an immediate further rally. 

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

Rate bounce could reverse at any time, but this is the longest bounce since it started pulling back.

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 12.10 vs. 12.01 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 8 of 8 targets.  Bears 0.

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 BARELY NEUTRAL Gold Trend.  Some would call it BEARISH.  What gold does mostly as I’ve written HERE is follow real interest rates.  STILL HOLDS 3-30-2019: 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.”)  GLD closed at 120.37 on Friday, below the reversal number.   Once it breaks the nearest low, the trend turns Bearish.  Much more rate pressure could tip gold over.

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 mildly Bullish 10 Year Yield Trend.  Rates need to RISE slowly in a recovery for the stock market rally to continue, as I’ve repeated multiple times on social media as well as here.  They are falling, and it’s not a good sign!

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”  WTI closed at 64.07 vs 63.89 last week.  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. 

Two weeks ago I said: “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 next shock, I’ll be calling #RateShockIII.

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.

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

Market Timing Brief™ for the 4-12-2019 Close: “The U.S. Stock Market Bulls Have the Ball. Fed On Pause. Gold On Pause. Rates Still Bouncing.”

A Market Timing Report based on the 04-12-2019 Close, published Sunday, April 14th, 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):

The Bulls are on a run to retop the market at the prior high.  The AD % line I follow is at a brand new high as of Friday, April 14th.  Volume was not impressive, yet it’s been in a slow decline through this entire rally, so relying on that did not work.

I said two weeks ago…

What would satisfy me that the Bulls were serious about this advance?  A further rise of the market (above S*PX 2860.31 high) with a move of the VIX below that “Nirvana” number, a higher close of the A/D % indicator (above 16258; now 16,285 at 10:11 am on a delay), and a kick of volume would be nice as well (at least higher than the prior day, but the more the better).

Let’s check that list…

1. New high.  Check. There is nothing like higher prices to confirm a rally’s strength.

2. VIX below the “Bull Nirvana Number.”  12.01 close on Friday.  Check.

3. AD % Line: 16,404 and climbing. Check.

4. Volume: No check. Declining throughout this rally since December.  Higher prices without volume for an individual stock is considered highly suspect, but this has not been predictive for the S&P 500 Index since the Dec. low.

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

Mexico Border Closing Risk: President Trump folded under intense political pressure, which is what you are supposed to do if serving in a representative government vs. being a King.  It was a bad idea to impair GDP growth beyond its already falling level by disrupting supply chains.  

China Deal Risk:  There is going to be a “big, beautiful deal.”  Deal risk is considered quite low.  Any surprise would be a “left field” event.

Mueller Report Risk: Low.  All is quiet at the moment, although the Democrats are looking for the goods on Trump still.  I covered this HERE (under “Market Risks at Hand”).  I doubt they will have enough to boot him prematurely, as Mueller would have charged him with obstruction if he could have.

2020 Election Risk:  Read my comments on this HERE The nomination of a liberal Democrat would hand the election to Trump.  Remember Presidential candidate George McGovern?  No?  Exactly my point…  He was a far left candidate, and Nixon crushed him.

Nixon won the [1972] election in a landslide, taking 60.7% of the popular vote and carrying 49 states, and he was the first Republican to sweep the South. … Nixon received almost 18 million more votes than McGovern, and he holds the record for the widest popular vote margin in any United States presidential election.”

If Howard Schultz runs for the Presidency as an independent, he’ll throw the election to Trump as Ross Perot did for Bill Clinton.  Clinton defeated “Bush and Perot, winning 43% of the vote to Bush’s 37.4% and Perot’s 18.9%.”Ref.

Fed Rate Hike Risk: Gone for the moment, but maybe not for as long as believed.  I’ve repeatedly said the Fed is not actually overtly dovish, but rather in “Neutral.”  The media has had this wrong.  They are not hiking due to the stock market’s performance in Dec. and intense pressure from Trump.  They will be led by the bond/Treasury market to hike when those markets dictate they must.  It won’t matter what Trump says if oil keeps climbing.  The Fed will be forced to hike rates.  Trump can yell at the Fed, and he can yell at the Saudis, but he cannot yell at inflation! 

Earnings Risk:  what is shown are the projections in the FactSet 3-15-2019 report followed by the report from 4-12-2019 (details HERE)…the numbers GOT WORSE over the past month, not better, except for Q4, which of course is supposed to save the year.  

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

You can see from the above, analysts expect HIGHER earnings growth for the year with LOWER revenue growth.  That could happen because of inflation.   You make more money, because you raise prices with inflation, but each dollar made is worth less.

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-spx-market-timing-chart-2019-04-14-close

Bulls have the ball.

Now let’s check in on two “Canary Signals” we’ve been following: They are singing a Bullish song.

“Intel-igent Market Timing Signal” (Intel; INTC):  Bullish as I said it would be above 50.60.  Now at 56.42, climbing back toward the prior all time high (ATH).

Bank of America (BAC) Market Timing Signal:  Tentatively Bullish with earnings coming out on Tuesday.  Barely over March high of 30.14.  Rates have bounced and that bounce could go further and move BAC still higher.

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 +19.91% vs. +6.75 vs. last week.  The neutrals are near 40%, which is highly correlated with an UP market 6 months later.  The odds per AAII research are above 80%.  The sentiment spread is as high as it was at the end of February when a shallow pullback started, but it may run still higher.  The number of Bears is becoming a bit too low, and that has been associated with minor pullbacks in prior data points.  All this says is that there is a risk of a bump in the road for the Bulls, but there is no extreme Bullishness to warn of.

Bulls Neutrals Bears
40.29% 39.33% 20.38%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): They’ve done nothing since 2-22-2019.  A new high is needed.  Problem?  Inflation rising (which it will with oil prices rising steadily) is not good for small caps.

Russell 2000 U.S. Small Cap Index  (click chart to enlarge; IWM, RUT): The chart represents the 4-12-19 close, not 4-14-19.

Small caps need a new high.

 3. Gold Market Timing (GLD): The reversal above the key level noted in the chart below failed when rates were low and failed again on Thursday as rates rose.  The last low was a higher low, which is good.  A strong economy and stock market are not good for gold, even with slightly rising inflation.  I believe there is a bias in the bond market that says the Fed will not let inflation get out of hand.  Gold may do OK, but it may not be off to the races either.  Fed’s on pause, and gold’s on pause.  If rates keep rising the Fed will be pulled by the nose and gold could pay for it. 

The Gold ETF (click chart to enlarge the chart; GLD): The chart represents the 4-12-19 close, not 4-14-19.

Gold fails to reverse upward once again.

4. Interest Rate Market Timing – From 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%.”

We’re now above that first target.  Next stop, 2.626%.

We are at a level of rates where U.S. stock market investors would like to see SLOWLY rising interest rates.

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):  2.625% was an obviously minor overshoot low vs. the earlier 2.626% low.  The chart represents the 4-12-19 close, not 4-14-19.

Rates bouncing and took out the first reversal level.

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 12.01 vs. 12.82 last week, which means the Bulls  have captured 7/7 targets.  The Bulls also won the bonus round at 12.-17-12.37. 

Same as before: There are now 7 Bear targets and the score is Bulls 3 to Bears 4.  The targets are 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 8 of 8 targets.  Bears 0.

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.  STILL HOLDS 3-30-2019: 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.”)  GLD closed at 121.83 on Friday, below the reversal number.   Once it breaks the nearest low, the trend turns Bearish.  Rates have moved up and gold has stayed above the nearby lows.  Much more rate pressure could tip gold over however.

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 NEUTRAL 10 Year Yield Trend.  Rates need to RISE slowly in a recovery for the stock market rally to continue, as I’ve repeated multiple times on social media as well as here.  They are falling, and it’s not a good sign!

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”  WTI closed at 63.89 vs. 63.08 last week.  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. 

Two weeks ago I said: “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 next shock, I’ll be calling #RateShockIII.

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 3-29-2019 Close: [4-01-2019 Update] “S&P 500 Bulls Try, Try Again. Will They Succeed? Gold Forms Lower High Despite Rate Plunge.”

A Market Timing Report based on the 03-29-2019 Close, published Saturday, March 30th, 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: This week’s market brief may be delayed for a day or two [or more; skipping an issue; next issue out this weekend of April 13th] due to an exercise mandated by the U.S. government this time of year.  😉  Please review the brief below and comments on social media for my position changes over the past week.

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

The Bulls have started another run for the true Bull Prize – a brand new all time high, which some may claim is required to declare the “Mini Bear Market” as I define it HERE, dead.  How strong are the Bulls?  For one thing, the Advance/Decline % number I follow is once again above a breakout line I’ve been following; however, before you become too excited, I hasten to add that the indicator failed to break out to a new high despite trying and on Friday closed below the highs of both 2-25-2019 and 3-19-2019.  Since it remains in an uptrend, it is possible the Bulls could establish a new high next week.

But what do the charts REALLY say when you step back a bit?  They say we’ve gone virtually nowhere since 2-25-2019.  We are just 0.74% above where we were that day.  And that was accomplished with the A/D indicator unable to make a new high.

Still, the SP500 Index did close above all three prior lower highs we’ve been following for weeks (and I won’t repeat them other than to point out that the highest of these was 2816.94 and the Fri. close was 2843.40).  That’s better than bad, but the Bulls clearly need to prove themselves.  To do that ahead of earnings, whose estimates have steadily deteriorated in the month of February, could be a tough job to pull off.  Of course, once earnings season arrives in earnest in mid-April, they will be saying “earnings are better than the crappy earnings we expected.”  Well, not quite.  They often fail to admit they lowered their earnings estimates, before claiming the companies beat their lowered expectations.

A caveat for the clever ones among you who have been read my blog and take action based upon what I write, a year ago, back in early April 2018 I said:

4. Buy stocks that you know will produce strong earnings growth even in a slowing world economy. Not as easy a task [than simply buying an index], as most companies do worse when the economy is worse.  They must be outperforming the SPX for this to work, and buy them off their lows, not their highs.  If they start to weaken, sell them as close to the highs as you can.

There was another item on that list, namely investing in a certain type of high growth company, which applies to today’s market.  Read all of my tips in “How Do You Beat the Market in this Volatile Period?” HERE.

Will the SP500 Index Bulls keep the charge going all the way up to earnings season and beyond?  No one can say for certain.  I can say the signals are mixed right now.  Another negative signal is that the SP500 Index regained those 3 lower tops in question without a V*IX (* inserted to avoid crawlers extracting my targets!) close below my “Bull Nirvana Number,”  which is 13.31.  The close on Friday was 13.71.

Update 4-01-2019 in blue in this paragraph: What would satisfy me that the Bulls were serious about this advance?  A further rise of the market (above S*PX 2860.31 high) with a move of the VIX below that “Nirvana” number, a higher close of the A/D % indicator (above 16258; now 16,285 at 10:11 am on a delay), and a kick of volume would be nice as well (at least higher than the prior day, but the more the better).

Warning: Your time to review your stocks before their next earnings report is winding down.  Stick with the high growers of both earnings AND revenue (not just earnings, which are manipulated by buybacks and various accounting tricks).  In a time of SLOWER global growth, it’s more important than ever to own companies that are still substantially growing both earnings and revenue.

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

Mexico Border Closing Risk: Trump is again threatening to close the border and sounding more serious about doing so this next week, but it would result in disruption of over $1 B in trade with Mexico per day.  Not a great move in a slowing economy.  It may also be unconstitutional, given the daily movement of many Americans back and forth across the border every day and our trade agreement with Mexico (per National Security expert Samantha Vinograd whose comments you can read toward the end of the article HERE in the part labeled “Secure, don’t close, the southern border”). 

China Deal Risk:  There is going to be a “big, beautiful deal.”  And indeed it has the potential to be a positive development IF the Chinese decide to grow up and play fair (eliminating forced tech transfers, patent violations, and overt piracy).  The news media reported last week that Trump and Xi could meet next month, and this week they said the same thing and the market seemed to respond despite the repetitiveness of it- the Chinese market responded more than ours with both A (mainland) and H (Hong Kong listed) shares rising significantly.  I will be adding further exposure in China if the move is sustained.

Mueller Report Risk: Diminished, barring (get it? Barr-ing ;)) revelations when the report is released supposedly in April, particularly involving anything related to obstruction of justice by Trump and associates.  I covered this HERE (under “Market Risks at Hand”).  Trump is still vulnerable in the other lawsuits against him as well as for obstruction of justice for which Barr admits he was not cleared, despite the president’s false statements.

What I would agree with is the likelihood that the Democrats will be able to make obstruction charges stick when Mueller found it a hard call to even overtly accuse (if not indict due to D.O.J. rules) Trump with it is low. Mueller merely suggested Trump did things that were borderline in regard to the obstruction charges, and it’s up to Congress to decide whether they are impeachable offenses that can lead to a conviction in the Senate.  That’s their job under Article I of the U.S. Constitution that you, I, and every other U.S. citizen are also sworn to protect.

2020 Election Risk:  Read my comments on this HERE The first Democrat primary debate is in June.  If the Democrats want to fix Obamacare and expand it, as well as reverse the tax cuts for the “rich” and for corporations, they’ll have to take the Senate along with the House and Presidency.  That will be a tall order if the economy is still in good shape, and the stock market is doing well.

A reversal of the Trump corporate tax cuts would cause a major stock market decline.  A reversal of the tax cuts for the “rich,” would not likely cause such a decline.  It would help balance the budget.  I understand that “rich” the way politicians define it, is, of course, not always “real life rich,” especially when you are paying hundreds of thousands for your kids’ education, spiraling healthcare costs etc.

Fed Rate Hike Risk: Gone for the intermediate term. As said last week, “The Fed will remain on inflation watch with oil still in an uptrend, but for now, there is zero rate hike risk. The market thinks there is a ‘risk’ of a cut by later in 2019.”

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-spx-market-timing-chart-2019-03-29-close

New high coming or a place to fail before earnings?

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

“Intel-igent Market Timing Signal” (Intel; INTC):  No change this week. Neutral short term. Chart is still Bullish.  Can fall to 51-ish and still be in an uptrend.

Bank of America (BAC) Market Timing Signal:  Bearish.  Two weeks ago I said, “Vulnerable to lower rates.”   Rates are still front and center for the financial sector.  Note the slight lift in shares on Friday when rates finally rose a bit. 

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 33,914 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 + 6.0% vs. +13.89 vs. last week.  The neutrals are essentially at 40%, which is highly correlated with an UP market 6 months later.  The odds per AAII research are above 80%.  The sentiment spread is too low for this to be a significant high in the market.  At true tops, the sentiment spread is “off the charts high.”

Bulls Neutrals Bears
33.20% 39.60% 27.20%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Still in a downtrend, forming a descending triangle.  Such triangles tend to break to the downside.  That’s actually the most generous assessment of the chart, because IWM made a lower low on 3-25.  You could simply say it’s a downtrend with a small retracement back up.  The odds are we’ll see another lower low soon.

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

iwm-russell-2000-market-timing-chart-2019-03-29-close

Small caps rise a bit in a downtrend.

 3. Gold Market Timing (GLD): The reversal above the key level noted in the chart below failed, despite TNX falling to new lows.  That’s negative.  Rates rose a bit on Friday and could rise further this next week pressuring gold even more.

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

gld-gold-etf-market-timing-chart-2019-03-29-close

Market expecting a rate bounce?

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX): Rates crashed and then on Friday moved up just a bit.  There is more room for bouncing into next week.  [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%.]

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

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

tnx-10-year-treasury-note-market-timing-chart-2019-03-29-close-final

Rates sink and bounce slightly.

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 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 13.45 vs. 16.48 last week, which means the Bulls  have captured 6/7 targets. The Bulls need to retake 13.31 early next week.    

Same as before: There are now 7 Bear targets and the score is Bulls 3 to Bears 4.  The targets are 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 ‘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.  STILL HOLDS 3-30-2019: 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.”)  GLD closed at 122.01 on Friday, below the reversal number.   Once it breaks the nearest low, the trend turns Bearish.  If rates move up next week, it will break that support IMO. 

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 RED for a further stock market rally with a BEARISH 10 Year Yield Trend.  Rates need to RISE slowly in a recovery for the stock market rally to continue, as I’ve repeated multiple times on social media as well as here.  They are falling, and it’s not a good sign!

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”  WTI closed at 60.14 vs. 59.04 last week.  Oil is still in an uptrend, so either rates will rise now and the oil rally will continue, OR rates will keep falling and oil will reverse. 

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 next shock, I’ll be calling #RateShockIII.

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I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, go 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.

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Market Timing Brief™ for the 3-22-2019 Close: “Stock Market Breaks Down, but How Low Do We Go? Gold Reacts Weakly to Rate Plunge.”

A Market Timing Report based on the 03-22-2019 Close, published Saturday, March 23rd, 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):

To recap quickly, last week I asked:

“Is a new higher high for one day enough to say the Mini Bear is dead?  No.  It takes up to 3 days, as traders know, to confirm a move, but the way machines trade these days, that can mean leaving several percent on the table if you wait.” 

The market closed 5 days above the three lower SP500 Index highs we’ve been tracking here and on Friday swooned back below two of them closing at 2800.71 with the lowest of the three lower highs at 2800.18.   We closed below 2/3 targets.  “So you are saying there’s still hope?”  (“Dumb and Dumber” quote)  Not exactly!  I am expecting a correction began on Friday and I give you my first target below…. It’s more of a suggestion, because as many of you know by now, I judge the market’s behavior at the time it reaches a given level.  It’s a real time process!

I also added last week:

“To me, this is a fledgling Bull Market, but what don’t I like?  For one thing, the NYSE based Advance/Decline % Line (T2100) that I follow on proprietary software, shows a failure to make new highs despite the SP500 Index breaking out above the triple top target levels.  That means the move on Friday could be a head fake…Also, see “small caps” below, another warning sign.”

U.S. small caps have been falling since March 4th after peaking on Feb. 25th! And they dove 3.64% on Friday.  That is a very negative sign for the near term.

“But…but…but….the reaction to the Fed on Thursday looked very positive!”  The market was up another 1.13% to a new recent high, still above the “Big Three Lower Highs” of Oct., Nov., and Dec.   But then…on Friday, the Treasury market decided the Federal Reserve going “all out neutral” as I’ll call it, marginally much more dovish than their rate hiking stance at least, was a dire sign about the state of the economy, so investors sold stock exposure.  The percentage of stocks below their 40 day moving average (mav) per my proprietary software (see link at bottom) shot up by 88.13% on Friday to 36.14%.  To give you perspective, that number was 88.94% on Dec. 4th, the first day of the massive December decline.  

That bit of data alone, plus the weakness of earnings and projections going into earnings season that became progressively worse for the four weeks prior to last week’s post (it slowed down because the earnings season was 96% over by then), means that the stock market could be headed into a significant decline. 

Of course, no one could have told you the market was going to fall by exactly 16.54% from the October 17th high (the highest of the 3 lower highs) and by 20.06% from the 9-21-2018 all time intraday high (ATH).  Then they also could not have told you the market would, at the Friday close, be up 19.12% from the Dec. 24th close after peaking at +21.43% from the December low on 3-21-2019, just as earnings estimates for Q1 2019 and for the entirety of 2019 were being CUT WEEK AFTER WEEK. 

That’s the reason I wrote the warning early Friday morning when I said,

“This is why I call the market “Master Market,” an ignorant little emotional boy who does not know how to value himself properly.” 

Read the rest of my educational tweet series HERE.   I asked whether the market was “stupid,” for rising as earnings estimates were falling.  

Some would say, “But the market is anticipating a turnaround in 4th quarter earnings.” Why would that be, given the fact that they lowered their estimates 4 weeks in a row?  Why would that be, if the Federal Reserve is going “all out neutral”?

And they’d say, “But there are companies that are still hitting their numbers.”  That’s correct and on point – I covered that last week – check your companies one by one!

“But isn’t it Bullish for rates to fall?”  Not in this case….

On March 2nd on this blog I told you the “Only Way Up for the U.S. Stock Market” and it was:

Break out to new highs with SLOWLY rising (added 3-16-19: OR stagnant) interest rates.  This is the ONLY way UP for the U.S. stock market.

Friday’s plunge in the 10 year Treasury Yield was the opposite of the “Only way UP for U.S. stocks.”  Rates fall when deflation and economic slowing are feared.  As I explained, the normal healthy late cycle Bull market should be accompanied by slowly rising interest rates as the economy continues to expand.  That is not happening.  The opposite is happening.  I called out the breakdown in the rate chart last week and added:

If TNX were to make a brand new low, the stock market will likely enter a dip/correction, as that is NOT what is supposed to happen in a real recovery The Fed would have to move to an outright dovish position if that were to happen, at least in time they would.

Well, we may have just started the correction I referred to in the quote.   Some of you may still believe that following interest rates is boring, but you can see how exciting a plunge in rates can be.  Many high flying stocks were down 5-10% or more on Friday, because of the negative message the Treasury market was sending. 

If rates don’t stabilize early in the week, the stock market will fall farther quickly. 

Does the market believe a rate CUT could be on the way?  Eventually, yes.  The CME Group says the market gives a 18.4% probability to a RATE CUT by the June 19th Federal Reserve meeting.  That probability of a rate cut rises to 41.9% for the Sept. 18th meeting.  It’s 47% by Oct. 30th and 57.9% by the Dec. 11th meeting.  That’s a majority. 

But the Fed won’t be able to cut rates if inflation rises.  At the moment, that does not seem to be an issue, but we’ll continue to follow oil and gold to monitor the risk of stagflation (slowing economy with rising inflation as we had in the 1970’s, when stocks went UP and real returns in stocks were NEGATIVE due to the erosion of buying power.)

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

China Deal Risk:  There is going to be a “big, beautiful deal.” It’s taking longer than most had hoped.  “No deal” would greatly upset the markets, but Trump seems to know that if the markets tank into the election, he’ll lose, as he’s said that privately it has been reported.  CNN just reported that a meeting between Trump and Xi may happen “next month.”

Mueller Risk: Diminished it seems.  Don Jr. and the Trump gang in general are off the hook, but oddly enough, President Trump is not off the hook until either AG Barr says so this weekend, or the report reveals it when it’s released with a lot of black redaction lines in it no doubt.  Barr promised to share highlights of the report by Sunday; he says now per CNN, it won’t be on Saturday.  (And then there is the Southern District, which I will get to in a moment.)  The reason Trump is not yet off the hook is that current DOJ rules say Trump cannot be indicted as President.

Although it’s a promising sign that no one else will be indicted by Mueller per the DOJ, that leaves the President the remaining question mark, since he cannot be indicted by Mueller, yet Mueller could have evidence Trump committed a crime.  The odds say to doubt that will be the case.

Parenthetically, the fact remains by the way that Russia was proven by Mueller to have actively hacked into our election in an attempt to elect Trump over Clinton, whom Putin hated. That does not mean Trump colluded other than openly in his campaign appearances (he encouraged Russia to hack Clinton in a speech), and the fact that no other collusion by others has reached the level of indictment is promising.

The stock market closed flat in the afterhours trade despite the news of “no new indictments.” I expect the markets will integrate in some “happiness” over Trump being cleared more fully in the coming days.  The Southern District of New York may not let that happen however.  And they are not prevented from indicting Trump.  If the market thought Trump was in the clear, it did not act that way Friday night.  As a political independent, I will state that just because he’s “not in the clear,” does not mean he has broken the law. 

2020 Election Risk:  Read my comments on this HERE

Fed Rate Hike Risk: Gone for the intermediate term. The Fed will remain on inflation watch with oil still in an uptrend, but for now, there is zero rate hike risk. The market thinks there is a “risk” of a cut by later in 2019 (see above).

Now take a look at the SP500 chart.  The orange lines are the 2017 up channel.  I give you my first downside target in the small cap section below…

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

sp500-index-spx-market-timing-chart-2019-03-22-close

Coming down a fourth time???

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Neutral short term. Chart is still Bullish.  Can fall to 50-51-ish and still be in an uptrend.  Reporting earnings supposedly on 4-25-2019.   

Bank of America (BAC) Market Timing Signal:  Bearish.  Last week I said, “Vulnerable to lower rates.”  It fell 4.15% in one day on Friday as rates plunged lower.  XLF is broken too of course, and Warren Buffett is losing a lot of money with his 39% exposure to financials. 

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 33,914 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 +13.89 vs. +1.36% last week.   The poll closed right after Fed Day on Wednesday.  That sentiment does not match the level of the market on Wednesday.  We are not coming off the ultimate top of this Bull Market run in my view.  Yet we may be headed into another earnings recession (2 negative quarters of earnings growth; not negative earnings – negative earnings GROWTH), which will drive the market down into a correction or even eventually if the slowing is enough into a Mini Bear Market status again.

The “New Rules” on what the various pullbacks are in dips, corrections and Bears are HERE (scroll down to “New Rules”).   They are rough guidelines, but useful I think.

Bulls Neutrals Bears
37.30% 39.29% 23.41%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): I said last week,

“Small caps are showing negative divergence vs. large caps.  With the SP500 Index making new market timing highs, the small caps should be doing the same, but they are not!”  Small caps led the market down from the Sept. 2018 all time high, and they could do it again right now.”

Hope that helped.  Small caps are in an officially confirmed DOWNTREND as of Friday on a massive volume spike.  The divergence with large caps is why I’ve avoided small caps in the last few buys, which yes, may have been too early.  But realize I have been adding slowly along the way, and have plenty of cash to put to work in a bigger sell-off.  This looks like it could be a decent sized 7% SP 500 Index correction (to my first target at the October low) at the least given the stats on Friday.  Small caps could easily fall more than that.

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

iwm-russell-2000-market-timing-chart-2019-03-22-close

Small caps leading the way DOWN!

 3. Gold Market Timing (GLD):

Last week I said, I’ll change my mind if we see the upside reversal noted in the chart below.”  Meaning I’d recommend a trading position (vs. insurance position) for GLD/GDX.  GLD was up 0.23% with the market down 1.90%, which is good, but the reaction to crashing interest rates was muted.  I’d like to see gold perk up this week.  Maybe the gold market thinks even a whiff of stagflation will box in the Fed to the point of having to raise rates.

GLD attempted a move back through my “reversal number” shown on the chart on 3-15 and then failed.  It is now back above the reversal # for the fourth day, which is positive, but it’s barely above the 3-15 high, which is not as impressive.  Not a strong Bull, at least not yet.

And the GLD trend line remains broken, so I’m skeptical considering the interest rate action on Friday.  I do have some mining exposure that was hedged.  When the stock fell on Monday, I bought back the call I was short (pocketing about 84% of the original credit from selling the call), and the stock bounced nicely on Friday, causing call prices to rise nicely.  I should be able to sell another call for about the same amount if gold cooperates Monday, though I remain skeptical.  I’m fine with holding my “gold insurance” GLD in the meantime.

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

gld-gold-etf-market-timing-chart-2019-03-22-close

Not exactly excited about falling rates.

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

The triangle broke LAST week.  This week rates crashed further.  I’ve gone over the implications for stocks and gold above…

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

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

tnx-10-year-treasury-note-market-timing-chart-2019-03-22-close-final

Breaking lower…

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 signal here is based on small caps, as they often lead the market down.  They have been and are leading down!

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!) closed at 16.48 vs. 12.88 last week, which means the Bears  have captured 4/7 targets.  The level reached on the spike Friday which topped out at 17.52, below the 7th Bear target, is similar to the spike in volatility from early Feb. forward.  This means the Bulls could rally back a bit before giving up target 7.  Below the “fulcrum,” which is the midpoint VIX target, the Bulls regain control.  

Same as before: There are now 7 Bear targets and the score is Bulls 3 to Bears 4.  The targets are 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 ‘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.  STILL HOLDS 3-15-19: 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 did but with an anemic response after rates crashed on Friday.  The trend line is also broken.  The uptrend may not be over, but it’s wounded. 

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 RED for a further stock market rally with a BEARISH 10 Year Yield Trend.  Last week I said the slightly lower rates were being taken well by the stock market, but If rates fall to new lows (substantially toward 2.554% or lower), however, that will mean something else, namely a worsening economy, and stocks would likely react negatively.” THEY DID on Friday!  FALLING rates are BAD for stocks at this point in the cycle, when rates should be rising as explained.

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”  WTI closed at 59.04 vs. 58.36 last week.  Oil is still in an uptrend, so either rates will rise now and the oil rally will continue, OR rates will keep falling and oil will reverse. 

I previously warned about the Fed tightening process: “This level of the 10 Year Treasury Yield, which is too high for current conditions as explained HERE, will eventually slow the economy.”  I said, “2.621% was the peak back in 2017 when stocks did best.  Anything below that would be an improvement.”   The close on Friday?  2.455%! 

As for much higher rates and their possible impact, I said previously:  “All heck would break loose for equities if TNX lurches above 3.248%, particularly if the rise is rapid.  Buy long dated Treasuries as close as you can to 3.248% on the 10 Year Yield TNX (IEF, TLT, etc.).”   That’s a long way away at this point!

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 next shock, I’ll be calling #RateShockIII.

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 3-15-2019 Close: “A New Bull Market or a Head Fake? Gold Struggling Despite Lower Rates.”

A Market Timing Report based on the 03-15-2019 Close, published Saturday, March 16th, 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):

This was a Mini Bear Market as I explained in my “New Rules” (Oct. 26, 2018 post; the total dive top to bottom in the SPX was about 20%), but this week, actually on Friday, the SP500 Index finally climbed over the three prior Lower Highs of October, November, and December. Some may claim the market needs to make a brand new all time high (ATH) to be called a Bull again, but that’s not my view.  I recommend using the SP500 Index vs. SPY in making this judgment, since dividends effect the latter.

Is a new higher high for one day enough to say the Mini Bear is dead?  No.  It takes up to 3 days, as traders know, to confirm a move, but the way machines trade these days, that can mean leaving several percent on the table if you wait.  So I didn’t wait.  I added what amounts to about 3.6% of additional exposure vs. my usual maximum 100% exposure level (which is NOT 100% stocks; adjust to taste is the point; follow my equity exposure level as I buy/sell on social media [links below]).  My intention is to add further exposure higher or lower.  I have no need to sell this exposure should the market turn down again.  If you add when you are already invested to the gills, you may need to sell to preserve capital.

To me, this is a fledgling Bull Market, but what don’t I like?  For one thing, the NYSE based Advance/Decline % Line (T2100) that I follow on proprietary software, shows a failure to make new highs despite the SP500 Index breaking out above the triple top target levels.  That means the move on Friday could be a head fake.  There must be at least consolidation at a minimum (sideways move), and then follow through to keep the Bull ball in the air.  Also, see “small caps” below, another warning sign.

And earnings could weigh on the market when Q1 2019 results start coming in during the first half of April.  Once again this week, earnings predictions for 2019 are worse for the entire year and for Q1 2019, but seem to have stabilized for Q2 and Q3 with another tick down for Q4.  The vast majority of SP500 companies had reported Q4 2018 earnings as of last week.  These data are from FactSet, and the full FactSet PDF report will open HERE, and this is their site.

I have updated the matrix of numbers shown over the past several weeks.  These are the SP500 Index Earnings and Revenue growth (or lack thereof) numbers predicted as of the Feb. 2nd vs. the Feb. 15th vs. the Feb. 22nd vs. the Mar. 1st vs. the Mar.8th vs. the Mar 15th close by FactSet, from left to right…

“For Q1 2019, analysts are projecting a decline in earnings of -0.8% -> -2.2% -> -2.7% -> -3.2% -> -3.4% -> -3.6% and revenue growth of 5.7% -> 5.3% -> 5.2% -> 5.2% -> 4.9% -> 4.9%.
For Q2 2019, analysts are projecting earnings growth of 1.6% -> 1.0% -> 0.7% -> 0.3% -> 0.2% -> 0.1% and revenue growth of 5.1% -> 4.7% -> 4.7% -> 4.8% -> 4.5% -> 4.6%.
For Q3 2019, analysts are projecting earnings growth of 2.7% -> 2.4% -> 2.2% -> 1.9% -> 1.7% ->1.8% and revenue growth of 4.9% -> 4.5% -> 4.5% -> 4.6% -> 4.5% -> 4.4%.
For Q4 2019, analysts are projecting earnings growth of 9.9% -> 4.8% -> 4.5% ->4.1% -> 3.9% and revenue growth of 6.0% -> 4.9% ->4.9% -> 5.1% -> 5.0%.

FactSet says (showing this week and the prior two weeks for this data) …“For CY 2019, analysts are projecting earnings growth of 4.1% -> 3.9% -> 3.8% and revenue growth of 5.1% ->5.0% -> 4.9%.” 

Again, I’d say the 2019 full year guesses are overly optimistic as the earnings growth number for 2019 cited does NOT match the quarterly data above it. 

One highlight of their report this week, which is worth your time, is that Energy, Healthcare, and Communications Services had the highest percentages of buy ratings.  It’s important to look deeper into the data, because many drug companies are not expected to do well, while those who directly provide health care are presumed to be among the winners (see my comment in last week’s brief on the Pharma sector).   With lower interest rates and potential for big growth potential, biotech is considered a buy by many (multiple concordant sources).  The biotech ETF IBB is one way to play that.  

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

China Deal Risk:  There is going to be a “big, beautiful deal.” It’s taking longer than most had hoped, but this is an attempt to correct years of abuse by the Chinese.  If Trump walks away, it would greatly upset the market however.

Mueller Risk: We are STILL told his report is imminent, so the risk of a surprise is imminent. This is a coin toss for Trump himself as I’ve said, but not for players like Don Jr.  I’d say they are still very much at risk, but the market could care less about them.

2020 Election Risk:  Read my comments on this HERE.  Remember, I’m an independent who seeks the best ideas of both parties.  I’ve voted for both parties’ candidates, even in the 2018 midterms.  In my view, the election of a liberal Democrat would be an immediate, intermediate and longer term disaster for the U.S. markets.  Luckily, so far, our country does not support a shift to socialism/communism, which has proven severely lacking on the innovation side of things. 

Many of the greatest and most innovative companies are in the United States. They mostly are not in Europe, China, India, or even Japan. They spend their time attacking our great companies and fining them.  China has kept U.S. tech companies from entering China, so they could rip off and essentially duplicate Amazon, Google and other companies from within.  The number of people you have does not create innovative thinking.  China has only recently started to understand that it must innovate to lead.  Hence the huge AI research effort.   Trump is right that China must stop ripping off U.S. tech immediately.  I give him credit for that.

Given then that the failure of any socialist candidate is likely, even if the more liberal candidates push a moderate Democrat strongly to the left in their platform, we could easily end up with Trump as a two term president.  Sanders is dead-on-arrival as he will scare seniors half to death when they find out the lines to see their doctors will run out the front door and around the corner.   (I do agree all human beings deserve decent healthcare, and the underprivileged deserve a break on college costs, but how we get there is another thing.  Zero loans?  Why?  I completely disagree with Sanders that all kids should go to college for free.  Many should have a vocational education, not a general and impractical BA from a college.  Beer sales would definitely go up under a Sanders Free College program. Buy BUD, if you think he’ll win!) 

The only type of Dem who can beat Trump cleanly would be Biden, or Klobuchar in theory only, because she’s not getting early traction that proves her candidacy as viable.  John Kasich was the same sort of candidate.  Both of them are probably very good people to have as President, but a candidate with little charisma is not going to be elected.  Nice, honest, intelligent, and self-aware is not enough unfortunately. 

Our choice will likely be Biden vs. Trump (if Mueller has nothing big on Trump).  Biden’s grief process after his son’s death from brain cancer is what gave us Donald Trump.  If Trump is booted (not in the cards at this point) Biden would beat Pence by 10-20%.  Pence is old school and barely likeable.  Voters like “likeable.”   

By the way, a President Biden may end up being indebted to people far more left than he is and do things the market may dislike, especially a roll back of tax cuts for corporations and individuals.  The stock market would correct strongly if that were done IF the net effect were a fiscal drag on the economy.  If they take from the rich and give to the middle class and keep the corporate rates low, that may not happen.

Fed Rate Hike Risk: Lower this week as rates have fallen.  If TNX is below the January Fed day low of 2.688%, I consider it Bearish for rates (bonds higher, rates lower).  As I said last week, “The risk of a Fed hike with easing in China and Europe…is LOWER.”

Before we look at the chart, I’ll answer… Why did I also add on March 7th, after the market was down about 3%?  Because pullback levels are not predictable except for short term moves, and it was my intention to take advantage of pullbacks in the rally when they appeared.  It worked.  We will see early next week whether the buy on 3-15 also worked.

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-spx-market-timing-chart-2019-03-15-close

Will the rally continue higher now that we’re above the triple top?

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Bullish.  The low was 51.70, so it never got back down to the prior breakout level.  Intel itself has warned about another weak quarter for Q1, so we will see if it can hold up through that report supposedly on 4-25-2019.   

Bank of America (BAC) Market Timing Signal:  Neutral and vulnerable to lower rates.  XLF is still stalled below the 200 day moving average (mav). BAC is stalled too.

As I said last week, the “Only Way Up” is # 1 below.

  1. “Break out to new highs with SLOWLY rising OR stagnant interest rates.  This is the ONLY way UP for the U.S. stock market.

I added the word stagnant, since that would also satisfy the stock market.  My immediate Bear target if the rally folds, would be the Oct. low, which is now 7.76% lower from the Friday SPX close.  We are just 4.19% from the prior intraday all time high (ATH).  In that sense, a Bear would tell you the downside is greater than the upside.  I would say they may be right in the short (a quarter or less) or intermediate term (a few quarters), but I doubt they are right in the longer term.

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 33,914 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 +1.36% vs. +10.64 last week.   When sentiment falls as the market rises to test a top, investors are simply getting nervous as they see the market as being fully valued vs. that prior high.   It also says “That is not THE top.”  We have not been at exhaustive sentiment levels since I pointed one of those out just before the highly volatile Jan. 2018 correction.

The top is yet to come!  There may be pullbacks still as we work through very negative earnings data for a few quarters (buying opportunities IMO), but the market will work its way back from any correction, as long as our economy does not slip further toward a recession.

Bulls Neutrals Bears
32.42% 36.52% 31.06%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Small caps are showing negative divergence vs. large caps.  With the SP500 Index making new market timing highs, the small caps should be doing the same, but they are not!  They need to rise soon and confirm the SP500 Index buy signal.   Small caps led the market down from the Sept. 2018 all time high, and they could do it again right now.  Note: I’ve added large cap exposure, not small, on the recent dip and again on the breakout of the SP500 Index. 

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

iwm-russell-2000-market-timing-chart-2019-03-15-close

Small caps lag large.

 3. Gold Market Timing (GLD): GLD is now 0.80%, vs. 0.69% last week, above my sell point.  Interest rates falling should be helping GLD more than it is.  That’s a negative for GLD.  The chart below shows you the reversal level I’d be following if you are trading GLD.

Why has the recent trend been damaged?  What gold does NOT like is rising real rates, so if the Fed whiffs more inflation than it wants, that could pressure real rates higher.  A proactive Fed means rates rising AHEAD of inflation, which means rising REAL RATES – the thing gold hates. Rising oil prices also often means higher rates.   The gold market is signalling that the Federal Reserve is, as I’ve contended, at best going to “act neutral,” not dovish.

I’ll change my mind if we see the upside reversal noted in the chart below.

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

gld-gold-etf-market-timing-chart-2019-03-15-close

Gold rally on pause still. Looking for a reversal UP.

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

TNX closed Friday at 2.593%, now below 2.688%, or what I am calling the “Fed’s gone dovish number.”  It also broke the triangle (yellow line) to the downside.  The Fed is actually neutral as I said, which is enough to move rates down a bit more than they were.  If TNX were to make a brand new low, the stock market will likely enter a dip/correction, as that is NOT what is supposed to happen in a real recovery The Fed would have to move to an outright dovish position if that were to happen, at least in time they would.

Rates RISE in a recovery.  Rates fall as the Fed moves to a dovish stance and keeps lowering rates as the economy falls off a cliff.  That is not what is supposed to be happening.  The rosy scenario is that rates are low because the Fed is dovish, and they’ll even cut rates to help the stock market stay up.  They won’t cut rates if inflation is too high, as long as the stock market is not “doing badly,” which it definitely is not.

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

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

tnx-10-year-treasury-note-market-timing-chart-2019-03-15-close-final

Rates fall below the recent range. Bullish for Treasuries and bonds.

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

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

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

Stock Signal NEUTRAL for a further U.S. stock market rally with a Bullish SP500 Index trend.  The signal here is based on small caps, as they often lead the market down.  Small caps are signalling some relative weakness this week, but I’ll move the signal to neutral given the bounce over the last 5 days in small caps. 

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!) closed at 12.88 vs. 16.05 last week, which means the Bulls have reached “Nirvana.”  That implies there could be more immediate upside for the SP500 Index.

There are now 7 Bear targets and the score is Bulls 7 to Bears 0.  The targets are 13.31, 14.04-14.08, 15.04, middle point = [15.94-15.95 to 16.09], 17.06, 17.27, and 17.89. 

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.  STILL HOLDS 3-15-19: 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 means the global economy is slowing.  That would hurt U.S. stocks. 

Rate Signal  NEUTRAL  for a further stock market rally with a BULLISH 10 Year Yield Trend.  The only reason I am not chasing Treasuries here is that over the subsequent several quarters, inflation is predicted to tick up a bit.  I prefer to be in short term paper (< 1 year) with my cash with that inflation outlook.  Rates will rise slowly and so will the yield in short term Treasuries and money market funds.  Of course, rising oil prices is also a reason to be cautious on the move to lower rates.  I am calling rates NEUTRAL for the stock market rally, because the market likes lower rates. If rates fall to new lows (substantially toward 2.554% or lower), however, that will mean something else, namely a worsening economy, and stocks would likely react negatively. 

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”  WTI broke out again this week, closing at 58.36.

I previously warned about the Fed tightening process: “This level of the 10 Year Treasury Yield, which is too high for current conditions as explained HERE, will eventually slow the economy.”  I said, “2.621% was the peak back in 2017 when stocks did best.  Anything below that would be an improvement.”   The close on Friday?  2.593%! 

Equity buyers feel lower rates are better at this point, but that’s not true for financials, so avoid that sector for now.

As for much higher rates and their possible impact, I said previously:  “All heck would break loose for equities if TNX lurches above 3.248%, particularly if the rise is rapid.  Buy long dated Treasuries as close as you can to 3.248% on the 10 Year Yield TNX (IEF, TLT, etc.).” 

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 next shock, I’ll be calling #RateShockIII.

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 3-08-2019 Close: “Back to the Mini Bear Or Is This Just a Dip for the Bull? Gold Gyrates with Rates.”

A Market Timing Report based on the 03-08-2019 Close, published Saturday, March 9th, 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 I’ve explained in my “New Rules” (Oct. 26, 2018 post), we’ve been in a Mini Bear Market, which occurs during slowdowns that do not lead into a deep recession.  That does not mean the drawdowns cannot be sizeable as investors learned in December, but the question is, “Are investors in for yet another ride down the hill as earnings slide around the world?” 

This week, earnings predictions for 2019 are AGAIN worse (for ex., Q1 2019 earnings projections have weakened EVERY week for the past month!), and revenue projections slipped as well.   These data are from FactSet, and the full FactSet PDF report will open HERE, and this is their site.

I updated the matrix of numbers shown over the past several weeks.  These are the SP500 Index Earnings and Revenue growth (or lack thereof) numbers predicted as of the Feb. 2nd vs. the Feb. 15th vs. the Feb. 22nd vs. the Mar. 1st vs, the Mar.8th close by FactSet, from left to right…

“For Q1 2019, analysts are projecting a decline in earnings of -0.8% -> -2.2% -> -2.7% -> -3.2% -> -3.4% and revenue growth of 5.7% -> 5.3% -> 5.2% -> 5.2% -> 4.9% .
For Q2 2019, analysts are projecting earnings growth of 1.6% -> 1.0% -> 0.7% -> 0.3% -> 0.2% and revenue growth of 5.1% -> 4.7% -> 4.7% -> 4.8% -> 4.5%.
For Q3 2019, analysts are projecting earnings growth of 2.7% -> 2.4% -> 2.2% -> 1.9% -> 1.7% and revenue growth of 4.9% -> 4.5% -> 4.5% -> 4.6% -> 4.5%.
For Q4 2019, analysts are projecting earnings growth of 9.9% -> 4.8% -> 4.5% ->4.1% -> 3.9% and revenue growth of 6.0% -> 4.9% ->4.9% -> 5.1% -> 5.0%.

FactSet says (showing last week and this week for this data) …“For CY 2019, analysts are projecting earnings growth of 4.1% -> 3.9% and revenue growth of 5.1% ->5.0%.” 

That earnings growth number for 2019 cited does NOT match the quarterly data above it.  I did the math.  I took the SP500 Index earnings for every quarter in 2018 and calculated the year/year values for each quarter, added them up, and divided 2019 total E by 2018 total E.  The answer is earnings growth of 0.694%!  Analysts who believe the earnings growth for the SP500 will be 3.9% for the year are delusional according to the analysts who came up with the data set in the prior paragraph. 

Where will the greatest strength be in earnings growth for Q1?  Factset says only 4 of 11 sectors will show earnings growth with the highest growth for Gas Utilities and Multi-Utilities and second place goes to Healthcare Providers and Services.  Pharma by comparison will show an earnings contraction, which is why I warned you last week to check the earnings and revenue estimate projections week by week at least to see if your companies are among those that will be hit by further earnings growth slowing (or absolute slowing, meaning NEGATIVE Earnings growth).

The weakest sectors are not what you may expect.  Energy, materials and Tech will be the worst companies in terms of earnings contraction (negative growth) and within Tech, Apple and Micron will be the worst.  Read the entire PDF at the link above.

I warned you last week that the earnings issues that are fast approaching the market as we are only 3 weeks to the end of Q1 2019 should keep a lid on further upward progress for the U.S. stock market.  If not, it tells you something completely different about the trajectory of the economy as far as the market sees it.

I gave you my strategy last week HERE.   I bought a bit more equity exposure on the dip this week and added to my growing but still modest position in China.  Realize however that I’m still only 20% or so exposed to emerging markets (EM) vs. my “usual max. exposure” for a Bull market in the corresponding market.  This gives me an opportunity to add more exposure at lower or higher prices.  I can hold a 20% of max. exp. position in China even if it goes down by 50% from here.  My paper loss would be a small percentage of my total investable net worth (that means not including one’s home).

I don’t share my raw exposure numbers, because I know it would throw many investors off the path that is best for them.  If you are 30, your equity exposure should be much higher than mine, probably 80-90% given you have a safety net that is liquid should something come up in your life.  You can use my % of max. exposure numbers to adjust your exposure to taste – to your life and your personal needs. 

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

China Deal Risk:  There is going to be a “big, beautiful deal” after all, we are told. No change in the assumed endpoint, but the negotiations seem to be slowing down.

Mueller Risk: We are told his report is imminent, so the risk of a surprise is imminent.  To reiterate, I am an independent and for the purposes of investing, I could care less who the President is.  I simply look at the risks to the markets should Trump be impeached OR removed, as a policy risk issue.

The risk itself is unchanged and could throw the markets into a decline if there is anything surprising in the report that would threaten a second Trump term.  Even an impeachment would not be good for the markets as I’ve stated.  Conviction by the Senate (an elusive hope so far for Dems) would be very Bearish for the market.  None of that is assumed!  There is to date no evidence of collusion, although I expect from what has been reported, the coast may be muddy, not clear, for Don Jr. and others close to Trump.

2020 Election Risk:  Read my comments on this HERE.  As I said, “Markets hate uncertainty, and the re-election of Trump is a great uncertainty.”  The election of a liberal Democrat would be an intermediate term disaster for the U.S. markets. 

Whether you like or hate Trump’s policies, and I do not like some of the aspects of his policies, particularly in terms of environmental harm, favoring the wealthy over the middle class in the tax cuts, and exploding the deficits and national debt, it is clear the financial system is fine with a moderate Democrat, but would not be fine with a socialist like Bernie Sanders. 

I agree with certain of Bernie’s principles such as decent health care for all (you should not have to ration insulin vs. food for example!) , but how you get there is another matter.  It matters a lot to the markets, whether you maintain enough profit for drug companies, so they will be incentivized to continue SUCCESSFULLY (as they have been!) to find cures for things like cancer. 

I debated Bernie on Healthcare Reform while he was campaigning on a busy road in Vermont, when he first ran for the House in 1992.  I was then on the faculty at the University of Vermont Medical School.  We parted amicably, and he saved my life by preventing me from walking into oncoming 55 MPH traffic as I turned to leave the conversation!  Thanks for that!  But Bernie, I’d advise against campaigning on narrow median strips.  😉

Fed Rate Hike Risk: Last week, the risk appeared to be rising with the stock market, but of course, as the market pulled back a bit, rates eased as investors plowed more funds into Treasuries.  That even helped gold/gold miners on Friday.  If TNX is below the January Fed day low of 2.688%, I consider it Bearish for rates (bonds higher, rates lower).  The risk of a Fed hike with easing in China and Europe (Euro dove this week on Draghi comments) is LOWER.  

Let’s get back to the technical picture, and how to invest/trade around it….

Two weeks ago: Still true! In my view, the SP500 Index would have to scale all THREE highs of Oct. 17, 2816.94, Nov. 7, 2815.15, and Dec. 3 2800.18, the latter just 8 points away, before saying the Mini Bear Market is dead.”  The S&P500 Index close Friday?  2743.07.  It had been above only the Dec. high, and now it’s back below all three highs.

The old adage, at least 360 years old, applied to the current market goes like this “Fool me once, shame on you!  Fool me twice, three, or four times, shame on me!”  It’s not impossible with the trajectory of earnings shown, that things will get progressively worse, which is why I’m not increasing my exposure dramatically yet. 

IF things do worsen vs. get better by the second half as the Bulls are counting upon, we’ll be able to add more exposure at full correction prices or better.  My practical definitions of pullback levels were posted in Oct. 2018 search on “New Rules” “Mini Bear Market” on Google and click on the Oct. 27, 2018 Issue).   Why did I bother adding at about a 3% SPX discount at week’s end?  Because you never know how low these pullbacks will go. 

Now take a look at the SP500 chart…. Orange lines are the 2017 up channel.

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

sp500-index-spx-market-timing-chart-2019-03-08-close

Coming off a lower high – again.

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Neutral, but in a pullback.  It cannot be said to be in a downtrend yet, but must hold the prior breakout of 50.60 on the pullback.  The SPX is down 5 days in a row, while INTC was down the past 4 days. 

Bank of America (BAC) Market Timing Signal:  Negative.  It fell this week and bounced on Friday from the 2-08-19 low.  Rates closed AT the bottom of the current range on Friday, so why BAC was up is curious.  Someone is wrong as I like to say!  XLF, the financial SPX sector ETF, was down just barely on Fri., but also held above the Feb. 8 low.

As I said last week, the “Only Way Up” is # 1 below.  I want to keep this here for reference…

  1. “Break out to new highs with SLOWLY rising interest rates.  This is the ONLY way UP for the U.S. stock market.
  2. Fall back to at least the October 2018 low or worse on RAPIDLY rising interest rates (which I will then call Rate Shock III).
  3. Fall back to at least the October 2018 low or worse on FALLING interest rates as the market begins to realize the economic slowing is real and as estimates of earnings continue to fall.”

The Oct. low is now is 5.09% lower from the Friday SPX close.

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 +10.64 vs. +21.63% last week.   Last week I said: “Every one is as cheery as they’ve been since the high in the market on Oct. 3, 2018, a high just shy of the all time high on 9-21-2018.”

I also said, “CONCLUSION on SENTIMENT: Sentiment is at a level that could point to a pullback, but it does not have to be a big one.”  I also warned that if the market moved higher than the triple top of lower highs, sentiment could rally further. 

This week sentiment is not particularly helpful, other than showing that the Bulls dwindled and the Bears grew in numbers after just a very slight pullback through Wednesday, the day the poll closes.  I favor more downside based on that, but in truth there is now room for sentiment to rise or fall.  The news on Mueller or China could cause sentiment to react significantly. 

Bulls Neutrals Bears
37.39% 35.87% 26.75%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): I pointed out previously: “Stalled out barely above the 200 day moving average.”  I also warned you it was higher beta and it has in fact fallen more to date off its high. 

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

iwm-russell-2000-market-timing-chart-2019-03-08-close

Small caps also down 5 days in a row, and down more than large caps.

 3. Gold Market Timing (GLD): GLD is now 0.69% above my sell point.  I was hoping for more downside in order to get back in at a better price than my sell price.  For GDX, I’m 2.85% behind.  I kept a covered call on a miner that is slightly under water.  I also have about 4% GLD insurance (% of investable assets) I do not touch.  I was protecting these positions vs. the rate bounce that fizzled back to the prior low.  I think it would be reasonable to increase trading exposure to gold, depending on where rates open on Monday, and IF GLD moves above a level I mention at the base of this report.

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

gld-gold-etf-market-timing-chart-2019-03-08-close

Gold falls then bounces as rates jump around.

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

I am now 0.25% behind on my IEF sell and 0.30% ahead on my TLT sell.  The direction of the 10 Year Treasury Yield could be decided early this coming week.  The close was right on the screws – 2.625, which is the low of the recent consolidation.  Below there, the bond Bulls are in charge. 

TNX closed Friday at 2.625% as mentioned, now below 2.688%, or what I am calling the “Fed’s gone dovish number.”  My concern is the wage growth that occurred despite the lousy 20K jobs created last month was 3.4% Y/Y, which means some inflationary pressure.  Admittedly the inflation picture is very mixed and hard to predict when world growth is slowing while U.S. wages are rising.  Follow the market and trade in the direction of the trend.  Right now?  Sideways, but testing a low!

Remember: Rates are still ridiculously low for a strong recovery scenario. 

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

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

tnx-10-year-treasury-note-market-timing-chart-2019-03-08-close-final

Rates back down at the low end of the range.

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

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

MY 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 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 16.05 vs. 13.57 last week, which means the Bulls and Bears are about evenly matched.  This is the fulcrum point.

UPDATE 3-11-19 10:00 am: I am going to compress the 15.94 to 15.95 and 16.09 numbers into one data point (a range as a single “point”), and it is the middle point/fulcrum by the way.  So there will now be 7 targets: 13.31, 14.04-14.08, 15.04, middle point = [15.94-15.95 to 16.09], 17.06, 17.27, and 17.89 (updated 3-11-19).  The Bulls failed to retain the 13.31 prize this week and the market fell.  The “VIX Game” at the Friday close was Bulls 3/Bears 3, as the VIX closed right in the middle of the middle VIX target at 16.05 on Friday.  As of Monday am VIX =15.38 so the score is now Bulls 4/Bears 3. 

The ‘Bull Nirvana Target’ is our V*IX # of 2018: 13.31.”  (That # is target #8 for the Bulls.)  This is not a guarantee for more gains, but it’s one goal the Bulls must attain. 

Gold Signal YELLOW  for a further U.S. stock market rally with a NEUTRAL Gold Trend.  The uptrend is broken, although the 10 Year Yield fell, which is a positive.  What gold does mostly as I’ve written HERE is follow real interest rates.  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 means the global economy is slowing.  That would hurt U.S. stocks. 

Rate Signal  YELLOW  for a further stock market rally with a NEUTRAL 10 Year Yield Trend.  Follow the next move “out of the box.” 

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”   Oil is having trouble getting above the Feb. high, but WTI it is above 55.63, which was the prior breakout, closing at 55.96.

I previously warned about the Fed tightening process: “This level of the 10 Year Treasury Yield, which is too high for current conditions as explained HERE, will eventually slow the economy.”  I said, “2.621% was the peak back in 2017 when stocks did best.  Anything below that would be an improvement.”   The close on Friday?  2.625%!  Higher rates only work in a strong economy, NOT a slowing U.S. and global economy.

As for much higher rates and their possible impact, I said previously:  “All heck would break loose for equities if TNX lurches above 3.248%, particularly if the rise is rapid.  Buy long dated Treasuries as close as you can to 3.248% on the 10 Year Yield TNX (IEF, TLT, etc.).” 

Watch the rate at which TNX climbs.  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 next shock, I’ll be calling #RateShockIII.

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I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, go 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.

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Posted in Bonds, gold, investment, investor sentiment, large cap stocks, S&P 500 Index, small cap stocks, Treasuries | Tagged , , , , , , , , , , , , , , , , , , , , , | 4 Comments

Market Timing Brief™ for the 3-01-2019 Close: “The Only Way Up for the U.S. Stock Market. How to Play the Move. Gold Falls Hard as Rates Shoot Up.”

A Market Timing Report based on the 03-01-2019 Close, published Saturday, March 2nd, 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):

The Bull is in “tired mode.”  The small caps (IWM) have gone sideways for the past 6 trading days and have barely moved up for 8 trading days.  For the SP500 Index, it has been 5 days flat.  Now a review of the current risks to the market…

China Deal Risk:  There is going to be a “big, beautiful deal” after all, we are told.  What we still don’t know whether it will substantially boost U.S. GDP and hurt China by raising their import costs, or be of net benefit to China by opening up our markets even more to them.  I cannot imagine China is going to be the net GDP winner on this on in terms of the import/export component of GDP, as the whole point of the talks is to improve the situation for the long “ripped off” U.S.  I do expect China will benefit despite its bad behavior in the past as, for example, it has a huge AI effort underway that needs patent protection as much as our work in the U.S. does.

Chinese capital markets will get a huge infusion as they are included in the MSCI Indexes as has been telegraphed now even by the mainstream media.  I have been building up my China exposure, following the charts, not simply keeping tabs on the negative economic narrative.  See my social media stream over the past few weeks to see what I’ve been buying.  I am adding slowly, in steps due to the slowing in China.

Mueller Risk: To reiterate, I am an independent and for the purposes of investing, I could care less who the President is.  I simply look at the risks to the markets should Trump be impeached OR removed, as a policy risk issue. 

Mueller is still on the table as a risk to Trump tax policies, most importantly to the stock market, but even Cohen had nothing substantial to offer on collusion.  That does not mean Mueller won’t however.

Oddly enough, the risk of impeachment went DOWN on existing evidence this week as some senior Democrats say they won’t pursue it on charges for which the Senate would not convict Trump.  For example, for breaking campaign finance laws, normally there is just a fine for a breach of such laws, so removing a President on that basis would be viewed as political.   Direct collusion with the Russians by Trump would be required to impeach and convict him.  There is to date no public evidence of that.

2020 Election Risk:  Read my comments from last week on this HERE.  This is a risk that is present and will be rising as time passes toward the 2020 elections.  Markets hate uncertainty, and the re-election of Trump is a great uncertainty.  

Fed Rate Hike Risk: Rising!  I said last week:  “With the market already in full recovery as the Fed would view it, the risk of a rate hike is HIGHER now in my view.”  Rates rose quickly off a higher low this week, and the jump looks like it will continue.  The Fed is not done hiking in my view, which is completely non-consensus as virtually no one expects the Fed to hike rates.  This is why I sold my long dated Treasury holdings for a profit on 2-11-19 (see social media posts).  Yes, I walk my talk.  And it’s why I sold nearly all of my gold/gold mining position on Friday, one day later than I would have liked. But I’ll cover that in the gold section below….

Let’s get back to the technical picture…

From Last Week: This still holds! In my view, the SP500 Index would have to scale all THREE highs of Oct. 17, 2816.94, Nov. 7, 2815.15, and Dec. 3 2800.18, the latter just 8 points away, before saying the Mini Bear Market is dead” …or wounded.  The close Friday?  2803.69.  Above only the Dec. high.

GDP RISK: GDP surprised to the upside, proving once again that the Atlanta Fed does not know how to predict GDP.  Nor do other private players who pretend to know, because there are too many variables to predict.  GDP came in at 3.08% Year/Year, meaning it was up that much for the trailing one year period.  The Quarter/Quarter SAAR GDP came in at 2.6%, 44% higher than the Atlanta Fed’s prediction of  1.8% and the NY Fed’s closer guess of 2.35%.  Read more on the GDP report HERE

At this link is Econoday’s Year over Year (Y/Y) Chart (Blue Line): U.S. GDP Y/Y (Blue Line) at Econoday.com.  Note the progression of Q/Q results is not as impressive. Remember, it is the % Real (inflation adjusted) GDP change from the preceding quarter annualized, which is why the headline figure jumps around more than the Y/Y number.

2018-12-Q4-GDP Chart

Year over Year curve is OK, but the Q/Q results are slipping.

Get this!  Now the Atlanta Fed predicts Q/Q SAAR Q1 2019 GDP to be 0.3% and the NY Federal Reserve says 0.88%!  Now that they’ve proven themselves to be wrong countless times, will they finally simply by chance win the “Price is Right”!!!?  They may as well run a show called “The GDP Number is Right” every quarter and have each Fed district play on live TV.

So what gives?  If the Y/Y number is about to roll over as the comparisons to 2018 become harder, can the market simply look the other way and say “It’s transitory slowing”?  I repeat the all important point that growth stocks are only going to work if they are actually growing their earnings on an inflation adjusted basis.

If costs start rising due to rising inflation, then only companies both insulated from inflation, with sustained earnings and revenue growth are going to prosper in the stock market from here.  They will be the big winners, and we need to do our work to find them.  Throwing darts won’t work going forward. 

Take EVERY SINGLE STOCK YOU OWN and plug it in HERE at Yahoo Finance to see whether that is true for your company.   Are earnings AND revenues going up for them in 2019 and 2020?  Check your stocks!  This is something we should do for all of our stocks EACH week to follow revisions, but it’s particularly critical when the economy is slowing around the world.  Numbers keep being revised lower, and lower, and lower, week, by week, by week.

So how are earnings estimates doing for Q1 2019 after the first two months?  BAD! 

Look at the 3rd chart in the FactSet PDF HERE (it will pop up and it’s safe being a PDF), and you’ll see a DOWNTREND of earnings estimates as the SP500 Index RISES!  This cannot go on forever unless these estimates are magically raised over the next four weeks due to the stupendous China deal/whatever.   Since the SP500 Index overall has been doing badly in terms of these earnings estimates, be sure to CHECK YOUR OWN STOCKS! 

Now take a look at the SP500 chart, and then we’ll review the earnings data, which are now 96% reported…. Orange lines are the 2017 up channel.

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

sp500-index-spx-market-timing-chart-2019-03-01-close

Stalling as earnings estimates fall.

This week, earnings predictions are AGAIN even worse, while revenues have been holding up for two weeks.   That has to mean either companies are being forced to cut prices, or their input costs are rising, or both.  Check these possibilities out for the stocks you own.  The full FactSet report is HERE, and this is their site.

These are the SP500 Index Earnings and Revenue growth (or lack thereof) numbers predicted as of the Feb. 2nd vs. the Feb. 15th vs. the Feb. 22nd vs. the Mar. 1st close by FactSet, from left to right…

“For Q1 2019, analysts are projecting a decline in earnings of -0.8% -> -2.2% -> -2.7% -> -3.2% and revenue growth of 5.7% -> 5.3% -> 5.2% -> 5.2% .
For Q2 2019, analysts are projecting earnings growth of 1.6% -> 1.0% -> 0.7% -> 0.3% and revenue growth of 5.1% -> 4.7% -> 4.7% -> 4.8%.
For Q3 2019, analysts are projecting earnings growth of 2.7% -> 2.4% -> 2.2% -> 1.9% and revenue growth of 4.9% -> 4.5% -> 4.5% -> 4.6%.
For Q4 2019, analysts are projecting earnings growth of 9.9% -> 4.8% -> 4.5% ->4.1% and revenue growth of 6.0% -> 4.9% ->4.9% -> 5.1%.”

FactSet says…“For CY 2019, analysts are projecting earnings growth of 4.1% and revenue growth of 5.1%.”  That seems a stretch for earnings growth, given the numbers above, does it not?   They believe the energy and communications sectors of SPX will rise the most in price over the next year.  These two sectors surprised analysts the most for the Q4 2018 results with beats of 12.9% and 8.2%, respectively per FactSet. 

Maybe…  But as I said last week,

“This deterioration ‘should’ put the breaks on the market prior to making new highs (for SP500 Index) above those three prior lower highs given above.

If not, the market will be sending a strong message (right or wrong) it intends to move still higher.

This key pivot point is now noted in the mainstream financial press.  (Everyone now sees the 3 prior tops vs. where we are….)  My strategy?  Buying if the market can take out all three prior SP500 Index tops, and letting go of that exposure with a fairly tight stop should it move back below in a fake-out move.  You may want to take that loss if you are going to buy if the breakout occurs, and you also want to trade it more aggressively.  Or, alternatively, if your time horizon is long, you may simply choose to hold the new exposure and add again even lower.  We SHOULD see confirmatory volume on such an up move in the SPX.  If not, it could be a fake-out.  Watch for that…

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Very positive.  Bulls can say “Semis run the world, so how slow is the world going to be if there is a big semi rally led by Intel?”  There was no “island reversal.”  Yet, the stock has gone sideways for the last four market days mimicking the overall market.  A decision on the market’s direction is imminent. 

For now, the uptrend in Intel is intact…

Bank of America (BAC) Market Timing Signal:  Negative.  It has gone nowhere since 1-18-2019.  This lack of response does not confirm the higher rates we saw in the market over the past few days by the way, which is why the TNX move COULD reverse.  Read this again from last week….

“Remember the problem for the entire market:

  1. If the economy is getting better, rates generally should rise, at least over the short term, not fall.
  2. The market believes the Fed will go slower on hiking rates, because the global economy is slowing!  That means rates would fall, not rise.”  There were two more points made after this one…(find them at the link to last week’s issue to the upper right).

The Only Way UP!

The SP500 Index will either…

  1. Break out to new highs with SLOWLY rising (added 3-16-19: OR stagnant) interest rates.  This is the ONLY way UP for the U.S. stock market.
  2. Fall back to at least the October 2018 low or worse on RAPIDLY rising interest rates (which I will then call Rate Shock III).
  3. Fall back to at least the October 2018 low or worse on FALLING interest rates as the market begins to realize the economic slowing is real and as estimates of earnings continue to fall.

That means there are two bad routes for the stock market, each portending a potential 7.14% drop (to Oct. 2018 low) or worse, and one path to success.  Those who think the economy is going to be accelerating with stocks rising, without inflation, and the Fed LOWERING rates are delusional.  Rates will optimally rise slowly and the Fed will optimally hike rates slowly…

Now let’s go on to review investor sentiment and why it confirms this as a key pivot point…

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 33,889 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 +21.63% vs. +13.93% last week.   Every one is as cheery as they’ve been since the high in the market on Oct. 3, 2018, a high just shy of the all time high on 9-21-2018. The spread was 23.1% on 6-13-18 at a temporary high in the market followed by a pullback of only about 3.5%.  That was in the middle of a long recovery back toward a brand new all time high.  Sound familiar to the Bulls out there?  It could happen again yes, and, yes, there is plenty of room for more sentiment upside.

And no, 20% Bears is not a key number.  That was seen (20.58%) on 5-16-18 and the market pulled back only about 1.7%.  This means the current sentiment IF we can make it over the prior lower highs noted, can continue on up and support a further rally.  You cannot use sentiment alone to trade. Only when truly extreme is it of major value, as it was in January 2018 before the market dropped precipitously.   I reported that data here as those of you who are long time readers know.

CONCLUSION on SENTIMENT: Sentiment is at a level that could point to a pullback, but it does not have to be a big one.  If the market moves higher, sentiment could also move higher, so the key is to follow the direction of the next critical move in relation to the prior THREE LOWER HIGHS in the SP500 Index. 

Bulls Neutrals Bears
41.63% 38.37% 20.00%
Thurs. 12 am CT close to poll

 

2.  U.S. Small Caps Market Timing (IWM): Stalled out barely above the 200 day moving average.  Remember this is high beta, so you will be hurt more than in large caps should the triple top become a quadruple top. 

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

iwm-russell-2000-market-timing-chart-2019-03-01-close

Stalled out. Waiting for a decision…

 3. Gold Market Timing (GLD): I dropped my exposure in terms of GLD and miners from 5.3% of investable assets to around 3.9%.  I could have kept the exposure at 5%, which is my normal “insurance” target for gold holdings, but I did not.

I said last week: “Realize any big jump in interest rates could knock down our profits.  At some point, protect your profits as it’s been a good trade, but be willing to get back in if you are wrong on any exit.”  I could have been at least a day earlier, but hesititated, which was wrong.  When you see what you see, do not hesitate.   Trade your own plan.

I will be back quickly to 5% gold exposure if I’m wrong, but what I saw on Friday was:

1. A big volatility spike with a large move by GLD by 1.70% to the downside on Friday (as well as GDX -2.43% etc).

2. a. This happened as rates shot up over a 3 day period to an extent that challenges the current 10 Year Yield trend and the view that the “Fed went dovish.” 

It did not.  Not really.  They just became less ignorant about global slowing.  The Fed went neutral and is watching and has one game left as I’ve harped upon, but the mainstream press does not understand.  They have only inflation to fight from here.  Employment is NOT an issue.  That means they will hike if they have to to contain the rising Core PCE Inflation index at a certain level.  It was at 1.9% Y/Y on Thursday.   Their target is 2%.  They say they may let it slide up a bit more, but we’ll see.  Asset prices are reinflated to levels barely below the prior high for the SP500 Index.  They have no worries about U.S. investors being sad any longer.  😉

2. b. The rate rise means higher real rates, if inflation is relatively subdued as Treasury yields rise.  Gold HATES that combination.  Why?  Because gold HATES rising real rates beyond all else. Read my article on what gold hates and loves HERE.  I can say confidently “It is worth gold!”

The Gold ETF (click chart to enlarge the chart; GLD):  Look at that obvious breach of the uptrend line….

gld-gold-etf-market-timing-chart-2019-03-01-close

Gold hates rising rates and they are attempting a new up trend.

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

I DID bail on long dated Treasuries on time (no need to sell short dated Treasuries out a year or so; just let them mature and extend your ladder forward in time).  OK, we’ll see what the next week brings, but for now, my sale of IEF and TLT on 2-11-19 from the lower high was just about perfectly timed.  I did not hesitate, despite all media talking the opposite way.

I wrote in a prior post:  If so [the Fed is now dovish], why are rates barely lower than when they concluded that, which was at a TNX of 2.688%?  SOMEONE IS WRONG ON RATES!   That is why I’m standing clear until I see the next big move, and sticking with short term Treasuries (see last week’s post on what I actually did!).”

TNX closed Friday at 2.755%, above that 2.688% “the Fed’s gone dovish” number.  If rates break to the next level, you can make money on following the new trend.  Yes, there is one more level to be taken out to confirm my impression and turn this nascent uptrend into an obvious uptrend. Follow me on social media (links above) to learn when this happens.

Remember: Rates are still ridiculously low for a strong recovery scenario. 

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

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

tnx-10-year-treasury-note-market-timing-chart-2019-03-01-close

Rates rising in new uptrend or just another fake-out blip up?

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

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

MY 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. (signal here is based on small caps) 

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!) closed at 13.57 vs. 13.51 last week, which correlates with the lack of progress this week for the Bulls. 

The Bears have lost ALL prior 7 targets: 14.04-14.08, 15.04, 15.94-15.95, 16.09, 17.06, 17.27, and 17.89 (updated 3-02-19).  The Bulls are approaching a big Bullish number….

The ‘Bull Nirvana Target’ is our V*IX # of 2018: 13.31.”  (That # is target #8.)  This is not a guarantee for more gains, but it’s one goal the Bulls must attain. 

Gold Signal NEUTRAL  for a further U.S. stock market rally with a BEARISH Gold Trend.  The uptrend is broken and rates are rising.  Those are Bearish for gold.  What gold does mostly as I’ve written HERE is follow real interest rates.  LAST WEEK: “If we see rates break lower, gold will keep trending up.  If not, there will be trouble ahead for all metals.”

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  NEUTRAL  for a further stock market rally with a nascent BULLISH 10 Year Yield Trend. Follow the move.  I call the signal “Neutral,” because rates can move up a little if they move slowly and don’t rise too high.  With a slowing economy at present, higher rates are not a positive. 

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”   Oil is having trouble getting above the Feb. high over the past week, but unlike gold, there is no breach of the uptrend…yet.  Oil was down on Friday, while XLE was UP. 

I previously warned about the Fed tightening process: “This level of the 10 Year Treasury Yield, which is too high for current conditions as explained HERE, will eventually slow the economy.”  I said, “2.621% was the peak back in 2017 when stocks did best.  Anything below that would be an improvement.”   The close on Friday?  2.755%!   Higher rates only work in a strong economy, NOT a slowing U.S. and global economy.  Global economic growth had better pick up fast!

As for much higher rates and their possible impact, I said previously:  “All heck would break loose for equities if TNX lurches above 3.248%, particularly if the rise is rapid.  Buy long dated Treasuries as close as you can to 3.248% on the 10 Year Yield TNX (IEF, TLT, etc.).” 

Watch the rate at which TNX climbs.  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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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, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL trend signal does not mean the end of the Bull or Bear. It means to wait and look for possible subsequent entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the charts for now as reference points only; they have historical value for us from the post-2016 election period.

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