Market Timing Brief™ for the 1-18-2019 Close: “Is the Market ‘Mid-Bounce’ and Is It Too Late to Buy? ‘PermaAware Investing.’ Gold Pulls Back to Trend. Rates Rise with a Dovish Fed?”

A Market Timing Report based on the 01-18-2019 Close, published Sunday, January 20th, 2019…

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

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

Before I answer in market timing bounce terms where the market is now, let’s review the backdrop.  The market has been rising despite a government shutdown that is now impacting U.S. GDP, a trade war with China that the market now believes will be reasonably resolved in the coming weeks, and a President who this week was accused of obstructing justice followed quickly by a Special Prosecutor Mueller office comment that the reporting on that was faulty.

In the end, President Trump MAY have kept himself clear of the Russia collusion, which Giuliani now admits may have occurred on the part of the Trump campaign but not by Trump himself.   If true, they will have nothing on Trump in the end, other than his public encouragement to Russia to break the law and release illegally obtained Clinton campaign emails.  Of course, that was just a joke.  😉

Importantly, the Buzzfeed report is not getting further support in the media, so we are back to waiting for “Presidential Collusion Proof” to emerge, if ever.  The market could have cared less this week as their reporting was released.  Trump impeachment/conviction risk is not zero, but it’s not meaningful until proven otherwise, and to be about facts, we have to stick to what we know and don’t know, not what anyone suspects.

The market has also been rising despite the fact that the next three quarters along with the Q4 quarter (sub-optimal), will show further economic slowing.  Analysts will likely further cut estimates in the coming months, which would pressure stock prices.

What’s the practical upshot of that?  If you are deploying new cash, don’t spend it all at once.  Buy at various levels, adding a greater amount of exposure to the stock market on more severe pullbacks.

I gave you a re-entry plan on December 30th for those of you who followed my advice to sell the lower highs such as the Dec. 3rd high, and discussed the further damage that could occur to the market on the risk side and the opportunity on the long side if “the bottom [was] already in.” 

I also counseled on Dec. 30th:On the other hand, I have plenty of cash to deploy if things go from “slow” to worse for the economy.  I will add exposure on pullbacks and will add higher if needed, mostly before I hit my prior selling points.  My prior exits were mostly higher, so there is still room to add back exposure (See my page on Passive Shorting” if you haven’t).  I coined the term to help investors consider it as a way to navigate pullbacks and increase returns.”

I also said, “If you have remained frozen to this point, I would only “sell some,” on an overextended bounce [like this one], unless we break to a new lower level.  Then you could “sell some” lower [rather than selling the highs], but slowly, because you must be willing to increase exposure on a reversal or you will fall behind the market.  The goal is to beat the market by a few percent or more.  Even a 2% improvement on SP500 Index performance is worth it.”

As of this week, I would probably only sell some only on a close back below the 50 day moving average. One possible stop at which to reduce exposure might be an S*PY price 2.5-3.0% or so lower than the Friday close of 266.46. (Avoid leaving stops in the market unless you have to due to your schedule, because the market maker will sometimes pick them off and then move the market back up!)

Read the post again to see what difference even a 2% outperformance makes in the long term HERE!

There is 10.11% upside from the close on Friday back to the 9-21-2019 intraday high.  The downside risk is a retest of the prior low, which is 12.14% below the Fri. close.  It is also possible that the market could retrace to the Feb. low of 2532.69 or just 5.17% lower.  However, if recession becomes more likely (the risk of an outright recession vs. an earnings recession and slower growth is considered low by most at this point), the market could easily fall between 25-50% from the 9-21 high. This is why we have to keep close tabs on the economic numbers. 

Now no one can give you the answer on whether the market will continue straight up from here or retest the prior Dec. 24th intraday low or move even lower.

An intensive review of the McClellan Oscillator data that measure market breath more recently vs. more remotely shows that we could be in the middle of a bounce, meaning there could be more upside, prior to the next pullback. 

I thought the massive peaks in the oscillator might mark market tops, but that was not the case.  They mark the rough middle of the bounces from the data off the 2014, 2015, and 2016 lows.  This means from this data by itself, we may be “Mid-Bounce”!

The “not so hot” news?  The 2014 bounce led to the 2015 low.  The 2015 bounce led to the 2016 low.  Get the picture?  We may be going up, but we could easily go back down and retest the prior low once or even twice. 

How high?  A revisit to the 200 day moving average (mav) for the SP500 Index is not out of question. Neither is an even higher high, which is still likely to be LOWER than the September 21, 2018 all time high.  Why is that?  Because we are in the middle of an earnings and revenue slowdown for the SP500 index, the likelihood that we’ve already reached the final low for this period of higher volatility is low in my view.  I say don’t count on this move leading to a new all time high!

However, regardless of the market’s direction, you can continue to follow this from that same Dec. 30th issue: “Have a plan for the levels you will add exposure at either higher or lower and be willing to change your plan if and when things change…and they always do change eventually.

What’s a possible plan to consider if you are Bullish and believe the Q1 through Q3 earnings reports will show an improving trend from here?  Increase your exposure level early in the week (Tues. is the market open due to holiday), and use a fairly tight stop on the new stock investments.  If the market moves down vs. up, you simply stop out of what you added and then seek to add back even lower.  Yes, you could be whipsawed by the market, but risk management does not come for free! 

Any trader will tell you to keep your potential gain 3 times or more greater than your potential loss based on your stop loss.  The target is the 200 day moving average to the upside for SPY, or 2.77% higher.  Above I told you a reasonable stop would be 2.5% to 3.0% lower than the close, so the trade has an even risk up and down – not good!  If SPY goes back to the Dec. 3rd high, that would be a 5.23% gain from here for a ratio of gain/loss of 2.092 at best with the 2.5% stop.  Better but also not great, which would be 3X gain vs. loss.

Adding “Mid-Bounce” could work out, but the set-up given the economic backdrop is poor.  If you think we’re headed back to new highs, add a bit and see what happens realizing there is market risk in making a trade with a mediocre set-up.   If you use not stop, the trade is a very poor set-up in my view.  

In any case… eventually the economy will turn for the better, which is why I say…

Don’t be a Permabull.  Don’t be a Permabear.  Be PermaAware! 

Spread the word on that would you?  It will help the average investor improve by simply not becoming stuck in one mode of thinking.  I’m sure many investors “sold everything” at the recent bottom.  Not a good practice, unless you need the money right away. But often investors don’t need the money right away and still sell everything at the lows.  Selling some at the lows is understandable.  Selling everything at one level is rarely going to be right in a market that is already as OVERSOLD as it was the day before Christmas. 

Things are never as bad or as good as they seem.  When tech earnings were off the wall high in the Q2 earnings reports, investors were giddy, and then we had a huge decline of about 20% in the SP500 Index off the 9-21-2018 top.  Stay “PermaAware” and all will be well with your investing.  You won’t get everything right.  I certainly do not, and even share my errors online, which few writers do.  I know a top newsletter that sends out their wins with the percentage gains and their losers with NO percentage loss.  Call them on it!  Write them an email and promote awareness.

Finally, review your results vs. your benchmark.  If you are about 50% invested in stocks, then find funds or managers that match that and see if they did better or if you beat them.  If they did substantially better and even more so, if they did so over several years, you may want to step back and spend your time more wisely.   Increase the assets you allow them to manage and reduce yours.  If you find the opposite is true, then take assets away from them.

If you stick with an advisor because you:

  1. Like them a lot as people.
  2. Believe in their process even when it has not worked for 10 years.
  3. Have been with them “for so long.”
  4. etc. insert any other irrelevant point….

THEN, you are being irrational and hurting your own family, because investment is not about liking your advisor.  It’s just one part of that relationship.  It’s one thing if they have a bad year or two in an otherwise great performance record.  That happened to many top advisors during the Tech Bubble of 2000.  But if they have trailed the market for the past 10 years, meaning their benchmark, then you need to strongly consider taking your money to someone else, whether another institution or a mutual fund with managers who have a top performance record dating back at least 10 years if not 15-20 years.  They have just three years of experience?   Let someone else risk their money with the green ones.

In comparing, please do not compare apples to oranges.  Do not compare a biotech fund or advisor to a U.S. Large Cap Fund advisor for example.  Compare 50-70% equity/30-50% bond invested funds to the same type of funds.

Not looking at 3 month, 6 month, 1 year, 3 year, 5 year, 10 year, and even 15-20 year results is simply dumb!  Look at yours.  Look at theirs.  Be honest and change your current plan as needed.  You can love ’em and leave ’em if the numbers don’t work.

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Stronger.  Now re-topping near the 200 day moving average – still.  Intel is not out of the woods yet!

As said: “Only a rise above 50.60 would change the current picture of a down trend since the June high. (Reminder: INTC was/is our “tell” on 2nd half earnings in tech as noted HERE.) ”  The close was 49.19 on Friday the 11th. 

Bank of America (BAC) Market Timing Signal:  I’d call it “Neutral” and ready to pivot up or down!  It was essentially at the top of the down channel it had been in as of earlier this past week, but now after earnings, it has popped just above the 200 day moving average.  Still, I am somewhat impressed, having said,  “A rise above the July low of 27.63 would be impressive…”  So I logically must be impressed….

BUT read my note on rates below, because if interest rates don’t move higher and instead fall as the market was expecting just days ago, BAC and the financial sector ETF XLF will not likely behave well.

Last week: “The next market goal for the Bulls would include a further rally above the October 29th low.”   We got that this week, so the next stop is the 200 day moving average to the upside for the SP500 Index unless a sell-off wave begins early in the week.

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 33,829 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.

Join the Conversation in the StockTwits “markettiming” Room

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

sp500-index-spx-market-timing-chart-2019-01-18-close

Still bouncing?

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -2.72% vs. +9.09% last week vs. -9.75% the week before that.  The market has been up strongly since the Dec. 24th low, and at a top, we’d expect more Bulls to show up.  That says to me, we are not yet at a “toppy” sentiment level.  Sentiment was in the high 20’s during the mid-bounce period off the 2014 SP500 Index low.  We are not even close now.  However, here is the catch.  Sentiment during the October 2015 mid-bounce was in the low single digits.  That bounce was only half done as well.

Bottom line?  The current sentiment level is consistent with a “mid-bounce” view of the market. Again, use a stop just in case!

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
33.53% 30.21% 36.25%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): I said last week, “A move higher would be impressive, and could embolden the Bulls further.”  That means I have to be impressed, but I would still warn that during periods of economic uncertainty, small cap stocks are NOT where you want to be, unless you are trading them on a short leash.  The December 3rd high followed by the 200 day moving average are the next obvious targets for the small caps.

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

iwm-russell-2000-market-timing-chart-2019-01-18-close

High beta could be trouble despite the big gains off the low.

 3. Gold Market Timing (GLD):  Two weeks ago I said: “A trading add on pullbacks.”  If rates turn down from here (not clear yet), gold should start responding as the U.S. dollar weakens, unless the rest of the world turns south.  Then the USD is a place of refuge and that works against gold prices.

Lower rates could still make gold a “win” as the “real interest rate” is the ultimate driver of gold.  If inflation is set to increase a bit in the U.S. with the Fed easing, gold should be a good hedge to have on.  If the economy were on its way to recovery, we would need to be out of gold trades (I hold a core position of pure profits by buying when no one wanted gold and selling my entire principle as it came off its high), but as I’ve said, I doubt that is the case.  Read at my social media links above to see what I bought.  It’s higher risk, higher reward than is GLD.

Note that the pullback in gold is only to the fairly steep up trend thus far… The trend is still intact in other words.

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

gld-gold-etf-market-timing-chart-2018-01-18-close

Gold is easing.  Would have preferred another leg up.  Watch rates!

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

Rates are rising again!  Why do I say this?   The down trend was broken to the upside and there is also a slightly higher high in place now.  The immediate target specified last week was 2.717% and we are at 2.784% as of the close on Friday.  A move above 2.808% will add another nail to the “interest rates are falling because the Fed is going dovish” scenario coffin. 

This is a dumb market that makes up nonsense about the Fed as it sees fit and then ignores what interest rates do the following week.  Which narrative are we going with this week people??? 

With RISING rates this week, just after everyone was begging for a more dovish Fed and got it at the margin, the stock market should be selling off, should it not?  The whole idea was that the Fed was going to be lowering rates again, was it not?

You may say, “Well David, this is just a risk on rotation from Treasuries into stocks.”  It could be, but if the Fed is lowering rates supposedly, long rates (10 years and up) would not still be climbing UNLESS the market sees inflation ahead.  This may be a clue then that the Fed being more dovish, while inflation percolates up a bit more, will cause the Fed to have to pivot eventually and hike, or simply be stuck in a stagflationary position between a rock (slower economic growth) and a hard place (rising inflation).  They may chose to ignore higher inflation in favor of higher growth or not!

Look for oil prices to ease, or inflation will in fact start to pick up again. 

By the way, stagflation is great for gold prices!

This play between economic growth slowing and inflation will make it complicated to call the rate IMPACT  “Bullish” vs. “Bearish” in the coming months.  A rapid rise is proven as “bad” for the stock market.  A high value vs. the rest of the world is also “bad” for emerging markets and secondarily for the U.S. market.  Moving lower at a rapid clip could mean risk off and stocks down.  Context is therefore as important as ever and is needed in order to talk about the impact of interest rates.  Range bound rates would likely be handled best by the equity markets.  I’d like to see 2.808% stop the current rally.

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-2019-01-18-close

Rates are rising despite the begging for a dovish Fed? Huh?

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

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

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

Stock Signal NEUTRAL for a further U.S. stock market rally with a NEUTRAL SP500 Index trend. (signal here is based on small caps)  The small caps are now back above the down trend line, while SPX is above the Feb. and Oct. lows, both positive, while still being below the recent down trend line. 

The V*IX (which relates to SPX volatility) closed at 17.80, which is barely below last week’s close at 18.19.  Not impressed there by the Bulls effort!

From prior week and other back issues: Further V*IX Bull Targets: A move below 17.06, 16.09, and 15.94 to create a new recent low.   The ‘Bull Nirvana Target’ is our V*IX # of 2018: 13.31.”

The VIX Up Trend Line is at 20.31ish and a rise above there would be the first Bear target.  The 50 day moving average is 21.69 (Friday’s value).

Gold Signal RED for a further U.S. stock market rally with a BULLISH Gold Trend.  A further GLD rally will be subject to interest rates, which will impact the U.S. dollar as explained above.  Note that the pullback in gold is only to the up trend thus far.

From before: “Remember GLD is being used as an indicator for the ECONOMY here.”

Rate Signal  NEUTRAL  for a further stock market rally with a NEUTRAL 10 Year Yield Trend.  I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”  Oil is in fact bouncing with rates, but has reached a level it could pull back from. 

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.).” 

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.”  2.621% was the peak back in 2017 when stocks did best.  Anything below that would be an improvement.

Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.  That’s what I call ‘Rate Shock.'”  The period of rising rates in early October was #RateShockII as I called it. 

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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.

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

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Market Timing Brief™ for the 1-11-2019 Close: “Nine Thorns in the Market’s Side At a Lower High. Gold Pauses. Rates Fall Again.”

A Market Timing Report based on the 01-11-2019 Close, published Sunday, January 13th, 2019…

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

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

I’ve covered the large number of issues facing the market over the past few weeks.  I count an additional ninth thorn in the market’s side this week! 

Let’s go over the issues quickly…

#1 Retail Q4…It was a strong holiday season; however, last week’s results for brick and mortar stores were mostly weak with Macy’s stock down over 20% from the 1-09-19 close!  Amazon warned on its own Q4 guidance in its Q3 earnings report, and it could have taken share away from brick and mortar and end up beating guidance.  Overall, the initial reactions in the retail sector are a negative report on the consumer.

#2 China Trade War…Vice ministerial level talks occurred Monday through Weds. of last week.  The Wall St. Journal says “Vice Premier Liu He is planning to meet with his U.S. counterparts including U.S. Trade Rep. Robert Lighthizer and Treasury Secretary Steven Mnuchin for negotiations on Jan. 30 and Jan. 31…”  It was also reported by them that the shutdown could delay those talks.  The initial assessment of progress was lukewarm at best, so this is still an unresolved thorn in the side of the market with Jim Cramer reporting that Chinese consumers are avoiding the purchase of American products in protest. 

#3.  Rates…TNX tested below 2.621% and then bounced with stocks after Powell’s jawboning to a lower high, but now appear to be moving down again.  I repeat from past weeks: “The Fed is not going to be able to avoid hiking rates if wages and employment remain strong.”  On the other hand, global slowing can push rates down lower with the Fed having to ease rates eventually.  With these opposing forces, we must follow the trend, which is still down.  That’s why I added to my Treasury holdings last week and sold stock exposure.

#4. Global Economic Slowdown…Still trouble for the market and could definitely get worse.  The Europe and China slowing are both getting worse. 

#5. Oil Price Collapse… The bounce could fail without a move through 54.50ish to the upside.  Global economic slowing means lower demand.

#6.  Tech Bear Market…XLK is still above the Feb. low, a positive, but it’s hesitating just above 63.38.  It still could be a sloppy test of the Nov. low to be followed by the next wave down.  The tech market must continue its rally on Monday.  If it does not, watch out below.

#7. Trump Impeachment/Trial Risk… Rep. Schiff, as far as I’m aware, is still hesitant to make a move on Trump without Mueller’s report providing hard evidence.  The Mueller Surprise factor is a possible threat to the stock market over the short to intermediate term.  The policy reversals of electing a Democratic President in 2020 BECAUSE of the Trump Russia issue are the real threat to markets.  More on that in a bit…

#8. Government Shutdown…Worse this week.  The Trump Shutdown, branded by him as such publicly, is now the longest government shutdown ever recorded.  How do you handicap something that is the longest ever with old data?  Hmm?  

A few more days won’t matter, but a few more weeks will hurt GDP for Q1. It also hurts many innocent government workers employed by an incompetent government. 

#9 Joe Biden Presidency: Remember, all the gains made on tax policy could be reversed after the 2020 election by a President Joe Biden, unless the Democrats pick an extremist candidate such as Elizabeth Warren or an untested candidate like Sen. Kamala Harris.  Trump would love to run against either of them or any other McGovern type of Democrat in 2020.  (Please note these comments are a process of handicapping the election in investment terms.  I don’t like either party and what they’ve BOTH done to destroy the U.S. dollar over the years.)

I think Biden knows the country would not be easily convinced that someone like Elizabeth Warren would make a great Commander In Chief.  Biden’s been around the block in his 8 years of VP service.  Warren and Harris lack the credentials of a Hillary Clinton, who as Sec. of State, was at least involved in the discussions about the Middle East conflicts.

Biden would rule from a point near the middle as Obama largely did, despite fears of him being a socialist.  Obamacare was the closest he got to a socialist agenda.  It was a partial victory for him with negative consequences for the party due to the problems it created.  The millionaire tax was part of that, but mostly the Clinton tax rates were reinstated after the deficit busting “tinkle down” tax cuts by Pres. G.W. Bush.

The market will start to grow nervous about losing the regulatory and tax gains of the Trump administration especially by the end of 2019 if there is a viable Democrat candidate.  Biden NOT running would reassure the markets. 

I admit that Bernie Sanders is a wild card, as he could win based on his prior strong run against Hillary in a party dominated selection process.  He’s only one year older that Biden, so if Biden can run, so can Bernie.  They may both say they’ll serve one term to convince voters not to worry about their age.

Tangential Story: I only half joke that Bernie Sanders saved my life after we had a cordial debate on healthcare in the middle of a 50 MPH road that runs into Burlington, Vermont.  He was standing on a narrow meridian and I joined him there prior to his first victory in running for the House of Representatives.  As I turned to cross the road, I nearly walked into an oncoming car.  Thanks Bernie!  😉

A Bernie Sanders win as a self-proclaimed Socialist would be very tough on the stock market in my view.  The market could begin selling off early if Sanders takes an early lead against Biden.  Biden, in the meantime, has yet to declare his intention to run. 

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Stronger.  Now re-topping near the 200 day moving average.

BUT as said: “Only a rise above 50.60 would change the current picture of a down trend since the June high. (Reminder: INTC was/is our “tell” on 2nd half earnings in tech as noted HERE.) “

Bank of America (BAC) Market Timing Signal:  Negative, although it is now essentially at the top of the down channel.  It could stop bouncing right here or around the 50 day moving average.  Prior comment: Bounces like this are not enough to change the down trend.  A rise above the July low of 27.63 would be impressive, however.

Last week: “The next market goal for the Bulls would include a further rally above the October 29th low.”   That’s where the market seemed to stop last week.  Even then, the market could rally a bit higher and turn down at or just above the 50 day moving average.  That pattern is typical for a bounce in a Bear market.

Earnings are out in force over the next few weeks, so watch for revisions up or down.  Stay with the best companies with the best prospects for accelerating growth.  Any company that can accelerate their earnings and revenue growth while the rest are slowing will be an outright winner.  This is not new news.  But it’s what we should focus upon! 

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 33,829 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.

Join the Conversation in the StockTwits “markettiming” Room

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

sp500-index-spx-market-timing-chart-2019-01-11-close

Lower high forming or are the Bulls looking for more?

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +9.09% vs. -9.75%.  There has been no washout of Bulls in this data.  Investors are still afraid of missing out on gains in the bounces.  Until that dissipates, the final low is not likely in.  The prior low will at least be retested in my view.

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
38.46% 32.17% 29.37%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM):  No change: “Not a good place to be until signs of U.S. economic acceleration appear or are anticipated.”  The 50 day moving average looks like a pretty good spot for the rally to end in small caps.  A move higher would be impressive, and could embolden the Bulls further.  The slowing in the economy stands in the way of ANY rally working out in my opinion.   These are still places to “sell some” until the economic numbers accelerate again. 

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

iwm-russell-2000-market-timing-chart-2019-01-11-close

Same pattern. Bounce to a lower high.

 3. Gold Market Timing (GLD):  Last week I said: “A trading add on pullbacks.”  Still true, but only buy the pullbacks rather than “chase,” unless you have no gold exposure.  Then you could average in some here and hold back cash to add higher or lower.  Rates may have topped for now, which will help gold. 

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

gld-gold-etf-market-timing-chart-2018-01-11-close

Gold pause. Then what? Watch the US dollar and rates.

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

The trend in rates is still DOWN.  2.717% is now the immediate upside target.  The market now believes the Fed is going to move even more slowly to raise rates (right or wrong).  That means if rates actually RISE instead of fall, the market will have a problem!  Stocks will sell off again.

If rates fall too quickly, it will signal a lack of confidence in the U.S. economy and a switch of assets from stocks into Treasuries/dollars.

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-2019-01-11-close

Rates could now be moving down again.

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

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

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

Stock Signal RED for a further U.S. stock market rally with a BEARISH SP500 Index trend. (signal here is based on small caps)

The V*IX (which relates to SPX volatility) closed at 18.19, down from 21.38 last week.  It broke the up trend line which is Bullish for stocks, but this was after making a higher high in December.   I am now watching the behavior of the VIX should it approach the major lows from Oct. to Dec.

From prior week and other back issues: Further V*IX Bull Targets: TESTING THIS NOW: 18.18 to 18.10, then 17.06, 16.09, and 15.94 to create a new recent low.   The ‘Bull Nirvana Target’ is our V*IX # of 2018: 13.31.”

The VIX Up Trend Line is at 19.50ish.  The 50 day moving average is 21.91.

Gold Signal RED for a further U.S. stock market rally with a BULLISH Gold Trend.  A further GLD rally will be subject to interest rates, which will impact the U.S. dollar.

From before: “Remember GLD is being used as an indicator for the ECONOMY here.”

Rate Signal  RED  for a further stock market rally with a BEARISH 10 Year Yield Trend.  I said 2 weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”  Oil is in fact bouncing with rates, but has reached a level it could pull back from. 

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.).” 

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.”  2.621% was the peak back in 2017 when stocks did best.  Anything below that would be an improvement.  That level was tested and rates bounced.  2.554% was the recent low.

Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.  That’s what I call ‘Rate Shock.'”  The period of rising rates in early October was #RateShockII as I called it. 

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, 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.

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 1-04-2019 Close: “Market Bounce In Progress. How high? Gold At Risk of Rates Rising.”

A Market Timing Report based on the 01-04-2019 Close, published Sunday, January 6th, 2019…

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

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

I’ve covered the large number of issues facing the market over the past few weeks (last week’s update with the details is HERE).  Let’s go over the issues quickly…

#1 Retail Q4…It was a strong holiday season.

#2 China Trade War…Vice ministerial level talks will start Monday. 

#3.  Rates…TNX tested 2.621% and then bounced with stocks after Powell said QT would not be on automatic pilot and the Fed would be “patient” on hiking the Fed Funds rate, blah, blah, blah.  Yes, it’s just jawboning, because the Fed has no choice but to raise rates with strong employment numbers like those seen last Friday HERE.  Don’t get too giddy about Powell.  I think that Friday sideshow with Yellen and Bernanke was a bunch of fluff.  That’s not being negative; it’s being aware of the Fed mandate.  The Fed is not going to be able to avoid hiking rates if wages and employment remain strong. 

#4. Global Economic Slowdown…Still trouble for the market and could definitely get worse.

#5. Oil Price Collapse…The bounce has been good, but there is no change in the down trend yet.  Global slowing is lurking as an impediment.

#6.  Tech Bear Market…XLK is above the Feb. low, a positive, although it fell below it on Thursday and moved back above it on Friday.  A further recovery of the tech market would be a big plus for the market, but global economic stats are not encouraging.  I remain skeptical that the gains will stick over the short term.  Earnings revisions are coming with Q4 earnings, which start soon.

#7. Trump Impeachment/Trial Risk… Rep. Schiff who is now in charge of the House Judiciary Committee won’t pursue impeachment charges as a side show, because it would backfire on the Dems in 2020 to sidetrack the country if the Senate is unwilling to deliver a conviction.  

#8. Government Shutdown…Worse this week.  President Trump is digging in his heels, and the delay in running the government won’t be helping the economy.  I find the entire concept of a shutdown to be a reflection of the idiocy of our two party monopoly on political power.   We’ve hired clowns from both sides of the aisle.  That aside, a short shutdown won’t matter much, but a long one could matter.  It obviously matters to those without paychecks and to those who cannot access government services. 

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Negative, but improved.  The bounce is barely above the 50 day moving average.

As said: “Only a rise above 50.60 would change the current picture of a down trend since the June high. (Reminder: INTC was/is our “tell” on 2nd half earnings in tech as noted HERE.) “

Bank of America (BAC) Market Timing Signal:  Negative, though it bounced to the top of the down channel.  It could stop bouncing at that line or around the 50 day moving average.  Bounces like this are not enough to change the down trend.  A rise above the July low of 27.63 would be impressive, however.

The bounce this week after the swoon took us barely below the February low.  Futures are now trading above that level and a continued move above the Feb. low would be a positive for the Bulls.

The next market goal for the Bulls would include a further rally above the October 29th low.   Even then the market could turn down at or just above the 50 day moving average.  That pattern, as mentioned for BAC above is typical for a bounce in a Bear market.  You can see the other failed bounces in the chart below.  This one may be no different.  If things change, we change.

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 33,802 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.

Join the Conversation in the StockTwits “markettiming” Room

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

sp500-index-spx-market-timing-chart-2019-01-04-close

The bounce needs to continue Monday.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -9.75% vs. -18.75% the prior week.  We still have not seen any sort of washout, and we have at least 4 quarters of economic slowing to be reported, including the current quarter with Citigroup (C) reporting on 1-14-19. 

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
33.02% 24.21% 42.77%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM):  No change: “Not a good place to be until signs of U.S. economic acceleration appear or are anticipated.” Any one of the lines above the current price shown on the chart below could mark the end of the bounce.

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

iwm-russell-2000-market-timing-chart-2019-01-04-close

Bear Market Bounce.

 3. Gold Market Timing (GLD):  Last week I said: “A trading add on pullbacks.”  Still true, but buy the pullbacks.  I am concerned that rates could move still higher on a further stock market bounce, which will hurt gold.

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

gld-gold-etf-market-timing-chart-2018-01-04-close

In up trend.

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

The bounce Friday was not enough to change the 10 Year Yield down trend back to an up trend. 

Still true from two weeks ago:T*N*X 2.808% is the key level to watch for a reversal back UP.”  (the *’s are there so bots cannot read my targets)  Note that the down trend line intersects the same number.  With a move above there, the current down trend will be under challenge.

If rates start declining again on an immediate basis, watch out because equities will be giving back the recent gains. 

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-2019-01-04-close

Rates bounced with stocks on Friday. Must continue.

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

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

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

Stock Signal RED for a further U.S. stock market rally with a BEARISH SP500 Index trend. (signal here is based on small caps)  There is just a bounce in a down trend thus far.

The V*IX (which relates to SPX volatility) closed at 21.38 this week, which is still Bearish though improving.  It closed at 28.34 the prior week.

From prior week and other back issues: Further V*IX Bull Targets: 20.34, 18.18 to 18.10, 17.24, 16.86, and 15.95 to create a new recent low.   The ‘Bull Nirvana Target’ is our V*IX # of the Year: 13.31.”

The VIX Up Trend Line is at 18.62.  The 50 day moving average is 22.30.

Gold Signal RED for a further U.S. stock market rally with a BULLISH Gold Trend.  A further GLD rally will be subject to interest rates, which will impact the U.S. dollar.  See GLD section above.

From before: “Remember GLD is being used as an indicator for the ECONOMY here.”

Rate Signal  RED  for a further stock market rally with a BEARISH 10 Year Yield Trend.  I said 2 weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”  Oil is in fact bouncing a bit with rates. 

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.).” 

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.”

Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.  That’s what I call ‘Rate Shock.'”  The period of rising rates in early October was #RateShockII as I called it. 

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, 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.

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

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

Market Timing Brief™ for the 12-28-2018 Close: “Mini Bear or Big Bear? That is the Question. Is the Bounce Over? Gold Moves Higher, but Watch Rates Closely.”

A Market Timing Report based on the 12-28-2018 Close, published Sunday, December 30th, 2018…

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

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

I’ve covered the large number of issues facing the market over the past few weeks (last week’s update with the details is HERE). 

#1 Retail Q4…Looking good.

#2 China Trade War…At least #Trump and company have stopped their contradictory blabbing, but there’s been no clear progress.

#3.  Rates…Could be trouble this week if rates move AT ALL lower (with stocks moving DOWN with rates. BOTH moving down together would mean trouble.).

#4. Global Economic Slowdown…Still trouble for the market and could definitely get worse.  I’ll be following economic updates like a hawk.   You should do the same. Goldman Sachs per CNBC says they have lowered their GDP forecast for H1 (first half of 2019) from 2.4% to 2.0% or a 16.67% drop in their forecast.  They further expect H2 2019 GDP to “slow to a virtual crawl below 2%,” which sounds close to zero to me.  They are “still not particularly worried about a recession.”  Until they are!

Think about that GDP downgrade.  Say Company X comes out Monday and says “Our revenues will be 16.7% lower than expected in H1 2019.” Imagine what that stock would do.  Slowing can snowball and beget more slowing. 

#5. Oil Price Collapse…Still potential trouble despite the recent bounce. 

#6.  Tech Bear Market…XLK is above the Feb. low, a positive. Moving back below would mean danger to the entire rally as Big Tech was a big part of the bounce (plus AMZN but that is still XLY based).  The return to Tech buying so soon is not a great sign that all the gains will hold without a retest of the lows at a minimum.  If Tech keeps moving up, however, that may mean the market is gaining confidence around an economic turn 6 months out. 

#7. Trump Impeachment/Trial Risk…Still a big risk (short to intermediate term risk, not a long term risk; the market does not care about who the President is ultimately, but does care what the policies are), though no casual swipes at the President will be taken with the market’s already down so severely.  They will at least think twice.

#8. Government Shutdown…Does not matter except for for short term trading, but if it messes up Q1 GDP (goes on more than 2 weeks as a very rough estimate), that could hurt markets over the short term.

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Negative, but improved.  Attempting recovery, but I’d call the close back below a test of the 50 day moving average (mav) as negative.  Back above prior down channel.  You will likely need to trade semis, not hold them, until the economy accelerates again.

Only a rise above 50.60 would change the current picture of a down trend since the June high. (Reminder: INTC was/is our “tell” on 2nd half earnings in tech as noted HERE.)

Bank of America (BAC) Market Timing Signal:  Negative, though it bounced over 7%.  This is a “Bounce in a Bear Market” for now.  The stock could move either up or down from here.  It is in the middle of the down channel on the daily chart starting in Feb.  

Last week I pointed out that December breakdowns like the current one have been unheard of at least going back as far as 1970.  I was looking for a specific technical pattern of market collapse, which is why I limited the time span of analysis.

It was reported at least prior to the bounce this week this December would be known as the worst December ever for the stock market.  That says a lot!  What it says to me is “this is not over.” 

We are already in what I call a “Mini Bear Market” as defined by my “New Rules” for Bear market names HERE.

I expect a retest and even a failure at the recent low, although there is no guarantee of that.  It could occur with even weaker earnings data and weaker projections coming in by January, and drive the SP500 Index to my “Big Red Wave” target or below (recently updated HERE).

I reviewed all the Bear market declines (not including Mini Bears of between 15-20%, only those over 20% as this one has been), since World War II and found that (as I’ve been saying and as the press has started to say just this past week) IF we are not headed into a recession, or if the recession is both relatively shallow and brief, the downturn could already be over.  As you’ll see below, that’s a shaky “could.”  This is why any buying must be in stages and NOT all at once in my view. 

The best case of a shallow recession was 1990, in which there was a mild, brief recession and a 20.36% market decline with a rapid recovery to new highs in 1991 in a rally that ran all the way to 1994, before the first bump lower.  There was a 1.4% drop in GDP at that time (Ref) vs. a 5.1% drop in the Great Recession beginning in Dec. 2007 and ending 1.5 years later.

But note there was a recession in 1960-61 with a similar 1.6% drop in GDP that took the market down about 28% from its prior peak, and the shallow recession (0.6% drop in GDP) of 1969-70 lasting just 11 months brought the stock market down 36% from its peak.

Even without a recession, we could see another discount of 10% to a total pullback off the highs of 30%ish, given unresolved negative catalysts that linger (several noted on the list above would suffice, such as impeachment, 25% tariffs on China, or a March hike by the Fed could even do it).  You can review the dates of all post-WWII drawdowns and the percentages HERE.

In 1987, in which I exited the market partly in the middle of Sept. before Black Monday as well as executing a final sell on the Friday before Black Monday (-22.6% decline in one day, the worst in history), when I took my last dime out, the market went down 31% from the prior peak despite the lack a of economic recession.  It was attributed to both the sense that the market had run up quite a bit already and trading program disasters that were subsequently addressed by adding some regulations to slow the swings down.  Recall that the market tanked in February based on the impact of computer trading programs and VIX derivatives.  We’ve also had two Flash Crashes in 2010 and 2015 with no permanent fix in place in my view. 

IF we are headed into a deeper recession, you can expect damage of up to roughly 50% off the highs (it was 57% in the Great Recession for the SP500 Index).  Given the uncertainties right now, I like my exposure level (see social media links).  Note, however, that if the bottom is already in, my exposure is too low at the moment, and I’ll have to add on the way back up. 

On the other hand, I have plenty of cash to deploy if things go from “slow” to worse for the economy.  I will add exposure on pullbacks and will add higher if needed, mostly before I hit my prior selling points.  My prior exits were mostly higher, so there is still room to add back exposure (See my page on Passive Shorting” if you haven’t).  I coined the term to help investors consider it as a way to navigate pullbacks and increase returns.  

If you have remained frozen to this point, I would only “sell some,” on an overextended bounce, unless we break to a new lower level.  Then you could “sell some” lower, but slowly, because you must be willing to increase exposure on a reversal or you will fall behind the market.  The goal is to beat the market by a few percent or more.  Even a 2% improvement on SP500 Index performance is worth it.  Do the math on that, and you’ll see that it will make a big difference in your retirement.  I’ll give you one example, and you can do your own calculations…

A 45 year old who starts with $100,000 invested and adds nothing (very unlikely, but let’s keep it simple), at a 6% total return ends up at age 65 with $325,000 at age 65 vs. $466,000 at an 8% total return. The gains are $225,000 vs. $366,000 or an additional 63% for the 8% return.  Realize these numbers do not include the impact of the average 2% inflation the Fed shoots for in the PCE Inflation Index, which may underestimate inflation.  Every extra percent return matters!  Check your own numbers using this calculator (I have not verified its accuracy): HERE.

Remember when you take off exposure higher, and the market moves lower and you add back, the gain back to even is greater than the percent loss from the top.  A 50% decline in the market means you make 100% on the bounce back to even.   Buying a 50% decline means you are locking in the potential for 100% gains, even if it takes a few years to get back to even.  How many years this takes is the catch of course, and that determines your annual return. 

Over the very short term, Monday could be messy as procrastinators may still harvest their tax losses going into Monday’s close. That alone could result in another retest of the lows.  On Thursday I correctly predicted the market could retrace about half of its gains off the 12-26 intraday low and it did and proceeded to rally to a higher high.

Have a plan for the levels you will add exposure at either higher or lower and be willing to change your plan if and when things change…and they always do change eventually.

We know right now that if there is no recession, things are going to get better, even if they deteriorate more from here, and as the data improves, the market will begin a new up trend.  That’s what the data says right now.  If that changes, we must change our minds.  The biggest mistake investors make is not being flexible and changing with the markets and economic data. 

Read my prediction from last week about a shutdown reversal and how to trade it.  It could save and/or make you money!

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 33,802 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.

Join the Conversation in the StockTwits “markettiming” Room

The room link above is for serious market timers, but if you need to learn and catch up, you will likely learn a lot there too.  😉

You’ll note in the chart below that the SP500 Index bounce this week came very close to the February low and then turned down.  That by itself is a negative.  Moving back above the Feb. low on strong buying is a key move the SP500 Index has to complete to turn this bounce into a 1X bounce into a 2X or more bounce.  XLK (Tech Sector of SPX) did rise above that Feb. low breakdown level, but not by much.  If you see XLK failing on Monday, it could spell bad news for the Bulls.  On the other hand, if the XLK rally simply continues, it could auger good things for January at least. 

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

sp500-index-spx-market-timing-chart-2018-12-28-close

Bouncing in a Bear Market.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -18.75% vs. -22.44% the prior week.  The poll ended Weds. night and there are too many Bulls still.  Sentiment suggests the bottoming process is not complete or the bottom has still not been reached.   I would ask, “How can the market bottom without truly negative sentiment numbers given this is one of the worst Decembers ever?”  You can read my comment in my StockTwits markettiming room HERE.

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
31.55% 18.15% 50.30%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM):  Not a good place to be until signs of U.S. economic acceleration appear or are anticipated.  Still far below the February low and below that orange line which was the second breakout to higher highs after the first post-2016 Election bounce.

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

iwm-russell-2000-market-timing-chart-2018-12-28-close

Still miles below the Feb. low.

 3. Gold Market Timing (GLD):  Last week I said: “A trading add on pullbacks.”  The risk to gold is that interest rates rise somewhat from here and stocks continue their rally higher.  Note GLD pulled back during the big 5% SP500 rally on Weds. and then rose as the rally slowed its advance.  

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

gld-gold-etf-market-timing-chart-2018-12-28-close

Gold moves up, but won’t continue up if rates rise from here.

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

Still true from last week:T*N*X 2.808% is the key level to watch for a reversal back UP.”  (the *’s are there so bots cannot read my targets)

On an immediate basis, rates falling to new lows below the Friday close would spell trouble for the stock market rally, but I will be watching the simultaneous performance of stocks to interpret the meaning of the rate change.  If stocks sell off with rates moving down further, it would mean risk ON was back to OFF again. 

UPDATE 12-31-18: If rates fall slowly with stocks rising, that would mean the market feels the Fed will come it’s way and go slower on rate hikes and eventually reverse course.  T*N*X 2.717% is the last low of importance.   Watch what stocks do if that is breached and you’ll know what it portends, because the move already in motion will accelerate.  If stocks are falling as rates fall, they will keep falling.

Back to Sunday’s issue….

It’s not clear which way this will go, as rates got very close to my upside reversal number on Weds., but did not close above it.   Watch the 10 Year Yield closely for what I said in the room on Friday could mean “death to the current bounce.”  My number noted in the room has been “marked” by the market as I like to say. Exactly in fact!  It closed Friday exactly at the key number (noted in the same “room note” with the link in the “Sentiment” section 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-2018-12-28-close

If stocks are to continue higher, rates should not move down further on an immediate basis.

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

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

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

Stock Signal RED for a further U.S. stock market rally with a BEARISH SP500 Index trend. (signal here is based on small caps)  There is just a bounce in a down trend thus far.  There is nothing technically that is terribly reassuring.

The V*IX (which relates to SPX volatility) closed at 28.34 which is still very Bearish.  It closed at 30.11 the prior week.  The V*IX did reclaim 28.84, which is positive, but must keep falling.

From prior week and other back issues: Further V*IX Bull Targets: 25.94, 23.81, 20.34, 18.18 to 18.10, 17.24, 16.86, and 15.95 to create a new recent low.   The ‘Bull Nirvana Target’ is our V*IX # of the Year: 13.31.”

Six weeks ago I said: “The Bears need to take out the 26ish top that was tested once again this week for the market to go into another leg of  decline.”

I said previously: “As before, VIX 28.84 is the Bear target for Armageddon (another big chunk of losses driving SPX down significantly lower).  Just moving above 26 could do it however.”

Gold Signal RED for a further U.S. stock market rally with a BULLISH Gold Trend.  A further rally will be subject to interest rates, which will impact the U.S. Dollar.  See GLD section above.

From before: “Remember GLD is being used as an indicator for the ECONOMY here.”

Rate Signal  RED  for a further stock market rally with a BEARISH 10 Year Yield Trend.  I said 2 weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”

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.).” 

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.”

Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.  That’s what I call ‘Rate Shock.'”  The period of rising rates in early October was #RateShockII as I called it. 

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, 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.

Copyright © 2018 By Wall Street Sun and Storm Report, LLC All rights reserved.

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

Market Timing Brief™ for the 12-21-2018 Close: A Mini Bear Market Begins for the S&P500 Index. Big Bear to Come? Gold in an Up Trend with U.S. Dollar Still Strong and Rates Still Below a Key Low.

A Market Timing Report based on the 12-21-2018 Close, published Sunday, December 23rd, 2018…

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

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

I’ve noted there are many issues being faced by the weak market of late.  Let’s do a quick update of these and then get to the technical damage of the U.S. equity markets that occurred this week…

1. Data on holiday sales.  Bloomberg says that this past Saturday should have been a very strong day as the Christmas season has been thus far with sales on Dec. 22nd to exceed Black Friday sales as detailed HERE.  I am still concerned that this last push may be weaker than it could have been due to the poor stock market behavior of late.  There will be data on this in the coming week.  I’d say overall, retail sales are a plus for the market with that caveat of potential late December weakness.

2.  A Trump Xi Trade U.S. agreement with China within the 90 day period with the clock running since the G20 meeting.  The adminstration seems to have gotten the message from me and hopefully you and many others that they should talk less and work more and deliver a coherent message on their progress.   (Public officials respond to calls, emails, and letters more than the public understands.)

3. U.S. interest rates staying relatively low, but not breaking too low (which hurts financial stocks).  

I said 2 weeks ago: “Rates have moved down off the peak of 3.248% in the 10 Year Treasury Yield since Nov. 8th and now look ready to perhaps find support at the summer lows of around 2.80% and bounce.”  

That 2.80%ish number is now just above the current level of 2.792%.  It would be Bullish in the current technical context for rates to rise somewhat from here rather than fall further.  A further decline in rates would signal a deepening Bear market (it is already a “Mini Bear Market” in SP500 Index terms, thus far, as I’ll get to…)

Last week my Fed Rate Hike Handicapping included this choice:

3. If the Fed hikes 0.25% and does not make clear dovish overtures to the markets, the SP500 Index could move into the Big Red Wave.  The Federal Reserve Chair Powell made the #3 choice and failed to be sufficiently dovish for the U.S. stock market.  He set off a “Mini Bear Market” due to the Federal Reserve posture being the front and center issue for the stock market.  Trump’s shutdown of the government and his rising impeachment risk did not help either (see below). 

I did not position further ahead of the Fed, because no one can predict ignorance on the part of an organization (the Fed), which employs over 400 economists with your and my tax money.  The Fed gets some major credit for pushing the market over the edge this week, but Trump and the GOP get credit for tax cuts which drove inflationary pressures high enough for the Fed to need to start hiking rates.  Trump and the GOP got what they paid for through fiscal irresponsibility. 

4. GDP growth is slowing. Here is the key that Ray Dalio and others have figured out: It’s not the absolute level of GDP growth that matters most to stock prices; it is whether GDP growth is rising or falling that matters.  Hint: the same thing applies to individual stocks, so pay attention to that in your research on specific companies. 

The Fed focuses on GDP levels instead of GDP growth in their work and thought process.  They even say on paper they believe the long term growth potential for the economy is 1.8% Y/Y GDP growth.  They project growth will drop even lower than their prior 2.5% estimate for 2019 to 2.3% from 3.0% in 2018, but they are not adjusting their rate hike path meaningfully, given that degree of slowing.  They did lower their hike expectations from 3 to 2 for 2019 in their supplementary data provided with the FOMC statement, but that is still too aggressive for stock market investors.

I’ll tell you why the Fed looks confused to Jim Cramer and many other critics.  Their mandate is to maintain monetary policy to support full employment at a longer run level of 4.4% unemployment (per this week’s PDF) and low inflation at about 2% for the PCE Inflation Index (they most closely follow Core PCE inflation but don’t provide a “longer term” estimate of what it should be).

That means as long as employment is good and inflation is low, “All is well.”  They have no mandate from Congress to maintain the acceleration of GDP growth at a certain rate.  If they did have a “Three Mandate System,” of full employment, low inflation, and accelerating GDP growth, they would still be forced to fight inflation at a certain point to prevent the Fed from getting too far behind and creating a bigger recession.  That’s what they claim about the risk of uncontrolled inflation to steady long term economic growth.  They can no longer promote acceleration of the year over year (Y/Y) GDP level when they feel their focus must be on inflation to meet their dual employment/inflation mandates.   I’ve told you repeatedly over the past several issues that the Fed is now solely focused on inflation.  Yes, they have a dual mandate, but they can let unemployment rise and still meet their mandate per their definitions. 

Now we need to update the prior percentage drops in GDP that are expected by the Federal Reserve based on their published numbers this week:  The Fed’s own numbers say growth of GDP is supposed to slow substantially into 2019 when GDP will be a mere 2.3% (revised from 2.5%) vs. 3.0% (revised from 3.1%) in 2018 and by 2020 it will drop to 2.0% and then finally to their long run estimate of “longer run” growth of just 1.9% but not before dropping to 1.8% for 2021.  That’s a drop in GDP of  23.3% (revised from 19.4%) for 2019 and a drop of 33.3% (revised from 35.5%) for 2020 vs. 2018.  For 2021, the fall vs. 2018 GDP is 40%.  

Strategically, we have to remember this from last week: “This “global growth slowing” period is a slow multi-quarter event, but we can monitor the economic data and analyst projections to decide when to add back equity exposure from our current lower level. ”  However, until things change, I won’t change my stance, which is to sell more exposure higher to be sure my exposure level remains lower than usual (read my comments from last week HERE about how to think about adjusting your exposure under “What You Could Consider Doing”)

5. Oil staying low but not breaking to major new lows that would shut down drilling operations.  WTI Oil fell below 50 this week to about 45/barrel, which can begin to shut down operations in the U.S. and increase unemployment.   Not helpful.  Lower oil cost is a benefit to the overall economy, but there are banking financial risks involved too.  Low is great.  Too low, not so great!

6. Stability among tech stocks would help.  Not happening.  There was a bad break there below the Feb. lows for XLK (Tech sector of SPX) and QQQ, -21.6% and -21.3% respectively.  Those breaches just happened on Friday.  The NASDAQ broke the Feb. low a day earlier and is -22.1% from its all time high (ATH).

7. Impeachment and possible Senate trial risk for President Trump.  Read last week’s update please.  Bottom line?  If Mueller has a lot of new information on Trump that raises his Senate Trial conviction risk, the stock market could move down another “chunk” to reach the Clinton level of drawdown as discussed previously HERE.  From this level, ejection of Trump from office could result in this “Mini Bear” market becoming a “Big Bear Market.” 

8. U.S. Government Shutdown on Dec. 21: I reviewed this last week (see link just above).  Bottom line?  Shutdowns don’t matter unless they are protracted.  And yet, it’s a problem the market really does not need so contact your Rep and two Senators using the links I provided last week and let them know they are not helping.   

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

“Intel-igent Market Timing Signal” (Intel; INTC):  More Negative.  Fell this week into the prior down channel after a failed recovery.  Down about 22% from its ATH.

Only a rise above 50.60 would change the current picture of a down trend since the June high. (Reminder: INTC was/is our “tell” on 2nd half earnings in tech as noted HERE.)

Bank of America (BAC) Market Timing Signal:  Last week I said “Not Negative – Even More Horrendous than Negative.  It fell to brand new recent lows this week.  Financials broke the October low.”  The stock is now down over 29% from its ATH.  Points to a Bear market for stocks.  

What, No Santa?

I pointed out this week, December crashes through major support are virtually unheard of.  There is really only one that is even close and this December is worse.  An issue to consider for a Year 2000 analogy is that valuations were off the wall high back then and are not as bad now.  The thing to realize is that estimates can come down further and further as economic slowing snowballs around the world.  For now, a recession is not predicted with high confidence by any reasonable estimates I’ve seen, so I’m still in the “Mini Bear Market” (a.k.a. “Cyclical Bear” Market) camp.   I call them “Mini Bears” because the economy does not slide into a recession, and stocks recover much faster, evening reaching new all time highs.  The economic and market trauma from a Mini Bear is much less than in a Big Bear Market; hence, it’s really “Mini” in proportion, even though the maximum decline of around 25% does not feel very good at all.  How you feel does not matter.  How you respond matters.

A great example of a Mini Bear Market was that of the Clinton Impeachment period.  Another would be the 2011 Mini Bear Market.  Those declines were over 20% but there was no recession in either case. 

From last week: “December 2000: In December there was a swoon below major support and the year ended “on the edge.”  There was a bounce but the year did not end above support and 2001 was even worse after a short rally as I described HERE in my StockTwits Market Timing Room.  Remember that 2001 was a continuation of a massive Bear market for the SP500, but even more so for tech stocks that went down 78% from the highs.”

Will this be the first time since 1970 (which was as far back as I looked) that the market crashes through obvious support and just keeps falling?

The odds said no, but Friday was the 3rd close below major support for all remaining holdouts.  The SP500 Index fits that as does XLK (Tech) and QQQ (heavy on Big Tech).  The SP500 Index entered a “Mini Bear Market” in loss terms on Thursday and broke lower by another 2.06% on Friday.

What’s my new “Big Red Wave” target?  I posted it as an update to the prior post with that title HERE.   Please read that update…  It is critical.

We will get a rally, but when?  Tax loss selling could continue the cascade into the 28th, the last trading day of the year.  Read my comments in the room regularly.  I won’t repeat everything here and there are some useful comments I think, because the room allows me to expand on my thinking to a point of greater clarity. That’s the goal.  Let me know how much you like the room by leaving comments in the room if you have not.  Thanks. The room link is just below here…

WARNING: There will be fake bounces.  I called out one within 2 minutes of the fake bounce top on Friday after the market reacted positively to Fed Gov. Williams saying about the same thing Powell said.  A bunch of blowhards (to put it nicely) got on TV, and said Williams was saying something different.  He did not.  Don’t fall for these fakes!  Selling the bounce was the thing to do and certainly the right thing was NOT buying it!

Another fake bounce this week would be a government shutdown reversal.  Whatever magnitude bounce that yields, which cannot happen until Dec. 27th will be a SELLING opportunity in my view.  As said above and last week, shutdown reversals are NOT a Bullish catalyst. 

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 33,802 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.

Join the Conversation in the StockTwits “markettiming” Room

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

sp500-index-spx-market-timing-chart-2018-12-21-close

Big Red Wave continues.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -22.44% from -27.97% the prior week.  The fact the percentage of Bulls increased into the Weds. poll closing after the market tanked was completely the wrong way to think and a contrary indicator!  The spread is going to have to hit 30 or so unless the market bottoms and rockets before we can see the shift in investor sentiment.  The polls don’t always capture what has happened as they are done once a week.  Investors are still trying too hard to “believe” in the market.

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
24.86% 27.84% 47.30%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Covered this for weeks and warned to sell high volatility stocks, which includes IWM.  They are in a cascading crash.

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

iwm-russell-2000-market-timing-chart-2018-12-21-close

Cascading crash.

 3. Gold Market Timing (GLD):  A trading add on pullbacks.  Because I believe rates may move up with the dollar in the near term, gold could pull back until that rate bounce is over.  If stocks move up, rates will too.  If stocks keep sliding straight down, rates will keep falling.  Follow the dance if you are trading GLD.

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

gld-gold-etf-market-timing-chart-2018-12-21-close

Gold in an up trend for now. Buy pullbacks.

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

Rates are UP slightly after Powell and I believe that could continue for at least a bounce.  But that will depend on stocks as just mentioned in the GLD section.   T*N*X 2.808% is the key level to watch for a reversal back UP.  (the *’s are there so bots cannot read my targets)

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

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

tnx-10-year-treasury-note-market-timing-chart-2018-12-21-close

Time for a little bounce?

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

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

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

Stock Signal RED for a further U.S. stock market rally with a BEARISH SP500 Index trend. (signal here is based on small caps)

The VIX (which relates to SPX volatility) closed at 30.11 which is off the wall high for a close!  Volatility took off to the upside on Monday and kept climbing on Thurs. and Fri.  It closed at 21.23 the prior week.  The VIX must reclaim 28.84 now and keep falling.  It could simply explode to 50 in the next move, so be careful.  I said last week “rising above 23.81, which would embolden the Bears in a big way.”  It did. 

Further V*IX Bull Targets: 25.94, 23.81, 20.34, 18.18 to 18.10, 17.24, 16.86, and 15.95 to create a new recent low.   The ‘Bull Nirvana Target’ is our V*IX # of the Year: 13.31.”

Six weeks ago I said: “The Bears need to take out the 26ish top that was tested once again this week for the market to go into another leg of  decline.”

I also said previously for weeks: “As before, VIX 28.84 is the Bear target for Armageddon (another big chunk of losses driving SPX down significantly lower).  Just moving above 26 could do it however.”  Yup, it did.

Gold Signal RED for a further U.S. stock market rally with a BULLISH Gold Trend.  It rose back above the prior consolidation band.  See GLD section above.

From before: “Remember GLD is being used as an indicator for the ECONOMY here.” 

Rate Signal  RED  for a further stock market rally with a BEARISH 10 Year Yield Trend.  The trend is still down despite the potential now for a bit of a bounce. I said last week, “Watch the oil price too.  Higher oil tends to mean higher rates.”  Oil collapsed to new lows this week.

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.  You buy long dated Treasuries as close as you can to 3.248% on the 10 Year Yield TNX (IEF, TLT, etc.).” 

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.”

Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.  That’s what I call ‘Rate Shock.'”  The period of rising rates in early October was #RateShockII as I called it. 

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:

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Standard Disclaimer: It’s your money and your decision as to how to invest it.

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

Copyright © 2018 By Wall Street Sun and Storm Report, LLC All rights reserved.

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

Market Timing Brief™ for the 12-14-2018 Close: Will the S&P500 Index Bounce in December or Not? Gold Sags as Rates Begin a Bounce.

A Market Timing Report based on the 12-014-2018 Close, published Saturday, December 15th, 2018…

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

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

There are a lot of issues being faced by the weak market we’re experiencing.  I count eight key issues.   

1. Data on holiday sales.  Data from aerial surveys of malls look decent per a report aired on CNBC, and U.S. retail sales were still OK in the last reading on Friday.  As it stands, the Federal Reserve is “messing with Christmas” by continuing their stance of hiking into global economic slowing.  Not smart!  Many retail businesses do the vast majority of their sales in the 4th Quarter.

2.  A Trump Xi Trade U.S. agreement with China within the 90 day period with the clock running since the G20 meeting.

China lifted some auto tariffs that are not that important numerically, but it was at least one positive in a sea of confusion.  At least things did not become even worse this week.  It would be great if the purveyors of contradiction in the Trump administration could simply close their traps! They did quiet down finally – let’s hope they stay silent unless they have positives to share in ONE VOICE!

3. U.S. interest rates staying relatively low, but not breaking too low (which hurts financial stocks).  

I said last week: “Rates have moved down off the peak of 3.248% in the 10 Year Treasury Yield since Nov. 8th and now look ready to perhaps find support at the summer lows of around 2.80% and bounce.”

That’s about what they did.  Rates bounced from 2.825% on Monday.

If rates drop to new lows below 2.80% or so, it will likely be paired with U.S. equity markets hitting fresh new lows.

What will the Fed do on December 19th at the end of their next FOMC meeting?  This week the CME Group says the market is now only 76.6% sure vs. 71.5% sure last week that the Fed will hike 0.25%, whereas it was above 90% previously.  A significant number of investors could find themselves “offsides,” as 23.4% of the market will be disappointed by a hike in December! 

Volatility around the next rate decision is likely, given the percentage of potentially off-sides investors reflected in these odds.   

As last week, I believe the market would rally on “no hike in December,” because it will be the clearest recognition that the Fed recognizes the slowing in the global economy is now impacting the U.S. and “going slower” on hikes would be better than risk adding a further drag on the economy.

Here is my full handicapping of the possible results of the FOMC Meeting ending Dec. 19th:

1. If the Fed does nothing (leaves rates unchanged) the market could rally based on their “finally getting it,” that the entire world is now in a growth slowing phase.  The greatest bounce in stocks would occur on this news IMO.

2. If the Fed hikes 0.25% and says it will likely pause or something that is clearly dovish, the market could bounce as well, perhaps not as much.

3. If the Fed hikes 0.25% and does not make clear dovish overtures to the markets, the SP500 Index could move into the Big Red Wave.

4. If the Fed lowers rates by 0.25%, the market could collapse further in a vote of no confidence, because it would mean the Fed was more worried about the economy than many market players are.   There is an upside risk with this choice of course as there is a common belief that you should not “fight the Fed.” I believe it would be temporary, however.

4. GDP growth is slowing.  A reminder:  “The Fed’s own numbers say growth of GDP is supposed to slow substantially into 2019 when GDP will be a mere 2.5% vs. 3.1% this year and by 2020 it will drop to 2.0% and then finally to their long run estimate of ‘longer run’ growth of just 1.8% by 2021.  That’s a drop in GDP of 19.4% for 2019 and a drop of 35.5% for 2020 vs. 2018!” 

This is the item that is very tough to shift, especially with the Federal Reserve hiking into slowing.  If that changes, it will help.  The other thing that will help is for the business cycle to reassert itself to the upside, something that could take several quarters without an additional fiscal stimulus such as infrastructure.

Should we spend more money we don’t have at a time when the deficit is already being blown out by Trump and the GOP with tax cuts?  The deficit this year is running 17% higher than last year.  Many Republicans will vote against a large infrastructure package or further tax cuts at this point, unless they have really lost their fiscal minds.

Bottom line?  This “global growth slowing” period is a slow multi-quarter event, but we can monitor the economic data and analyst projections to decide when to add back equity exposure from our current lower level. 

5. Oil staying low but not breaking to major new lows that would shut down drilling operations.  Between OPEC cuts and robust U.S. production, the price of oil has languished near $50.  It would help the market if oil prices stayed above $50 in jobs and financial stability terms.

6. Stability among tech stocks would help.  Tech has been a bad sector for investors since the Sept. high in general terms.  Stick with the exceptions, but be careful not to give back all your profits.  XLK, the tech spider ETF, is testing near the higher April 2018 low.

If you are ahead 30% for example and allow a 10% loss from that, and then say, “Well it will probably bounce” and it then goes to a loss of half of the gain, meaning to a 15% gain, and then you say, “Well, it must bounce now,” and it then drops to a 5% gain…you get the picture.   Decide on how much of your gains you are willing to give up and then stick to that number. 

Sometimes paying taxes is cheaper than allowing your entire profit to dissolve away to nothing.  Rebuying a stock higher is cheaper than if you “sell low.”

7. Impeachment and possible Senate trial risk for President Trump.  Michael Cohen’s story is going to be corroborated, it seems, by David Pecker’s story in implicating President Trump in at least two crimes involving campaign finance laws.  Yes, they are crimes despite the disinformation spewed by Trump claiming they were not crimes.  Sometimes he is simply off the wall ridiculous in his outright lies to the public.

As I said on social media this week, our President appears to be a criminal.   That’s a new event in evidence terms.  This raises the risk of impeachment and another further drop in the stock market in my view.  He does not have to be convicted by the GOP controlled Senate for the markets to drop substantially more.  To prepare yourself, review, if you have not already done so, my Post on the Clinton Impeachment Market Decline.

I’ll stand by this from last week: The market would react even more negatively to Trump’s removal from office through a Senate conviction, but that is unlikely if there was no collusion with Russia.  And yet, even after an additional decline, the market would then recover as Pence = Trump more or less. 

8. U.S. Government Shutdown on Dec. 21: Remember that under Trump, the government shut down briefly from Jan. 20-21 2017, and a funding gap occurred the first part of the day of Jan. 9th of this year.  Reagan had three shutdowns lasting a day or less. Clinton had two lasting five and 21 days.  Obama had one lasting sixteen days in Oct. 2013 over funding of Obamacare (ACA). 

Shutdowns are not the end of the world, but the market certainly does not need this aggravation during the busiest shopping period of the year.  This is something Trump can easily compromise on with the Democrats, and he will be blamed for it, if it happens.  He even said he’d accept the responsibility for it! 

I suggest you contact the President and your House Rep.  and two Senators via these links to urge them NOT to shut down our government: House and Senate In many cases, you can simply leave a message with your comment or opt in to speaking with a staff member to leave your opinion.  They do respond to public input.  Send tweets to @POTUS and @WhiteHouse as well. 

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Negative, but now outperforming the SP500 Index.  After rising in late October, it has been consolidating, while the SP500 Index has fallen lower.

Still, only a rise above 50.60 would change the current picture of a down trend since the June high. (Reminder: INTC was/is our “tell” on 2nd half earnings in tech as noted HERE.)

Bank of America (BAC) Market Timing Signal:  Not Negative – Even More Horrendous than Negative.  It fell to brand new recent lows this week.  Financials broke the October low.  This adds major risk to the overall market, which is why a rise of rates back up toward 3% would actually be welcome by the overall market (and hated by interest rate sensitive stocks like housing) as long as it does not occur too quickly. 

There is a flurry of technical analysis this weekend trying to discern where the current market fall will stop.  I’ve told you before, that’s a fool’s game.  You have to handicap the future performance of company earnings and revenues, decide whether that is impacted by various policies and the above list of 8 issues the market faces, consider the rest of the world and its trajectory, etc. etc. etc.

I’ve shared with you the “secret” that you cannot possibly pick a “target” based on valuation, because markets often go higher AND lower than they should based on valuation, and furthermore, slowing can beget more slowing as we’ve seen as Ex-US slowing has infected the U.S. economy that most everyone believes is headed lower in GDP growth terms.  That means whatever the analysts come up with today, they’ll have to downgrade in three months with the next set of analyst earnings projections.

What You Could Consider Doing

You may not sell until the next bounce or next breach of the SP500 Index for example, but it’s never too late for YOUR money to make strategic decisions and lay out your plan on paper or in a file!  It will help you think more clearly to write it down or type it up!

  1. Lower your exposure and protect profits as close to what appear at the time to be highs in the market as slowing growth kicks in. That’s what I’ve been doing repeatedly at each market top.  I coined the term “Passive Shorting” for this and you can read about it HERE.  And then I add back exposure on the lows to play bounces, but in between I would suggest you also began to …
  2. Lower your “Top Level of Exposure During a Correction/Bear Market” (the SP500 Index is NOT yet one by my “New Rules“), while still playing bounces.  You would optimally lower your exposure level at the tops or just off them, on a breach of trend for example.  In other words, instead of going from 100% exposure at the top to 80% exposure and moving back to 100% exposure at a perceived bottom, you add back only 10% perhaps moving to 90% exposure as your “Top Level of Exposure,” during a correction until conditions change (the economy accelerates for example).

    I’m now at roughly 72.5% exposure vs. the exposure I would normally hold during a solid Bull market. 
    I’ve been adding near the current low, having sold exposure at the last high on 12-03, but not raising my exposure level back to 100% certainly until conditions change.  Yes, sometimes I sell or buy exactly when I should as on Dec. 3rd.  At other times I’m off by a day or two or more.  Back near the first 2015 low in the SP500 Index, one of my buys was off by 2 days and another was off by 3 days.  The market fell to yet another lower level on a breach during Flash Crash II in August 2015.  I bought again even closer to the early 2016 low, but not at the low.

    The key is this: you don’t have to buy the exact low to profit from a decline, as the U.S. market, in the end, goes up, not down as its major trend, at least until the United States ceases to be the world’s leading economy. 
    (It’s no wonder Trump wants us to have a level playing field with China.  On that, I agree with him.)

    Individual stocks go down, yes, and dramatically so, and even disappear from the indexes,
    as GE has shown investors, regardless of the prior long term reputation of the company.GE is now down about 58% YTD.  It’s out of the Dow but still in the SP500.  Eventually it could be broken up and sold off into companies too small to be included in the SP500.  This tells you indexes are in a way still “managed,” because they have to dump the losers when they fail to meet the criteria for the index any longer.

Let’s review where the markets are relative to the start of a Possible Big Red Wave as I’ve called it…

  1. The SP500 Index must hold the 10-29-18 intraday low or thereabouts.  Remember, tests of levels often exceed them, and if the test is successful, a bounce ensues.  For SPY, that is 259.85.  For SPX it’s 2532.69.  For SPX, the close was 2599.95 vs. the May low of 2594.62 and the Oct. low of 2603.54 and the Feb. low of 2532.69.  To join the small and mid caps, the SPX would have to fall another 2.59% just to reach the Feb. low, which is why everyone is looking at, no staring at, these May and February lows “hoping” one of them will hold, because…
  2. Midcaps (IJH), which I said must hold the Oct. low, essentially at the  February low, are now broken.  The February low was 1770.19 and we’re at 1732.81 at Friday’s close.  The Midcap index is -2.12% vs. the Feb. low.  And misery loves company, so…
  3. Small Caps which I said must hold the February low, which they were barely above as of last Friday’s close are now BELOW that low of 1436.43 for the Russell 2000 Index (RUT) or 142.50 for IWM.  The closes were 1410.81 and 140.61, respectively.  The RUT is now 1.79% BELOW the Feb. low and IWM is 1.33% below its low.

    If the small and mid caps are in fact leading the way as they did at the start of this downdraft, the Big Red Wave may be about to start for the SP500 Index,
    because it’s begun for the small and mid caps.The optimistic view would be that small and mid caps are higher risk, so they are testing lower than the SP500 Index, which will save the day by holding the February low.

    Without a positive catalyst or preferably the alleviation of more than one of the current issues listed above that are facing the markets, the market could simply continue lower.The Federal Reserve statement at 2 pm Weds. and the dog and pony show at 2:30 pm could be such a catalyst.

  4. Gold: I said last week gold must pull back as rates rise again with the dollar starting Monday.  I also said the financials should be helped by that and they were not, which is a problem for the market.  However, my prediction held.  Dollar was up, rates are off the lows, and gold has eased a bit.

If positive catalysts can be conjured up by the Trump trade team, no government shutdown, and a dovish Fed, the market could bounce from here.  Two of those could be enough.  The Fed alone could be enough to delay the next sell-off to 2019.  I reviewed the possible “Bounce Levels” HERE (scroll down and you’ll see the list) previously.

If the SP500 Index breaks support and follows the breaches by both small and mid caps this week, the “Big Red Wave” I described three weeks ago HERE could begin.  That would drive massive buying of  U.S. Treasuries, driving rates down even further.  What will I do in that case?  I will be lowering my exposure to no more than 60% of my usual maximum equity exposure for a Bull market worldwise if the SP500 Index decends into the Big Red Wave.  I may do it in steps to avoid being whiplashed by a 1-2 day breach of the lows as happened before.

I pointed out this week, December crashes through major support are virtually unheard of.  But maybe Trump can make things even worse than he has and create the first such December crash since 1970.  I went back to there and found two instances in which:

  1. December 1973: There was a test in Dec. of the 1971 low that succeeded followed by another major decline in 1974.  However, we were in recession from 1973-1975, which is not the case now.  We cannot assume a January 2019 rout.  In any case, the rout did not come in December!
  2. December 2000: In December there was a swoon below major support and the year ended “on the edge.”  There was a bounce but the year did not end above support and 2001 was even worse after a short rally as I described HERE in my StockTwits Market Timing Room.  Remember that 2001 was a continuation of a massive Bear market for the SP500, but even more so for tech stocks that went down 78% from the highs.

Will this be the first time since 1970 (which was as far as I looked) that the market crashes through obvious support and just keeps falling?

The odds say no, but as I said in the room, it could be different this time, and in 2019 if there are weak Q4 numbers and projections reported in February the market may go over the edge.

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 33,802 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.

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

sp500-index-spx-market-timing-chart-2018-12-14-close

Will it hold the February low or descend into the “Big Red Wave”?

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -27.97% vs. +7.44% the prior week.  There has finally been enough of a washout of Bullish sentiment to allow for a bounce.  But sentiment has room to be even more negative.  It says the SP500 Index could hold February support is the best I can say.  Not reassuring, again, without distinct positive catalysts like the Fed being clearly dovish.

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
20.90% 30.23% 48.87%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM):  I covered the key points above.  Not a place to add unless you are just averaging in blindly.

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

iwm-russell-2000-market-timing-chart-2018-12-14-close

A Broken Chart

 3. Gold Market Timing (GLD):  I said last week: “So for the very short term, I’ll wait to add more GLD.”  That was correct.  I have no gold trades on for now.  Just insurance (I’d suggest 5% of investable assets as most do; remember gold yields zero and makes us paper money only when rising!  If you own none, average in over time or buy the lows and sell the highs if you like.).  I have to see more strength and wait for rates to retop out to buy back into a trading GLD position. 

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

gld-gold-etf-market-timing-chart-2018-12-14-close

Gold slipping on higher rates and higher dollar.

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

Two weeks ago I said:  “If they [rates] continue to fall as the stock market rises, beware!  That’s not how it is supposed to work in a recovery.  It means the recovery is false.  It means the stock bounce will be limited.” 

I said last week:  It’s critical that rates bounce early next week, preferable on Monday.  

They bounced on Monday and should continue higher UNLESS the Fed turns more dovish on Weds and especially if they don’t hike (not likely per CME Group – see 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):  (Ignore the caption saying “Lower Still. Ready to bounce?” – it did bounce higher!)

tnx-10-year-treasury-note-market-timing-chart-2018-12-14-close

Rates reach a prior low and bounce on cue.

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):

RED RED RED this week. 

Stock Signal RED for a further U.S. stock market rally with a BEARISH SP500 Index trend. (The Signal here is based on the small caps, and I’m sure you know their trend is also Bearish!)

The VIX (which relates to SPX volatility) closed at 21.23 this week vs. 23.23 last week , which remains Bearish.  The trend is still UP and That is still a high VIX.  The VIX did reclaim 22.97 and must avoid rising above 23.81, which would embolden the Bears in a big way.  The close Friday was below the up trend line of VIX (now at 22.88).  These numbers change daily.  The next Bear target above 23.81 is 25.94.   

Further VIX Bull Targets: 20.34, 18.18 to 18.10, 17.24, 16.86, and 15.95 to create a new recent low.   The ‘Bull Nirvana Target’ is our VIX # of the Year: 13.31.”

Five weeks ago I said: “The Bears need to take out the 26ish top that was tested once again this week for the market to go into another leg of  decline.  If they do it soon, it COULD still just last a day or two.”  The last test of that was on 12-06 at 25.94.

As before, VIX 28.84 is the Bear target for Armageddon (another big chunk of losses driving SPX down significantly lower).  Just moving above 26 could do it however.

Gold Signal YELLOW for a further U.S. stock market rally with a NEUTRAL Gold Trend.  It has slipped back into the prior consolidation band.  That’s a near term negative.  See above for more.  A gold rally, if strong, would be a sign of global financial panic if seen with a strongly rising US dollar.

From before: “Remember GLD is being used as an indicator for the ECONOMY here.” 

Rate Signal  RED  for a further stock market rally with a BEARISH 10 Year Yield Trend.  The trend is still down despite the bounce.  Watch the oil price too.  Higher oil tends to mean higher rates.

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.  You buy long dated Treasuries as close as you can to 3.248% on the 10 Year Yield TNX (IEF, TLT, etc.).” 

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.”

Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.  That’s what I call ‘Rate Shock.'”  The period of rising rates in early October was #RateShockII as I called it. 

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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.

Copyright © 2018 By Wall Street Sun and Storm Report, LLC All rights reserved.

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

Market Timing Brief™ for the 12-07-2018 Close: These 3 Levels Must Hold for Stocks. The “China Trade Clown Act” Continues. Rates Skid and Gold Rallies, Both Cautionary Signals.

A Market Timing Report based on the 12-07-2018 Close, published Saturday, December 8th, 2018…

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

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

Two weeks ago I said we need to avoid the “Big Red Wave…”

Let’s review the key challenges that could lead the market down even further or help buoy the market if they work out well.  This week we have the resurgence of a lingering risk, now rising in magnitude, for Trump’s impeachment and less likely expulsion from his post.

1. “Data indicating stronger than expected holiday sales would help.”  Consumer sentiment is still near all time highs, so the shopping season is not a problem unless the market downdraft has shoppers holding back already.  I don’t think that is yet the case, but the volatility around the holidays certainly does not help at the margin, when many businesses do the vast majority of their business during the Christmas buying season.  I’ll give this point a check with some concern over high ticket sales coming through as expected.

2. “A Trump Xi agreement with China to avoid 25% tariffs, or better yet, an even more comprehensive agreement within the 90 day period with the clock running since the G20 meeting.  Friday, the Trump administration said they could allow for an extension if needed and if progress was being made on coming to an agreement.

The contradictions between Larry Kudlow and Peter Navarro became absurd this past week.  The administration needs to speak with one voice.  Trump has said he likes chaos, and this certainly fits that pattern.  The market very clearly despises chaos of any kind.  Send @POTUS a note on Twitter to speak with one voice in the administration!  He once called Senator Schumer a “clown.”  I evaluate Trump by each thing he does, good or bad.  What is going on now in this administration is a “China Trade Clown Act” at best!  They need to get a grip and stop the confusion ASAP.

It was reported that President Trump was becoming concerned that he, not Powell, was responsible for the market going down.  He considers it his “economic report card,” and the grade for 2018 is a C minus at best with the S&P 500 Index off 10.34% from the intraday high on 9-21-18 and -1.52% since 12-29-17 (YTD).   He’s not helping the market for sure, but remember the underlying slowing of growth in the economy (not negative growth, a slowing of the rate of growth) is the more important driver of the stock market downturn in my view.  It is always the primary driver behind all the day to day drama, which generates all the up and down volatility.

Nevertheless, trade wars and trade war confusion certainly can make things worse by raising prices as the Fed seeks to control inflation as their primary goal for the first time since the Great Recession.  Powell is faced with raising rates to control the component of inflation that is due to the trade war.  Powell is oddly “lucky” that the economy is slowing while this trade war is being conducted, which takes pressure off to raise rates as fast as would be otherwise needed.

No check mark on trade!

By the way, I update my market strategy frequently in our Market Timing Room HERE.   There is no charge at this time, and you do not have to post any comments if you prefer not to.  I suggest you follow me on Twitter as well as on StockTwits as we have had occasional outages on the latter platform of late, in which case I continue to communicate with you on Twitter HERE.

3. U.S. interest rates staying relatively low, but not breaking too low (which hurts financial stocks) would help.  As I’ve said, Powell merely indicated in his speech to the New York Economics Club that Fed rates are “just below the broad range of estimates of the level that would be neutral for the economy.” 

Chair Powell threw them one bone: Rates MAY be near the lower end of the range of what will serve as a neutral rate.  The market was looking for a bone, so it reacted positively to that generating the bounce last Wednesday, which has since dissolved away entirely!  More concerning to me was Powell’s continued claim that he and “many private sector economists” are expecting “solid growth” in the U.S. economy in 2019.  Solid? 

I’ll remind you of what I said last week: “I’ve covered this is prior posts, but the Fed’s own numbers say growth of GDP is supposed to slow substantially into 2019 when GDP will be a mere 2.5% vs. 3.1% this year and by 2020 it will drop to 2.0% and then finally to their long run estimate of “longer run” growth of just 1.8% by 2021.  That’s a drop in GDP of 19.4% for 2019 and a drop of 35.5% for 2020 vs. 2018!” 

Bottom line?  Rates have moved down off the peak of 3.248% in the 10 Year Treasury Yield since Nov. 8th and now look ready to perhaps find support at the summer lows of around 2.80% and bounce.  They won’t bounce if we move into the “Big Red Wave” I described two weeks ago HERE.  That will drive massive buying of Treasuries, driving rates down even further.

What will the Fed do on December 19th at the end of their next FOMC meeting?  The CME Group says the market is now only 71.5% sure the Fed will hike 0.25%, whereas it was above 90% previously.  For January, there is a 69.2% probability the Fed will hike, but some of those market participants reflected in that number are from the “no hike in December” group no doubt.  There is only a 27.1% probability of TWO hikes by March, which is at the previously assumed pace of Fed hiking, which was one hike of 0.25% in December and one in March. 

Those probabilities set up some issues for the market.  1. About 30% of the market is going to be disappointed by a hike in December!  Others like Jim Cramer are assuming a near 100% probability they will hike and say the market would fall apart if they don’t.  Do you see the problem developing?  Volatility around the next few rate decisions is highly likely given the percentage of disappointed investors reflected in these odds.   

Then you arrive at the interpretation of the rate hike as good or bad.  Is it “bad” if the Fed does not hike?  Jim Cramer claimed the market would fall apart without a hike, because it portends bad things for the economy.  I don’t buy this.

I believe the market would rally on “no hike in December,” because it will be the clearest recognition that the Fed recognizes the slowing in the global economy is now impacting the U.S. and “going slower” on hikes would be better than risk adding a further drag on the economy and potentially flipping a number of S&P 500 companies into junk bond status, something the Fed has their eye on we are told. The Fed’s FIRST obligation is defending the stability of the financial system including the banks. 

I do not believe the market will fall apart given a December hike, as it’s the favored result, but I admit there could be some initial selling around the decision. 

4. Oil staying low but not breaking to major new lows that would shut down drilling operations would help. 

OPEC and Russia together cut production by 1.2 Billion barrels per reports.  Oil did not exactly shoot up in elation after the dust settled, so the jury is still out.  Oil below $50 brings risk to oil company debt.  Oil “gets a check” with a need to hold the $50ish low.

5. Stability among tech stocks would help.  No check there.  Tech unlike the SP500 Index is testing its November low, not the higher October low still in play for the S&P.

6. Impeachment and possible Senate trial risk for President Trump.  Given the revelations about Trump’s “fixer” and lawyer Michael Cohen on Friday night, the President is likely to be charged with a crime in some fashion.  The Justice Department has made it clear they find no legal basis for indicting a sitting President, but this issue could be taken to the courts and would likely end up in the Supreme Court, where Trump has the majority in his favor.  The crime could be taken up by the Democratic House in January and serve as the basis of impeachment (we are assuming there was no collusion with Russia, the risk of which was raised by the Cohen filings by the Southern District of New York (the “Billions Office” by the way) and the Special Counsels Office (Mueller)). 

If impeachment comes down to the crimes of paying off a Playboy bunny and a porn star, even if it involved a campaign finance violation, I believe it’s highly unlikely a trial to remove President Trump would succeed.  He could potentially argue he was just trying to keep the cheating from Melania as some have suggested.  The Senate, controlled by the GOP, would conduct the trial at which a 2/3 super-majority of votes is required to remove the President from office.  That is highly unlikely to happen unless it can be proven that Russia colluded with Trump directly in breaking into Podesta’s/Clinton’s emails for example.  Then he would be out without question.

The other issue is the hotel Trump wanted to build in Russia.  IF he made overt promises to the Russians on ending sanctions in order to build a Trump Moscow Tower, he could be out as well, but whether that is actually criminal in nature is not clear.  I suspect it is, but claim no legal expertise on the matter.  In any case, it seems treasonous if true and would provide a reason for his defeat in a Republican primary battle.

Bottom Line on Impeachment/Trial: It’s become more probable now that Trump will be impeached by the Democrat controlled House.  Impeachment over lying alone brought the market down followed by a bounce in Bill Clinton’s case as many of you have read. Here’s that Post on the Clinton Impeachment Market Decline. You can see there what the additional risk could be for the market.  It’s a big further drop!

The market would react even more negatively to Trump’s removal from office through a Senate conviction, but that is unlikely if there was no collusion with Russia.  The market would then recover as Pence = Trump more or less.  If there was DIRECT and obvious collusion by Trump, then even GOP Senators Marco Rubio and Cruz would be forced to convict Trump, and they’d be joined by other Republicans.  Trump would be out on the street.  But for now, that is all conjecture, so we cannot assign more than a very low risk to the “removal of Trump” scenario.

The market is already on thin ice.  We are at a technical level that if violated, could drive further selling and send us into the “Big Red Wave.” The ice often holds when it has to, but Powell is NOT a “put on a bigger market decline.”

If you don’t like the “ifs” in the market, you may want to do something other than follow the markets, because handicapping “ifs” is the nature of the beast.  If oil can drop from $75 to $50 from Oct. 3rd to Nov. 23rd, how can you hold the current picture as anything other than that of “Master Market,” the 5 year old temper tantrum throwing child who is equally elated 10 minutes later?

The market game is more like blackjack.  You can beat the house, but not if you don’t control your risk and seize opportunity when you see it.

Controlling your risk means lowering your exposure when growth of the economy is slowing and seizing opportunity means buying when markets are down despite the fear, even if your overall exposure is lower.  I share my exposure level to equities with you online on social media (links below just above the first chart), which I have not seen anyone else do.  They don’t want to be held accountable.  My exposure level gives you a feel for how much risk I perceive in the market.  Adjust it to your taste, age, and circumstances or ignore it if you disagree.  And take responsibility for your decision.  You are the one who must be able to sleep at night with your decisions.

If the market bounces, is a review of the possible “Bounce Levels” HERE (scroll down and you’ll see the list).

Remember this guideline on this level and any other level of the market: We can only assess the way the market behaves at any given market level and decide whether the market is stretched to the upside or stretched to the downside.  Then we add back exposure at the putative lows and remove some at the putative highs.  That is the process I coined the term “Passive Shorting” for and it has been working!  Read about it HERE

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Negative.  Intel turned down about where I thought it would.  It now continues to slide down the upper line that forms the down channel it’s in on the daily chart. Only a rise above 50.60 (two closes is safest, but you could attempt to enter sooner with a stop) would change the current picture of a down trend since the June high. (Reminder: INTC was/is our “tell” on 2nd half earnings in tech as noted HERE.  We are now closing in on the end of the 4th quarter.)

Bank of America (BAC) Market Timing Signal:  Not Negative – Horrendous.  BAC outdid the XLF financial Spider ETF this week, which held just above the October low, much like the SP500 Index is doing by the way.  BAC cut to a brand new low, below the October low, which is ominous for a bank of this importance.  It must recover quickly or the market will be more likely to descend into the “Big Red Wave.”  (see link above)

Key Break Points to Avoid the “Big Red Wave” this Week:

  1. The SP500 Index must hold the 10-29-18 intraday low or thereabouts.  Remember, tests of levels often exceed them, and if the test is successful, a bounce ensues.
  2. Midcaps (IJH) must hold the Oct. low, which was essentially at the level of the February low.  The low on Friday was barely above that low.  The close was barely above the low for Friday.  We’re that close to breaking the ice.
  3. Small Caps must hold the February low, which they are barely above as of Friday’s close.
  4. Gold must pull back as rates rise again with the dollar starting Monday.  If the moves are the opposite of that, there will be more trouble for stocks.  Financials (this time XLF, not just the canary BAC as noted above) will be breaking to new lows and dragging the market down with it.

You see the picture?  Mid and small caps are already testing the Feb. lows, while the SP500 Index is testing the October low which lies above the Feb. low.  A swoon of the SP500 Index to the February low would bring it 3.81% lower than the Friday close.

Right now the small caps have descended into what I refer to in percentage terms as a Mini Bear Market as defined HERE (scroll to “New Rules”). The losses off the top are now 16.94% for IWM, just above the 15% threshold of my definition.  Yes, any drawdown up to 25% would potentially be “OK” and perhaps lead to even higher highs for the market, but if IWM breaks the support mentioned above the next downturn could take it as low as another 6.88% (to 134ish) or to a total decline of 22.65%, approaching the low end of a “Big Bear Market,” as I call a Secular Bear Market. They are the markets of recessions, not drawdowns in a still rising market.  “Mini Bear Markets” are the latter.

On December 3rd I told you I sold a “chunk” of midcap exposure.  The prior Saturday I asked: “Where is the most obvious place for the stock market to turn down?  Right at or slightly above the 50 day mav just as with Bank of America.  Notice how it did exactly that once before in November…”

You’ll notice on the chart below that selling the rally on Monday on the false China trade hope was perfect timing.  I don’t always buy at the exact bottom or sell at the exact top, but I’m often within a day or two of major moves.  It’s very hard to catch every move precisely, as I’m sure you well know.  But market timing can be done better than is realized by many.  Knock knock….as they say…there but for the grace of God go I.  I wake up and do my best every day and seek to improve every single day.  That’s all we can ask of ourselves.  Do your best and leave the rest is the saying…

I raised my exposure by around 4% (vs. 100% of max exposure) since I dropped it near the Dec. 3rd bounce high.  This is just one place the market could hold.  There are no guarantees that the iffy points  noted above are going to clear and allow the market to rise, even in a bounce.  The new closing low in the small caps on Friday, despite being above the Feb. intraday low, is still of concern for risk of more downside. 

If I see any of the 3 indexes noted just above breaking down further in the coming week, I will consider dropping my exposure by 5-15%.  For reference, I would guess 60% of usual maximum exposure for a Bull market is the lowest I will go.  There is risk of being out of the market as I related in the “Big Red Wave” post, but there is also risk of lost opportunity.  So I’ll stand by my recent buying of this particular low, but I reserve the right to ditch all that and more if this low does not hold.

I bought SPY and some stocks that are doing better than the overall market, all noted on my feeds on social media.  Do your own due diligence on them.  I analyze markets and I do not claim to be a stock analyst, unlike some marginal self-proclaimed pundits on TV.  Beware of following their advice.  Although I do analyze stocks to some extent to satisfy certain criteria, I don’t publish that work.

Stick to the index ETFs if you don’t have the time or inclination to do your own research.  My saying I bought stock A should not be enough for you to buy it.  That would be ridiculous in my view.  You need to go over the data on any stock yourself, listen to at least the last earnings call or two for the stock and look at the technical chart set-up.  That would be the minimum.  Also realize that you take on more risk and opportunity by holding individual stocks.  Balance risk/opportunity in your decisions.

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 33,802 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.

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

sp500-index-spx-market-timing-chart-2018-12-07-close

A Market On Thin Ice

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +7.44% vs -5.59% the prior week.  Get this: Individual investors became MORE Bullish after the Tuesday 3.24% drop in the SP500 Index!  The market promptly dropped another 2.89% the next market day (Thurs.) after GHW Bush’s funeral services.  It then bounced and closed down only another 0.15% for the day.  Then it fell to Friday’s close, dropping 2.75% vs Thursday’s close.

There still has been not a strong washout of Bullish sentiment from the market.  This by itself is a negative. 

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
37.94% 31.56% 30.50%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM):  I covered the key points above.  Both being on thin technical ice and a close at a new closing low vs. the Feb. low is negative.  A breach of the Feb. low by small caps would be taken very badly by the overall market unless it was quickly reversed, preferably during the same day as the breach.

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

iwm-russell-2000-market-timing-chart-2018-12-07-close

Testing a new closing low vs. the Feb. low.

 3. Gold Market Timing (GLD):  Gold has finally rallied, just as rates appear ready to bounce.  If rates do NOT bounce as mentioned, the stock market will be doing much worse and gold may benefit along with the U.S. dollar due to financial panic.  You see, gold goes UP with the dollar when there is financial panic, even if it’s ex-US, but the U.S. is also now subject to panic selling of equities.  If rates plunge again next week, gold will continue to rally.  I consider it a buy for insurance, but NOT for a trade from this level, because I expect rates to move up from here and the dollar up with it.  So for the very short term, I’ll wait to add more GLD.

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

gld-gold-etf-market-timing-chart-2018-12-07-close

Gold could be a warning sign for stocks, especially if it keeps rising next week.

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

Last week I said:  “If they [rates] continue to fall as the stock market rises, beware!  That’s not how it is supposed to work in a recovery.  It means the recovery is false.  It means the stock bounce will be limited.” 

My warning on a continued rate decline is noted above.  It’s critical that rates bounce early next week, preferable on Monday. 

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

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

tnx-10-year-treasury-note-market-timing-chart-2018-12-07-close

Rates falling fast this week crushed financial stocks.

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

And just below, I have a “Bonus Chart” this week…

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):

RED RED RED this week.  Lots of RED.

Stock Signal RED for a further U.S. stock market rally with a BEARISH SP500 Index trend. (The Signal here is based on the small caps, and I’m sure you know their trend is also Bearish!)

The VIX (which relates to SPX volatility) closed at 23.23 this week , which remains Bearish.  But that is still a high VIX.  The VIX will need to reclaim 22.97 first and avoid rising above 23.81, which would embolden the Bears in a big way.  Next stop for the Bulls below 22.97 would be the VIX up trend line at about 22.54 (as of Fri. close).  These numbers change daily.  The next Bear target above 23.81 is 25.94 again.   

Further VIX Bull Targets: 17.24, 16.86, and 15.94 to create a new recent low.   The ‘Bull Nirvana Target’ is our VIX # of the Year: 13.31.”

Four weeks ago I said: “The Bears need to take out the 26ish top that was tested once again this week for the market to  go into another leg of  decline.  If they do it soon, it COULD still just last a day or two.”  The high this week?  It was 25.94.  Close!

As before, VIX 28.84 is the Bear target for Armageddon (another big chunk of losses driving SPX down significantly lower).

Gold Signal RED for a further U.S. stock market rally with a BULLISH Gold Trend.  See above for more.  If the rally persists, it will be a negative signal for stocks in the near term.

From before: “Remember GLD is being used as an indicator for the ECONOMY here.” 

Rate Signal  RED  for a further stock market rally with a BEARISH 10 Year Yield Trend.  The trend is still down.  If oil cooperates and moves up a bit, rates could rise again early next week.  New lows below that red line just below the current level would be negative for stocks.

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.  You buy long dated Treasuries as close as you can to 3.248% on the 10 Year Yield TNX (IEF, TLT, etc.).” 

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.”

Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.  That’s what I call ‘Rate Shock.'”  The period of rising rates in early October was #RateShockII as I called it. 

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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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