Market Timing Brief™ for the 06-18-2021 Close: “Is This a Dip, a Correction or Worse? Why Did Gold Crash This Week? Why Are Rates Falling?”

A Market Timing Report based on the June 18, 2021 close…

What’s the Market Timing Set-up Now?

The economy is recovering thanks in large part to the success of the pharmaceutical industry in creating highly effective vaccines in record time.  Trump does get credit for helping to speed things up, which is ironically the reason why some say they won’t take it.  Both the Former President and First Lady were vaccinated, but his followers don’t seem to care.

Liberal voters are also among the anti-vaxers going back even before Trump: “In 2015, the Pew Research Center conducted a survey of 2 thousand adults which concluded about 12 percent of liberals and 10 percent of conservatives believed that childhood vaccines are unsafe.” (Ref. here)  The total of the two groups is 22%.  Of course the one thing they agree on is negative for society as a whole and for the economy potentially.

Why does this matter?  It matters because the continuation of the pandemic among the anti-vaxer population will not only cause further morbidity (Long-COVID Disease, the kind that lasts for many months) even among younger people who are infected as well as killing older people with weaker immune systems, especially those who have medical issues.  

Anti-vaxers will continue to kill off other anti-vaxers, but also expose the rest of us who are vaccinated to new mutants that arise in their infected bodies.  That has the potential to start an entirely new pandemic all over again.

However, take a breath, because the variants have not escaped the vaccines, due to the human body’s killer T-cell response, which kills off virally infected cells, even though antibody titers are lower in response to some variants.

Still, the variants are more infectious among the unvaccinated.  That means that the sizable unvaxed population will continue to create more genetic variants of the SARS-CoV-2 virus (the viral cause of COVID-19 disease).

COVID-19 still entails a finite risk to our economy.  Eventually a variant could arise and evade the vaccines.  It has not happened yet, but the longer the delay of ridding or at least dramatically reducing the amount of virus in circulation, the more likely that will be.  That’s why getting the vaccine is really a patriot duty unless a patient has an allergy to vaccines or some other special and rare issue.

We send soldiers off to war to be killed to protect the homeland.  If no one served our country, because everyone thought “something might happen to me,” how in the world could we ever defend ourselves?  There is one alternative to vaccination that is acceptable.  The unvaxed would need to wear an N-95 mask any time they are around others (and not some piece of cloth or second rate blue surgical mask either; the N-95 mask is the only mask worth wearing if you are going to bother to wear one IMO. Both Trump’s and Biden’s administrations failed to produce N-95 masks in sufficient quantities.  Did the double cloth masks and the blue surgical masks help? Yes, but N-95s would have prevented more infections and deaths.).

The persistence of COVID-19 and the lack of vaccination outside the U.S. is also a threat for the same reasons I cited above.

On the plus side, it also provides a longer time period in which the recovery will occur, so it will effectively drag out the recovery period and the stock market returns that go with it.  

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

Price is at least testing below both the lower channel line (magenta) and the longer term trend line (yellow line; shown at higher magnification below)…

spx-sp500-etf-index-market-timing-chart-2021-06-18-close

Shorter term trend lines broken.

You can see the SP500 Index price is just below the 50 day moving average, and it has broken both the tighter trend established after the election as well as the trend line connecting the pre-election and March lows.  Note the rising volume with the selling.  That’s a negative.

One can still argue this is a test below the 50 day moving average.  Early this week, the market must rally, or  this will turn into a significant correction (link to my definitions of dip/rally etc. at the link referred to below).

In the March pullback, there was just one close below the 50 day mav and then the market bounced.  Any more weakness will lead to another leg down.

spx-sp500-etf-index-market-timing-chart-2021-06-18-close

Higher magnification!

Keep up-to-date and read my comments on the current setup during the week at Twitter and StockTwits (links below) where a combined 35,452 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.  (real time messages are on StockTwits as always and back on Twitter)

Join the Conversation in the StockTwits “MarketTiming” Room  (I’ll publish comments in the room periodically.)

Now let’s review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +14.9%, which was on the Fed statement day.  That’s a relatively low reading of Bullishness, but tells us little, as it’s not at an extreme in either direction.  I would say that it’s highly unlikely that we’ve seen a top, as sentiment normally maxes out at market tops.  There is still too much of a wall of worry to climb for the rally to be over, even if we see a deeper correction this month, mid-summer, or fall.

 

Bulls Neutrals Bears
41.1% 32.7% 26.2
Thurs. 12 am CT close to poll

In terms of Dow history this century there have often been dips in the month of June (rank 10; 3rd worst month).  September (rank 12) has also typically been negative (the #1 worst month).  January (rank 11) is the 2nd worst month for the Dow this century, and February (9) is slightly negative as well (4th worst month).  That said the strongest months for the Dow in order from top down are April (1), November (2), July (3), October (4), December (5), and March (6).  August (8) is barely above flat, and May (7) is barely below flat.

The average Dow drops are all less than 1% for the negative months, but that’s because we’re considering the average results here.  Obviously you can still be up nicely for a longer period such as a year and still be down several percent in a given month.  July and October exceed 1% average returns and April and November exceed 2% average returns. In the end the market goes up over time because the indexes contain companies that are successful in creating higher value for their businesses, because bad businesses are kicked out, and because of inflation.  Earnings rise in part due to inflation.  Stock prices follow earnings.

Now let’s look at the small caps, gold, and interest rates…

2.  U.S. Small Caps Market Timing – Russell 2000 U.S. Small Cap Index  (click chart to enlarge; IWM, RUT)   

Small caps are trading down from a lower high, coming off a significant series of tops.  That keeps them in consolidation.  A breach of that lower yellow line would raise concern for lower lows and a much deeper correction or mini-Bear market.  This downturn needs to end within 3 days or so or small caps will sustain more damage.  Potential “levels” to consider as I call them include the 200 day moving average or the Sept. 2018 high, which would be a 24.7% mini-Bear market as I define them.  I doubt we are headed into anything more than a correction for several reasons I will summarize at the end.  

I call “levels” what others call “targets,” a term which really means nothing.  A level only becomes a target once proven to be significant.  Just look at how many times the 50 day mav has been broken in the chart below.  It was NOT predictive of a bigger downturn in small caps.

I assess what other people call “targets” in real time to determine whether they are tradable and/or investable or not.  That assessment is not always correct, but it’s generally better than just blindly buying.  Because of the real time nature of this process, it’s best to follow me on social media (links above) to stay connected…

I let my followers know when I make buy AND sell decisions.  You’ll see many on social media who buy stocks constantly and never sell.  How can that be?  That is not reality.  Otherwise they are giving up huge profits during certain periods as stocks and markets crash.  You can use my stated actions to inform your own investment decisions, even if you don’t change your allocations as often as I do.  I hold many investments long term, but some I trade more aggressively to preserve profits and capital.

iwm-russell-2000-market-timing-chart-2021-06-18-close

Coming down from a lower high of the recent trading range.


3. Gold Market Timing (click chart to enlarge; GLD):  Gold is being crushed again based on the impression many market participants have (right or wrong) that short term rates will rise again as the Fed ratchets down their balance sheet as well as ratchets up interest rates by 2023 vs. the previously guess they would do that in 2024.  Of course, they have no idea when they’ll do any of that.  It depends on the economy as well as fiscal and tax policy.  Many argue inflation will come back down from current levels due to the fact that there will be no more stimulus payments.  The free money deals are over.  

Regardless of what we think will/won’t happen at the Fed, gold traders clearly had a “net belief that “The Fed will contain inflation sooner than we thought.”  Gold is protection against inflation, so it fell.  

gld-etf-market-timing-chart-2021-06-18-close

Gold hit by expectations of interest rate hikes sooner than previously expected.

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

4. Interest Rate Market Timing (10 Year Treasury Yield; click chart to enlarge; TNX, IEF, TLT):  The 10 Year Yield close was at the 6-11-21 low of 1.450% one week ago.  A close below there would re-assert the recent downtrend.  Further downside would cause more trouble for the reopening sectors of XLB, XLE, XLF, XLI, and XLRE.  Those are the sectors that depend on the continued success of the U.S. and global reopening process.  A reversal back above the 1.471% low of May 7th, could lead to a resumption of the uptrend in rates and help those four sectors tremendously.  

tnx-10-year-treasury-note-market-timing-chart-2021-06-18-close

The 10 Year Treasury Yield closed at the 6-11-21 low. It is leaning into a downtrend, unless things change next week.

How Much More Downside Is There?

Regardless of the immediate outcome for rates just discussed, I believe this move down will be contained as a dip to a buyable modest correction (see my definitions under “New Rules” in the October 26, 2018 issue HERE).  Why?

1. The Fed is not yet lowering the size of their balance sheet OR raising rates. They are just using words to goose the markets, a trick called “jawboning.”  The market is not going to sell off steeply IMO at a time when reopening is still on ongoing process.

2. The drag on reopening will lengthen the rally of the stock market.  Slower reopening abroad will help our multinationals as well as the economies and stock markets of the slow to recover countries.

3. Sentiment has not peaked yet.  Sentiment invariably gets fully giddy at big tops, and the meme stock mania is a fairly localized sideshow.  Overvalued tech stocks have taken their beating already.  Despite that, the SP500 Index went UP!  Older, wiser investors have far more money invested in, and still to be invested in, this market.

4. Valuations ARE high, but they often go higher than anyone expects before the bell rings on Wall Street.

5. Rates have eased and are low enough to support the economy.  That takes some pressure off of higher valuation tech stocks for now. That’s why they have been recovering a bit.

I remain at just under 100% of my usual maximum exposure for a Bull market for those reasons.  

I believe the Fed will lag behind on inflation, and the 10 Year Treasury will resume its rally as the economy continues to recover and expand.  From what level is the question, but instead of obsessing on answering the unanswerable, we can simply follow the lead of various market indexes…

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 actual BUYS and SELLS in as timely a way as possible on social media (links above).

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

Stock Signal NEUTRAL for a further U.S. stock market rally with a short term Neutral and longer term Bullish SP500 Index trend.   The immediate trend break is the issue here (same as in March!).  The small caps determine the stock signal in this section of the report.  If they are strong/weak, generally the SPX is strong/weak too.

Gold Signal GREEN for a further U.S. stock market rally.  The Gold Trend is  short term Bearish and longer term BearishEconomic glitches that arise will help gold.  Unconstrained fiscal spending will help as well over time, but not while the economy is recovering at a reasonable pace and real rates (the yield in excess of inflation) are rising.

Kept for Reference: “Gold can RISE with stocks when real rates are FALLING, and the dollar is falling.  Gold HAD recently been falling with rising real rates, despite US dollar weakness, because the stock market is made more attractive by the combination of 1. Rising real rates (a direct threat to gold which pays nothing; banks and other companies make more money with rising rates) and 2. Economic recovery with higher corporate earnings (stocks pay dividends, rise in value as they grow, and buy back stock; gold pays nothing).

However, gold fell hard this past week because the Fed is hinting at hiking short rates, which is never good for gold, because gold has no real return.  

In liquidity crunches (which the Fed is supposed to prevent) gold can drop with everything else but the US dollar.” 

What gold does mostly as I’ve written HERE is follow real interest rates around the world (if you own “gold in dollar terms” you care about U.S. rates most of all).  The rest of the world does matter however, including massive buying by central banks. 

GUIDE: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise again, it means the market believes real rates are going to fall or stay negative for a period of time.  Investors tend to stay out of gold particularly when stocks are doing well as they provide a higher real return. 

Rate Signal: Bearish for a further U.S. stock market rally.  Rates are back to falling in the near term.  The 10 Year Yield trend  is short term Bearish, and intermediate term NEUTRAL to Bearish. (Remember: higher rates mean lower bond and Treasury prices and vice versa).  We want slowly rising rates in a recovering economy.  That’s what happens. What we don’t want is rapidly rising OR falling rates, both of which I call “Rate Shocks.”  

Thank you for reading.  Would you please leave your comments below where it says “Leave a reply”… or ask a question if you like…

Pay it forward by sending the link to MarketTiming.Blog (that link will immediately connect them to this webpage) to a relative or friend.  Thanks for doing that.

Be sure to visit the website for more general investing knowledge at:

Sun and Storm Investing™

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

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, contact me for any questions, or click HERE.  Please use that link when you sign up as I am an affiliate (I don’t make much, but it may help to pay for some of my website expenses).  It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.

Note: I’ve updated my criteria for the equity signal for a further U.S. stock market rally to the following: GREEN = Bullish, YELLOW = Neutral, RED = Bearish.  In other words, the colors tell you whether the signal supports the stock rally or not, while the Bullish, Neutral, and Bearish designations are about the trend. 

A BEARISH trend signal does not mean we should not buy.  A BULLISH trend signal does not mean you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold or bought, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL trend signal does not mean the end of the Bull or Bear. It means to wait and look for possible subsequent entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the IWM and GLD charts for now as reference points only; they have historical value for us from the post-2016 election period.

Copyright © 2021 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 03-19-2021 Close: “What to Do if the Stock Market Weakens Further. Any Help for Gold? Will the Ramp in Interest Rates Slow Down?”

A Market Timing Report based on the March 19, 2021 close…

What’s the Market Timing Set-up Now?

The Tech Sector became grossly overvalued (numerous stocks with massive Price/Sales ratios), and some of that is being corrected.  However, new lows in QQQ and/or XLK, which track each other fairly closely, will damage the SPX and likely also IWM (small caps) and IJH (mid caps – which have been doing the best and are still mid range in their up channel).  Prices are relative.  The other indexes can levitate a bit longer as tech crashing and then they’ll all trend together in a bigger correction, Mini Bear Market, or Big Bear Market (enter “New Rules” in the search box to find my numbers for those).

Take profits “high” if you can, but I’d advise that you sell falling stocks in steps as they fall, just in case you see a bounce, sustained or not.  Decide what profit you intend to protect and do it.  If you can sell 20-50% of your exposure near a high (depending on your tax situation and how much you want to trade your positions), then you can sell the rest if the trend breaks down in a given stock or ETF.  Some stocks and ETFs will fail earlier than others.  Be careful not to sell strong stocks and then not rebuy them if the trend reverses.  You MUST be disciplined in both taking profits (especially when you have BIG profits; see my last issue for my selling rules on stocks making big gains) AND also in the rebuying of stocks and ETFs you have sold.

IF you sell at least some of your exposure high enough and the market continues down, you can engage in what I have coined as Passive Shorting You can sell 2 or 3 times, incrementally, as long as you don’t do it too late.  You should generally buy in steps too.  Many don’t.

There is no secret formula, although I measure weakness using multiple signals (I share my moves, buys and sells on social media; links below). Your last sell or even your first can be wrong , and you must have the discipline to buy back lower or don’t do the selling in the first place – unless the stock, sector, or country ETF is no longer a buy of course.  Buy incrementally after a fall, as you don’t know where the bottom will be until you get there.  Buy some of your renewed exposure on the confirmation of a bounce.

You don’t have to capture every single percent of gain off a bottom to succeed, and you generally won’t.

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

You can see that Friday was what I refer to as a “cute close.”   It’s a tease to draw in Bears who say “That line is broken!”  But the trend is still up.  We just made a higher high and have not made a lower low.  That’s about all you need of technical analysis to get the big moves right, which are by far the most important.  I’ll discuss the possible paths of the market going forward below…

Hugging the lower up channel line!

Hugging the lower up channel line (magenta).

Keep up-to-date and read my comments on the current setup during the week at Twitter and StockTwits (links below) where a combined 34,571 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.  (real time messages are on StockTwits as always and back on Twitter)

Join the Conversation in the StockTwits “MarketTiming” Room  (I’ll publish comments in the room periodically.)

Now let’s review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +25.3%, which is relatively high, but not at an extreme yet.  That gives the Bulls room to the upside if they want it.

Bulls Neutrals Bears
48.9% 27.5% 23.6%
Thurs. 12 am CT close to poll

Now let’s look at the small caps, gold, and interest rates…

2.  U.S. Small Caps Market Timing – Russell 2000 U.S. Small Cap Index  (click chart to enlarge; IWM, RUT)   

Small caps made a new high, although a marginal one, and are still above the 50 day moving average, which is just a reference point for the degree of weakness.  The negative is that we are still not back within the prior upward channel (although the midcaps are within their up channel).  SPX is at the base of its up channel as we reviewed above.

U.S. Small caps (IWM) have slipped, but the recent higher high means further upside is not out of the question..

Below channel but above the 50 day moving average and just made a higher high.


3. Gold Market Timing (click chart to enlarge; GLD): 

Same as last time.  Gold’s being doing horribly and remains in the doldrums due to a recovering economy and rising real interest rates.  Read my link posted below this report on how to invest in gold properly.  I use gold only as fiat currency disaster insurance (think Venezuela) when it turns weak.  I sell my entire gold trading position in a gold downtrend and have done just that.  At the same time, I’ve increased exposure to commodities through oil stocks, oil service stocks, rare earth minerals, and agricultural commodities as my social media entries have told you.  I also own positions in cryptocurrencies, which trade like commodities in terms of volatility, although more limited in supply than commodities.  

Gold is in an intermediate term downtrend.

Gold is mid channel in a long down trend.

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

4. Interest Rate Market Timing (10 Year Treasury Yield; click chart to enlarge; TNX, IEF, TLT):  Same: The trend was reasserted as UP this week.  Funny how things don’t change very fast in strong trends!  

From two issues ago.  Same thing holds: “The rate of rise is the key, not the level of interest rates in a strong recovery until we reach 4.5-5% some say, but regardless of the precise level that spells “trouble,” it’s MUCH higher than we are now.  A rapid rise in rates is what I call a “Rate Shock,” and it’s something that could send the market into a correction at least.”

Have we just had a “Rate Shock”?  Yes, and the issue is whether there will be more or whether we’ll get a bit of a break at this level.

The recent rise as you see on the chart has been far too fast and the 10 Year Yield has burst up and out of the channel it was previously in – twice in fact.  At this point, you can see a Doji candlestick formed on Thursday (often a sign of reversal) and the market went sideways on Friday.  I believe rates will have to ease a bit for the stock market to stabilize.

If rates just keep ramping up in too steep a fashion, we’ll head into a full stock market correction at a minimum – an ALL CAP correction, and not just in tech.

Now we turn to the scenarios for investing and trading and update them… (below the chart)

tnx-10-year-treasury-note-market-timing-chart-2021-03-19-close

Rates rising, but the current picture suggests a pullback could occur soon.

Scenarios for Trading and Investing:

(My updates are after the >>>>)

A. “That was it!”  Scenario A1) Friday was the low as after the 10-29-20 VIX high.  The market was done going down the next day. Scenario A2) even if we revisit the same low a few weeks from now as happened in June 2020, and then bounce, all will be well with the trend.  Either of these could be the eventual scenario.  We are headed into  a stronger recovery via vaccine deployment and resumption of life.
>>>>> The 1-29 low DID hold as the SPX dropped to just above that January low.  It may still hold, and it must hold, or else…

 

B. “That was just the start!  We are headed into a massive Bear Market yet again.”  I consider this highly unlikely due to the fact that the recovery is not even close to complete yet.  Vaccination needs to be sped up, yes, but it’s happening and 70% of people are now wearing masks.  More need to do so.  The number of active cases is high for sure, and we need to start seeing a DROP in them as I’ve gone over along with my #COVID19 charts for many weeks now (see my social media COVID-19 posts; search @SunAndStormInv and “#COVID19” on Twitter to find them). Still, the economy is recovering, not involuting.  The Y/Y comparisons remain positive for this and the next quarter.  Then we’ll see where the recovery is.

>>>>Still unlikely due to the future greater and greater reopening.  Remember too, stimulus is being piled on top of stimulus, which could push the market far higher than anyone believes right now.  Tech may even resume its uptrend, but for now, the reopening stocks are taking money from overvalued tech.

C. “We could go up a bit and then move to a new somewhat lower low.”  Yes we could. That happened after the 9-04-2020 VIX high. (see table link above)  The trend would still be fine.

>>>> At this point, I do not believe the market will tolerate a new recent SPX low.  If that happens, we’ll enter into a deeper correction in every cap (small, mid, and large) IMO.

D. “December 2018 could happen now.”  Meaning a “Mini Bear Market” could occur now.  That is not likely IMO.  The fear level now is higher than it was at the bottom of that market move.  I believe the price would already be lower if this were what I call a “Mini Bear Market.”   (You won’t understand that last comment unless you know my “New Rules.” If you don’t know my rules, please see THIS.)

>>>>Same answer as above for 2.  But we need to hold the Jan. low.

The gist of my favored scenarios (A1, A2, or C) above is that the price move of only -4.05% for the SPX pales in comparison to prior similar VIX readings when the drawdowns were much bigger.  I think the fear is currently overdone and a false signal.

>>>> I was right as it turned out.  The SP500 Index made a new all time high (ATH).

SAME AS BEFORE: “If the intermediate term trend breaks, you’ll see me drop my market exposure.  Stay close by following me on Twitter and StockTwits (sometimes one of them has been down.  I use the one that is UP when that happens!).”

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 actual BUYS and SELLS in as timely a way as possible on social media (links above).

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

Stock Signal BULLISH for a further U.S. stock market rally with a short term Bullish and longer term Bullish SP500 Index trend.   The immediate trend break is the issue here.  The positive is that IWM made a new ATH. The small caps determine the stock signal in this section of the report.  If they are strong/weak, generally the SPX is strong/weak too.

Gold Signal GREEN for a further U.S. stock market rally.  The Gold Trend is  short term Bearish and longer term Bearish It is still in its down trend channel.  “Longer term” may only be for a few more months or much longer.  No one can tell you how long it will continue to decline.  Economic glitches that arise will help gold.  Unconstrained fiscal spending will help as well over time, but not while the economy is recovering at a reasonable pace and real rates are rising.

Kept for Reference: “Gold can RISE with stocks when real rates are FALLING, and the dollar is falling.  Gold has recently been falling with rising real rates, despite US dollar weakness, because the stock market is made more attractive by the combination of 1. Rising real rates and 2. Economic recovery with higher corporate earnings. 

In liquidity crunches (which the Fed is supposed to prevent) gold can drop with everything else but the US dollar.” 

What gold does mostly as I’ve written HERE is follow real interest rates around the world (if you own “gold in dollar terms” you care about U.S. rates most of all).  The rest of the world does matter however, including massive buying by central banks. 

GUIDE: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise again, it means the market believes real rates are going to fall or stay negative for a period of time.  Investors tend to stay out of gold particularly when stocks are doing well as they provide a higher real return. 

Rate Signal: Rates are still RISING and that hurts interest rate sensitive stock sectors like utilities and helps financials.  The Rate signal is Bullish for a further stock market rally with a short term Bullish, and an intermediate term BULLISH 10 Year Yield Trend as long as rates don’t run up too fast (“Rate Shock” is not taken well by the markets).  (Remember: higher rates mean lower bond and Treasury prices and vice versa).

Thank you for reading.  Would you please leave your comments below where it says “Leave a reply”… or ask a question if you like…

Pay it forward by sending the link to MarketTiming.Blog (that link will immediately connect them to this webpage) to a relative or friend.  Thanks for doing that.

Be sure to visit the website for more general investing knowledge at:

Sun and Storm Investing™

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

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, contact me for any questions, or click HERE.  Please use that link when you sign up as I am an affiliate (I don’t make much, but it may help to pay for some of my website expenses).  It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.

Note: I’ve updated my criteria for the equity signal for a further U.S. stock market rally to the following: GREEN = Bullish, YELLOW = Neutral, RED = Bearish.  In other words, the colors tell you whether the signal supports the stock rally or not, while the Bullish, Neutral, and Bearish designations are about the trend. 

A BEARISH trend signal does not mean we should not buy.  A BULLISH trend signal does not mean you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold or bought, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL trend signal does not mean the end of the Bull or Bear. It means to wait and look for possible subsequent entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the IWM and GLD charts for now as reference points only; they have historical value for us from the post-2016 election period.

Copyright © 2021 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 01-29-2021 Close: “Is the U.S. Stock Market Done Giving Back Gains? Gold with Losses for 2021 and Interest Rates Still Climbing.”

A Market Timing Report based on the January 29, 2021 close…

What’s the Market Timing Set-up for February?

We had an initial decent start to the year, and then things got a bit crazy with stocks like Gamestop and AMC going up despite their problematic fundamentals. Is it right or wrong?  Neither.  It is what it is.  Anything can be bid up based on the action of a crowd.  We’ve seen what a crowd mentality can do both early as well as late in January.  There is huge risk built into overvalued stocks that don’t then hit their numbers.  They can fall precipitously once they disappoint.

The upside is fun.  The sudden downside, less fun.   If you have such gains, take off 100% of  your principal once you have a double.  That way, you can ride out further volatility and decide when you will protect remaining profits.  After selling your principal, you could even set your stop at 50% of profits, which means the stock has to drop by half before you’ll need to act.  You can decide at that point whether the downturn was overdone, or if the company is falling apart and whether you should take your remaining profits and redeploy them.

I followed my own advice and took off 100% profits on 8 positions over the past year and a half.  I did the same with three different cryptocurrencies over the past couple of weeks (these were recommended by other advisors, so I cannot share those obviously, but I did tell my followers on social media to take profits in the small coins near the height of the cryptomania in January).

I did the same thing with my gold exposure during the 2011 drawdown off the high.  I took off 100% of my principal.  I can now “ride the gravy,” as I like to say.  The pressure to trade the position is gone.  I can decide at what price I’ll cut more exposure and may never have to do so.  I put on a new GLD trading position more recently and have taken off nearly all of it as gold is behaving badly.

How do people get tricked into thinking the Gamestop trading game is reliable?  It can work, but it’s not a reliable way to make money unless you jump shrewdly from mania to mania and take profits as I’ve described.  But some will mortgage their house and lose the money on speculations when they start to work against them.  What goes up fast, goes down even faster very often.

The human mind is programmable and if you make 100% on your money or more doing the same thing even twice, you are already being programmed if you don’t stay acutely aware. Sadly most human beings walk around in a stupor anchored to their last one or more experience of success or failure, rather than having a plan they execute dispassionately.

On that basis, let’s look at the current level of market fear without being fearful ourselves!  Bear with me and reread anything you don’t immediately understand, because the value of what I’m sharing this month is considerable.  How you use it is up to you.

The fear indicator I’m talking about is the VIX, the estimate, based on option pricing, of the upcoming 30 days of SP500 Index volatility.  In other words, the VIX tells us how wild the swings in the SP500 will become over the next 30 days.  When it trends steadily higher, the market goes down into corrections or worse. When it shoots up and dies back, the market just suffers a dip or a mild correction and continues upward.  You’ll have to decide how you want to interpret what I share.  If you agree or disagree, please comment (respectfully) below.

The interesting thing about the prediction of future market volatility is that when the VIX rises from relatively low levels, the change in the VIX is predictive of market price as it moves up, but when the VIX rises to very high relative levels vs. its base, it becomes a contrary indicator at some point.  In other words, it becomes overdone relatively to what happens within the following 30 day period.

To understand VIX peaks and their meaning, I studied the history of the past few big volatility spikes which marked the June, Sept. and Oct. 2020 lows as well as the 2020 COVID-19 Big Bear, the 2018 December Mini Bear, and even the 2000 Big Bear VIX spikes.  I published my findings in an Excel File that you should be able to download just below…  Print it out if you like so you can follow along with my explanation.  Click the following link and when the document, opens press “Read Only.” (I screened the file for viruses, and it came up negative.)

NOTE: When you open up the following Excel Spreadsheet the 2nd Column from the right should say “Drop by Wednesday VIX Peak” as the VIX high was achieved then, not on Friday.  Click this link to open the spreadsheet please…

1-29-21 Volatility Spike vs Prior Volatility Spikes in Corrections, Mini Bear and Big Bear Markets – Click to Open

What you see is that the current spike in volatility is far more exaggerated compared to the associate PRICE DROP vs. prior spikes in both corrections as well as various sizes of Bear Markets including both Mini Bears and Big Bears.  My Rules for Dips, Corrections and Bears are HERE (Scroll to “New Rules”).

The drawdowns that occurred in the corrections last year were more than twice the level of the current loss off the SP500 Index top of 4.05%.  What I did was look at the price of the SP500 Index on the day in each market drawdown when the VIX hit the level it reached at the peak on Wednesday, January 27th.  Then I calculated the SPX loss to that point.

What you see is except for the Sept. 2020 Correction, the other corrections and even the Mini Bear Crash of December 2018, when the market lost just over 20%, were nearly at their final lows by the time the VIX hit the level we saw on Jan. 27th.  In the Sept. 2020 Correction, the market rose for a few days to a lower high on 9-16-20 and then fell 6.4% from the lower high.  Then the market recovered, resuming its uptrend.

We don’t care about small corrections in the market unless we have a plan for trading them.  I’m fine with that IF you know how to get back in.  But what I am trying to discern here is whether this downturn is likely to be a sizable one or not…

What happened in the Big Bear Markets as I call them?  Realize the key is that they are associated with big recessions and financial dislocations.  That’s what happened in each of the last Big Bear Markets.  The tech market crashed by 78% in the 2000-2003 Bear.  The housing market crashed in the 2007 to 2009 Bear as you know.  And most recently, there was a left field event called COVID-19 that is essentially a temporary GDP interrupter that was looked past faster than any other market perturbation of its magnitude in history.  GDP was temporarily flattened and is now recovering.

The SPX was down over 35% in the COVID-19 Crash, and yet we are already at new all time highs in under a year from the 2-19-2020 peak! Even after the 1987 peak which was followed by Black Monday when the Dow fell over 22.8% in one day, it took almost two years to get back to the prior high.  (I was completely OUT of the market the day before Black Monday and about half out by mid-September.

How does the current decline compare to the Big Bears?  During those three declines, the SPX was already down over 12% in two cases and over 23% in 2009, which registered the highest VIX spike in history to date.  The current SP500 Index decline is just 4.05%!  That is 25.17% of the average decline of those three Big Bear Markets when they had reached the current VIX level. 

What that means is the VIX index reflects a level of fear way out of proportion to what is actually happening in the market as communicated by current pricing.  You want to compare the mania now to 2000?  Well, the VIX then reached only 110.2% of the current level.

One might argue “That proves it’s going to get far worse in terms of the losses in the SPX!”  No.  The losses that should be accompanying it should be 3 times as high if it were a parallel example.

The mispricing of VIX when compared to the prior big Bears, says that back then people were headed into an accident of unknown proportion, but were ACTING accordingly.  They are not acting accordingly today.  What this says to me since VIX mispricing is routine at market lows is that we could have already made a “dip low” or could enter into, at worst, another further slide to the level I call a correction (new “New Rules”).  That is not the end of the world.  Yes, for a time, you may feel bad, but markets recover far faster from corrections and typically if you leave during them, you are at risk of missing out on the recovery and even more gains ahead.

My conclusion is that the weight of evidence says investors are “overbuying protection” in the form of put options at a time when the price drop reflects something far more benign than these market players are thinking.

What would lead to a “deep correction”?  A fall below the January 4th low would do it I believe.  That could take us down to the 200 day moving average or so.  Other targets would be the lower magenta channel line shown below or the 2-19-2020 high (green line) we hit prior to the COVID-19 Bear Market Crash.  If it goes below there, we are headed to a recession.  Since a recession is not in the cards given the current outlook IMO, we should not see the market action that accompanies recessions.  It’s always possible to see a Mini Bear Market as we did in December 2018, but the Fed was raising interest rates then.

What could scare the markets into a Mini Bear Market?

A market led “Rate Shock” as I call rapid increases in interest rates could do it.  Why?  The Fed is not raising rates until it has to, but that does not stop markets from moving rates up and front running the Fed.  That is because the market will assume the Fed may have to act sooner rather than later.  Tighter monetary policy in a stock market that is currently somewhat pricey historically could create a Dec. 2018 Mini Bear.  But they come and go.  The Big Bears have a much longer recovery time.  

The serious damage comes only with recessions.  Could we see an inflation induced recession?  Of course, because if the Fed is forced to deal with persistent and rising inflation, PE multiples are compressed as stocks are then sold.  But this will take time.  The COVID-19 pandemic itself is a damper on inflation.  If you want to decrease exposure now for something that may not happen for many months at the earliest, you are welcome to, but the Bull market will resume in my opinion and new highs will be attained, because the global economy is still in recovery mode.  The longer the recovery period extends, as long as we make continuing progress, the easier it will be for the market to rise ahead of ever increasing earnings estimates.  When everyone is back to work and inflation gets out of hand – then we’ll have to drop our exposure level.  It will take some time before we get there.

One of the biggest mistakes I’ve heard retold is from those who left big Bulls too early.  2000 was a great example.  If you missed 1999, you missed a massive part of the final move in the market to the upside.  Remember too that Bulls don’t die with pitiful sentiment numbers.  This week’s sentiment numbers are not excessive, for the AAII investors at least.  These somewhat older investors on average will be the last ones to come back to the market in a big way.  The “kids” are leading this time!  (Hey, some of us are still kids at heart, right?!  ;))

We will also watch to be sure we don’t overstay our welcome based on many of the thoughts and considerations just discussed…  I don’t look at “one thing.”  I look at many things simultaneously. 

Now I’ll show you the charts, so you can see where we are.  Reread this post more than once, as you’ll pick up new things the second time through.  I do that myself.  I always reread my post the next market day too, so I ACT on what I believe.  First the charts, and then I’ll discuss the possible trading/investing scenarios in a summary form that will help you further “get” what I’ve just said…

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

You see the immediate trend break, but the close was just barely below the 50 day moving average.  The market could easily head lower, but consider the scenarios I lay out after the chart review before acting.

The immediate trend is broken, but not the longer term trend.

Now let’s go on to look at investor sentiment…

Keep up-to-date and read my comments on the current setup during the week at Twitter and StockTwits (links below) where a combined 34,571 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.  (real time messages are on StockTwits as always and back on Twitter)

Join the Conversation in the StockTwits “MarketTiming” Room  (I’ll publish comments in the room periodically.)

Now let’s review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -0.6%, which was 1st week of negative sentiment spread since the last negative reading in a 34 week continuous series of negative sentiment spreads! 

The peak positive sentiment was on Nov. 11th at 31.0%, two days after the election results were known (it was known the prior Saturday who won).  That is a respectably high sentiment spread for a Bull market, and it does not often stay up there forever, but we just made a new all time market high in the SP500 Index on Tues. 1-26, and the spread had fallen to just 13.5% by 1-06 after a small 1.48% drop in the SPX.  The market then headed higher.

This is not the way Bull markets generally end.  Bull markets end with the vast majority of investors enthusiastic about stocks.  Despite the Gamestop, AMC, etc. hype this week, we are not there yet.

Were the “AAII investors” right back in Feb. – March 2020?  Investors in the AAII Survey did turn negative on 1-30-20 after the first little drop in the SPX.  Then there was a rally back to a new all time high (ATH).  So following them did not really work.  After that, sentiment turned back to negative at -8.7% on 1-26-20.  From there the market rallied to the 3-04-20 high before turning down again, so they missed that move.

Then the market continued to crash to the 3-23-20 final low of that Big Bear Market.  And then the AAII investors froze in the headlights for 34 long weeks of net negative sentiment!!!  Horrible idea in a raging Bull market!  

I’ll get to the scenarios to consider, but first let’s look at the small caps, gold, and interest rates…

Bulls Neutrals Bears
37.7% 24.0% 38.37%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing – Russell 2000 U.S. Small Cap Index  (click chart to enlarge; IWM, RUT)   

The breach on higher volume means some more downside cannot be excluded, but the intermediate term trend is still intact.   

See my scenarios after we look at gold and interest rates…

Short term trend breach.

 3. Gold Market Timing (click chart to enlarge; GLD): 

Gold remains in the doldrums due to a recovering economy and rising real interest rates.  Read my link posted below this report on how to invest in gold properly…  

Market timing the gold ETF (GLD). Gold still not working

Gold still not working.

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

4. Interest Rate Market Timing (10 Year Treasury Yield; click chart to enlarge; TNX, IEF, TLT):  The trend was reasserted as UP this week.

From last issue. Same thing holds: The rate of rise is the key, not the level in a strong recovery until we reach 4.5-5% some say, but regardless of the precise level that spells “trouble,” it’s MUCH higher than we are now.  A rapid rise in rates is what I call a “Rate Shock” and it’s something that could send the market into a correction at least.  So far, it’s not a problem and COVID-19 will probably slow the recovery and keep interest rates at least relatively lower for longer…

Now we turn to the scenarios for investing and trading… (below the chart)

Rates rising still.

Scenarios for Trading and Investing:

  1. “That was it!”  Scenario 1A) Friday was the low as after the 10-29-20 VIX high.  The market was done going down the next day. Scenario 1B) even if we revisit the same low a few weeks from now as happened in June 2020, all will be well with the trend.  Either of these could be the eventual scenario.  We are headed into a stronger recovery via vaccine deployment and resumption of life.
  2. “That was just the start!  We are headed into a massive Bear Market yet again.”  I consider this highly unlikely due to the fact that the recovery is not even close to complete yet.  Vaccination needs to be sped up, yes, but it’s happening and 70% of people are now wearing masks.  More need to do so.  The number of active cases is high for sure, and we need to start seeing a DROP in them as I’ve gone over along with my #COVID19 charts for many weeks now (see my social media COVID-19 posts; search @SunAndStormInv and “#COVID19” on Twitter to find them). Still, the economy is recovering, not involuting.  The Y/Y comparisons remain positive for this and next quarters.  Then we’ll see where the recovery is.
  3. “We could go up a bit and then move to a new somewhat lower low.”  Yes we could. That happened after the 9-04-2020 VIX high. (see table link above)  The trend would still be fine.  
  4. “December 2018 could happen now.”  Meaning a “Mini Bear Market” could occur now.  That is not likely IMO.  The fear level now is higher than it was at the bottom of that market move.  I believe the price would already be lower if this were what I call a “Mini Bear Market.”   (You won’t understand that last comment unless you know my “New Rules.” Read it if you haven’t and come back to read this. See link above.)

The gist of my favored scenarios (1A, 1B, or 3) above is that the price move of only -4.05% for the SPX pales in comparison to prior similar VIX readings when the drawdowns were much bigger.  I think the fear is currently overdone and a false signal.

Could I be wrong?  Of course.  If the UK virus variant a.k.a. Variant of Concern 202012/01) takes hold in a bigger way in our country (being predicted by Dr. Osterholm btw) where mask wearing is still optional for some (30% anti-maskers plus 25% who wear their mask below their nose – nice try but that won’t work!), things could get even worse on the COVID19 front for example.  (My apologies to the Brits (and Scottish) with whom combined, I am about 70% homologous for singling out their variant!)

The intermediate U.S. stock market trend will break, if we are headed to a worse outcome.  I’ll let you know on social media if I see that.  And the vaccine prevents bad outcomes even with the variants apparently, even though the antibody affinity for the South African mutant virus (apologies to the South Africans; aka “501.V2”) is weaker.

If the intermediate term trend breaks, you’ll see me drop my market exposure.  Stay close by following me on Twitter and StockTwits (sometimes one of them has been down.  I use the one that is UP when that happens!).

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 actual BUYS and SELLS in as timely a way as possible on social media (links above).

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

Stock Signal BULLISH for a further U.S. stock market rally with a short term NEUTRAL and longer term Bullish SP500 Index trend.   The immediate trend break is the issue here.  The small caps determine the stock signal in this section of the report.  If they are strong/weak, generally the SPX is strong/weak too.

Gold Signal GREEN for a further U.S. stock market rally.  The Gold Trend is  short term Bearish and longer term Bearish.   It is still in its down trend channel.  “Longer term” may only be for a few more months or much longer.  No one can tell you how long it will continue to decline.  Economic glitches that arise will help gold.  Unconstrained fiscal spending will help as well over time, but not while the economy is recovering at a reasonable pace.  

Kept for Reference: “Gold can RISE with stocks when real rates are FALLING, and the dollar is falling.  Gold has recently been falling with rising real rates, despite US dollar weakness, because the stock market is made more attractive by the combination of 1. Rising real rates and 2. Economic recovery with higher corporate earnings. 

In liquidity crunches (which the Fed is supposed to prevent) gold can drop with everything else but the US dollar.” 

What gold does mostly as I’ve written HERE is follow real interest rates around the world (if you own “gold in dollar terms” you care about U.S. rates most of all).  The rest of the world does matter however, including massive buying by central banks. 

GUIDE: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise again, it means the market believes real rates are going to fall or stay negative for a period of time.  Investors tend to stay out of gold particularly when stocks are doing well as they provide a higher real return. 

Rate Signal: As long as rates stay within a relatively low range, the stock market can cope with the rise in rates. That said rates are still RISING and that hurts interest rate sensitive stock sectors like utilities.  The rate signal is Bullish for a further stock market rally with a short term Bullish, and an intermediate term BULLISH 10 Year Yield Trend.  Rates have to bust that lid of 1.266% on the chart above to change the intermediate to longer term trend unequivocally to UP.  (Remember: higher rates mean lower bond and Treasury prices and vice versa).

Thank you for reading.  Would you please leave your comments below where it says “Leave a reply”… or ask a question if you like…

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

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, contact me for any questions, or click HERE.  Please use that link when you sign up as I am an affiliate (I don’t make much, but it may help to pay for some of my website expenses).  It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.

Note: I’ve updated my criteria for the equity signal for a further U.S. stock market rally to the following: GREEN = Bullish, YELLOW = Neutral, RED = Bearish.  In other words, the colors tell you whether the signal supports the stock rally or not, while the Bullish, Neutral, and Bearish designations are about the trend. 

A BEARISH trend signal does not mean we should not buy.  A BULLISH trend signal does not mean you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold or bought, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL trend signal does not mean the end of the Bull or Bear. It means to wait and look for possible subsequent entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the IWM and GLD charts for now as reference points only; they have historical value for us from the post-2016 election period.

Copyright © 2021 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 12-24-2020 Close: “The Risks to 2021 Stock Market Setup. Two Risks are Solved, One Fake and Three Real! P.S. Gold Is Sliding.”

A Market Timing Report based on the December 24, 2020 close…

First some orientation to what you’ll see here going forward in terms of market timing.  I’m going to reduce my view of the markets to short simple statements.  There are plenty of writers who bloviate about the markets, which is not really that helpful.  Although I’ve kept my analysis reasonably brief, it will be briefer yet this year.

MY FINAL COMMENTARY ON THE TRUMP PRESIDENCY is at the base of this report. We are moving on to a new administration and will be focused there.  I’ll be equally tough on Biden and his plans (as I have recently on the proposed vaccine program changes proposed) and discuss their market impact… 

All economic and political analysis will be conducted in a similar reasonably brief format, as usual focusing on how it could impact the financial markets.  Mainly we’ll look at the key market timing charts…  

There will always be more that I share on social media in terms of the variety of market timing charts I follow and refer to including foreign markets and major cryptocurrencies.  I won’t always post the charts and will leave you to use your favorite chart source to follow what I’m saying.  Time is precious.

Enjoy and be sure to share the blog with others.  My goal is to have an impact to help the world, so I’ll be putting my efforts behind that which serves the greatest number of people as much as I appreciate all of my followers here and on social media.  Happy New Year to you by the way!  Thanks for reading, and now…to the markets…

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

Let’s look at where we are first, and then discuss where we’re going…

The trend for all U.S. market caps, small, mid, and large is UP (see 1st chart below).  Stay invested. 

What Are the Risks to the Recovery?

1. COVID-19 Infection Rates forcing more partial shutdowns of businesses.  We’ll see soon how bad the Christmas and New Years bumps will be. My advice? Stick to your “bubbles” over the holidays unless everyone has quarantined for 10-14 days in advance.  Testing is not enough as proven by the White House’s experiment that caused numerous people to become ill with COVID-19.  Shutdowns are only required, as I’ve said repeatedly, IF healthcare systems would otherwise be overwhelmed.  If not, you don’t need to shut down.  It’s not a political decision; it’s a healthcare decision.  More shutdowns, even if partial, would hurt the speed of the recovery and secondarily the stock market, but NOT IF vaccination continues to speed up, and the market looks forward to recovery despite the holiday infection bumps.  We are in a different place with now THREE vaccines on the way. (AZN-Oxford’s is expected to be approved as the 3rd very soon.)

UPDATE 12-29-2020: Coronavirus Active Case Stats in the U.S. 

Only negative Day Over Day numbers on the chart below, which show you the direction and rate of change of Day Over Day Active Cases, can help take the pressure off of hospitals.  As long as that number is positive (and the 5 day moving average is a better test of the trend), hospitals are filling up more and more.  The rate of change improvement (the orange line is dropping) shows some of us are trying hard to keep the virus under control, but the rest of us have to pitch in, or hospitals in LA for example will be forced to turn away patients due to healthcare system overwhelm.

Imagine your loved one needing to be transported an extra half hour with a heart attack or stroke because your local hospital was chock-full of COVID-19 patients.  That’s what we’re talking about here.

2020-12-29-US COVID19 D-Over-D Inc Active Case %-Recent-5 Day MAV

Improvement in the rate of increase, but it must go NEGATIVE to take pressure off of hospitals. Data analyzed are from Worldometer.com.

It’s not political as said; it’s practical, so again, please help out by NOT mixing your home’s bubble with other bubbles unless those in it have quarantined for 10-14 days prior to mixing.  If that is too much, at least wear a mask (correctly over the nose) when you are out and don’t socialize with anyone outside your home prior to visiting your family, or you may literally be the “death of them.”  It would be foolish for us to kill our relatives and friends by getting careless just a few months (more or less) prior to vaccination.  Be safe and have a very Happy New Year! 

Let’s now look at other risks to the recovery and the markets….

2. TWO SOLVED RISKS: The stimulus bill was just signed by Trump Sunday night along with general spending that will keep the government open.  Closing the government during COVID-19 would have been definitionally insane, so it’s good Trump capitulated.  He capitulated to Democrats, but also to his own party that negotiated this package with Sec. Mnuchin for many long months.

3. Election Risk?  None.  It’s over rover.  It’s a “fake news” risk.  There is no legal recourse for Trump now despite the massive disinformation on Twitter and Facebook.  The Constitution requires the House agree with the Senate on a Jan. 6th coup, and they won’t.  Mitch McConnell told GOP Senators to NOT rock the boat with BS claims of widespread election fraud.  The courts have ruled against Trump’s claims, including the Supreme Court with Trump’s 3 appointees.  There was no significant election fraud or the courts would have ruled otherwise.  There is ZERO election risk remaining.

4. A double GOP Loss in Georgia.  The GOP needs to keep only one Senate seat to maintain Senate control on the big bills.  Some moderate GOP members could flip sides on some legislation with a one vote majority however.  If Mitch is taken out by a double GOP loss in GA, tax legislation rollbacks will hurt corporate earnings over the short term and lead to a 7-20% correction/Mini-Bear Market in my view (See New Rules for my cutoffs for dips/corrections/Bears).  That’s because earnings would be adjusted back down to pre-taxcut levels based on the tax increases that would ensue.  Income Taxes: Those making less than $400,000 as an individual, $622,050 for couples would not be affected.

5. Rate Shock: When rates rise slowly during a recovery, that is fine.  When they shoot up too fast, the stock market usually takes a hit.  If rates rise above the current lid you see on the chart below, they could start rising too quickly and shock the stock market.  Bonds take money from the stock market when real rates are FALLING.  They are RISING of late.

SP500 Large Cap Index (click chart to enlarge; SPX, SPY): NOTE: the date placed on the chart is wrong. It should say 12-24-20 Close!)

spx-sp500-index-market-timing-2020-12-24-Close-3

The Trend Is Up.

Follow me on StockTwits/Twitter and you’ll see when and what I buy and sell…

Now let’s go on to look at investor sentiment…

Keep up-to-date and read my comments on the current setup during the week at Twitter and StockTwits (links below) where a combined 34,571 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.  (real time messages are on StockTwits as always and back on Twitter)

Join the Conversation in the StockTwits “MarketTiming” Room  (I’ll publish comments in the room periodically.)

Now let’s review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +21.58% on 10-14-20, which was 10th week of positive sentiment spread after 34 weeks of negative sentiment spread!  As my prior study showed (published earlier on this blog), such a long negative sentiment spread has historically resulted in a strong rally in the stock market.  I’ve bought both before and after the election and increased my exposure to close to 100% of my “usual maximum for a Bull market.” Adjust to taste!  I report my exposure level regularly on social media as I change it (see links above).

Bulls Neutrals Bears
43.57% 34.44% 21.99%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing – Russell 2000 U.S. Small Cap Index  (click chart to enlarge; IWM, RUT)   

The trend is up!  Stay with it. And stay with ALL caps including mid caps as well. 

iwm-russell-2000-market-timing-chart-2020-12-24-close

That’s called an Up Trend!

 3. Gold Market Timing (click chart to enlarge; GLD): 

I’m fully out of my trading position as stated a while back on social media.  I only have “gold insurance” for protection from the dying U.S. dollar at this point.  The typical “insurance” recommendation is 5% of investable net worth (although many never tell you if you should include real estate or not).  Some like Cramer have said to own a 10% gold exposure.  Gold does not work well with rising real rates, as I’ve discussed numerous times (ref. link is at the bottom of this report).

gld-gold-etf-market-timing-chart-2020-12-24-close

Down trend is obvious.

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

4. Interest Rate Market Timing (10 Year Treasury Yield; click chart to enlarge; TNX, IEF, TLT): Rates are poised to head higher still.  The formation is an ascending triangle on the chart below.  A breach above the obvious current range will be required.  That could make the market nervous about Fed action despite their reassurances to let inflation rise a bit higher than they previously allowed. “Rate Shock” is a stock market risk I’ve covered for years here.  

The rate of rise is the key, not the level in a strong recovery until we reach 4.5-5% some say, but regardless of the precise level that spells “trouble,” it’s MUCH higher than we are now. 

NOTE: the date placed on the chart is wrong. It should say 12-24-20 Close!)

tnx-10-year-treasury-note-market-timing-chart-2020-12-24-close

tnx-10-year-treasury-note-market-timing-chart-2020-12-24-close

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 actual BUYS and SELLS in as timely a way as possible on social media (links above).

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

Stock Signal BULLISH for a further U.S. stock market rally with a short term BULLISH and longer term Bullish SP500 Index trend.   The small caps determine the stock signal in this section of the report.  If they are strong/weak, generally the SPX is strong/weak too.

Gold Signal GREEN for a further U.S. stock market rally.  The Gold Trend is  short term Bearish and longer term Bearish.   “Longer term” may only be for a few more months or much longer.  No one can tell you how long it will continue to decline.  Economic glitches that arise will help gold.  Unconstrained fiscal spending will help as well over time, but not while the economy is recovering at a reasonable pace.  

Kept for Reference: “Gold can RISE with stocks when real rates are falling, and the dollar is falling.  Gold has recently been falling with rising real rates, despite US dollar weakness, because the stock market is made more attractive by the combination of 1. Rising real rates and 2. Economic recovery with higher corporate earnings. 

In liquidity crunches (which the Fed is supposed to prevent) gold can drop with everything else but the US dollar.” 

What gold does mostly as I’ve written HERE is follow real interest rates around the world (if you own “gold in dollar terms” you care about U.S. rates most of all).  The rest of the world does matter however, including massive buying by central banks. 

GUIDE: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise again, it means the market believes real rates are going to fall or stay negative for a period of time.  Investors tend to stay out of gold particularly when stocks are doing well as they provide a higher real return. 

Rate Signal: As long as rates stay within a relatively low range, the signals are not as valuable when the Fed is manipulating them.  The Rate signal on a non-manipulated basis would be Bullish for a further stock market rally with a short term Bullish, but now an intermediate term NEUTRAL 10 Year Yield Trend.  Rates have to bust that lid on the chart above to change the intermediate to longer term trend.  (Remember: higher rates mean lower bond and Treasury prices and vice versa).

***START OF COMMENTARY***

MY FINAL COMMENTS ON THE TRUMP PRESIDENCY AND DEMOCRACY

This will be my final comment on Trump here, as he will shortly be irrelevant except how he influences others in the GOP.  I laid out the possibilities for Trump this week, because we need to be informed of how politics can intersect with the markets.  If you read my pre-election post and actually made the trades I made both prior to and after the election  (all timestamped here), you’ve made big money by now.

I don’t hold grudges. I don’t condemn Trump as a human being, as we’re all flawed in some ways, but I do have to make a judgment about his fitness to lead and have done so.  What he did both as an “Election denier” and in calling for a march on the Capitol Building was anti-Democratic IMO.  

BTW, I never said “Trump did not win the 2016 election,” because those who did are as misguided IMO as those who believe Trump’s distortions as I’ll call them about the election of 2020. Biden won the election by the rules the states decided upon. States rights are a fundamental pillar of Republicans, at least that used to be the case. The Constitution placed the authority with the States to decide on how to run their elections. They did so in 2020 in the midst of a pandemic.  They sent out more mail in ballots to avoid spreading the virus.  That was their sincere intention and it was right IMMedicalO.

Al Gore actually won in 2000 based on some recounts and not on others when they went back and recounted votes in Florida after the fact. (I didn’t vote for him. I’m a proven Independent as I’ve said; I vote for the better leader, per my beliefs at the time I vote.)  But the courts are the FINAL arbiters of elections even if the laws concerning elections are changed after the fact. The results of the preceding elections are not changed.

After the 2000 election was decided, they did not tell Bush to leave based on the recounts that found Gore won, or say there had to be another election. Some here were likely not very focused on politics when that was going on, and others were, but the point is, when the COURTS say “Game over,” it is done. The Supreme Court ruled and Al Gore conceded.  He said he didn’t like it, but he accepted it (you can find the video).  He did not then carry on in public to taunt Bush saying “I actually won!”  He conceded, and it ended there.  That’s Democracy in motion.  There is no going back. No whining.

In sports, refs make bad calls. They challenge some bad decisions by refs, but they never get to go back and “challenge the results of the Super Bowl.”  “It was a corrupt Super Bowl!”  That does not fly.  Some of those supporting the losing Super Bowl team do continue to object to “who actually won,” but you and I know those people are ultimately poor losers.  Few elections are perfectly clean except those for dog catcher, and there was no widespread fraud in the 2020 Election. Even Bill Barr (who searched for dirt on Biden for months) said so and Trump still forced him out or made him feel he had to leave to support Democracy.

To conclude my comments on the Trump Presidency, Democracy in the US per the Constitution is about 1) Voter rights (the vast majority of those who voted cast legal ballots despite all the noise) 2) States’ rights, and 3) Court Decisions (the 3rd branch).  All those say Biden won, so he won. I would suggest that if that makes no sense to you still, you go read more from sources other than Fox News. Study the Constitution directly. Read contrary opinions to Rush Limbaugh’s. If you feel hurt by the results of the 2020 election still, act like you care to know the truth and investigate it like a true reporter would rather than someone on a sports team that cannot admit the team lost. Then our country will return to a more reasonable state in which things are discussed civilly and compromises are reached to move our country forward.

Let’s solve our nations challenges together.  Contribute in a positive way if you can vs. getting bogged down in past grievances, and make our country and the world a better place.  Per a recent Gallup Poll, as of Dec. 2020 41% are Independents, 31% Democrats, and 25% Republicans.  That means most people land in the middle as I do.  Don’t use the liberal Democrats’ or radical Republican behavior as an excuse to behave as they do.  Be far better than the worst elements of our society whether on the right or left, and we will succeed as a nation.

***END OF COMMENTARY***

Thank you for reading.  Would you please leave your comments below where it says “Leave a reply”… or ask a question if you like…

Pay it forward by sending the link to MarketTiming.Blog (that link will immediately connect them to this webpage) to a relative or friend.  Thanks for doing that.

Be sure to visit the website for more general investing knowledge at:

Sun and Storm Investing™

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

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, contact me for any questions, or click HERE.  Please use that link when you sign up as I am an affiliate (I don’t make much, but it may help to pay for some of my website expenses).  It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.

Note: I’ve updated my criteria for the equity signal for a further U.S. stock market rally to the following: GREEN = Bullish, YELLOW = Neutral, RED = Bearish.  In other words, the colors tell you whether the signal supports the stock rally or not, while the Bullish, Neutral, and Bearish designations are about the trend. 

A BEARISH trend signal does not mean we should not buy.  A BULLISH trend signal does not mean you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold or bought, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL trend signal does not mean the end of the Bull or Bear. It means to wait and look for possible subsequent entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the IWM and GLD charts for now as reference points only; they have historical value for us from the post-2016 election period.

Copyright © 2020 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 10-16-2020 Close (with 10-25-20 COVID-19 Update): “The Markets Pre-Election 2020: U.S. Stocks In Uptrend but with a Lower High and Persistent Volatility. Gold on Pause. Rates Under Fed Control.”

A Market Timing Report based on the October 16th, 2020 close…

The context for the market timing charts are addressed on social media during the week (links below), so be sure to read those posts as well, or you’ll miss at least half of the picture .  I would review the post three posts back HERE, if you have not yet read it, as it is the ongoing thesis of this earnings season – this is a “BullBear Market” with big winners and equally big losers.  

This month, I’m showing you what I am seeing at the markets, and noting key conclusions, and the rest is on social media…(links below)

10-25-2020 COVID-19 Update: The failure to contain COVID-19 will likely determine both the outcome of the U.S. election generate market timing signals in the near term.  Both Total and Active Case numbers are on the rise again in the US as you can see the new recent highs coming up off the recent lows, which is evident in both the raw numbers (blue lines) as well as the 5-day moving averages (orange lines). What I am plotting is the rate of change from day to day.  A rising line means an acceleration is occurring (cases are not just still showing up, they are showing up in greater and greater numbers)…  

2020-10-24-US COVID19 Day-Over-Day Inc Total Case %-Recent-5 Day MAV

Data analyzed above are from Worldometer COVID-19 Data

Back to the most recent brief…

Let’s start by looking at how strong the Bull is… The Bull Market Health Score (BMHS) Update:  I describe how I arrive at the score (HERE).   

The market is still below the prior high, but was climbing through Friday.  Note however, that the score declined, which is a negative, particularly after making a lower high at 4.0.  This indicator by itself indicates further downside in my view.  At a minimum, it suggests any immediate gains from here will be lost in a period of chop.

Bull Market Health Score for 10-16-2020 Close

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

Let’s look at where we are first, and then discuss where we’re going…

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

Trend is still up, but we also have a lower high to overcome.

The market is forming a lower high, but the Bulls could still overcome and void it, which could send the market back to the prior ATH or higher.  With coronavirus cases rise rapidly in the US and in Europe, there is reason to see “trouble” with earnings/revenues numbers in the span of the next 3-6 months as vaccines are deployed in late 2020 to early 2021.  You have to decide if the market will look past that to the resolution of the pandemic or not.

Some thoughts about the greatest risks and opportunities for the U.S. markets in addition to the coronavirus risk, which is on an immediate basis is #1 in my book…

  1. A Biden win is not a given.  Meet the Press cited data showing V.P. Biden is only 1% ahead of where Sec. of State Hillary Clinton was at the same time point in 2016.  Don’t count your chickens too early, if those are your eggs of course…
  2. A Trump win would likely help the markets continue their climb.
  3. A Biden win with a Dem Senate, could cause a temporary setback, due to the tax increases (taxes will rise only on those making over $400,000 as individuals and over $622,051 as married couples), but only if the Dems take the Senate.  The market would then continue higher as the recovery continues and Biden/Congress spends on healthcare and clean energy as part of a potentially larger infrastructure bill.
  4. A Biden win without the Senate in Dem control means nothing gets done meaning Trump’s policies stay intact even with him gone.  The markets would be OK and rise with that most likely, and a slow recovery would continue with successful vaccines.  Stimulus would be less however than with a Dem sweep of both House and Senate plus a Biden win.
  5. A stimulus bill will NOT be passed prior to the election as that would help Trump win the election and to add to that there are too many GOP Senators who oppose it.  This could pressure the markets in the short term.  The market is depending on stimulus to tide the economy over, but it could come after the election, unless Trump loses and vetoes the bill just to spite his opponents – then it will have to wait for Biden to take office.
  6. If the Dems don’t take the Senate back, Joe Biden won’t get much done except that which fits consensus.  Maybe some infrastructure spending will be agreed upon.  The GOP will block healthcare spending as well as tax law changes.  They may agree upon drug price control measures. Spending will be reduced vs. a Biden/Dem Senate outcome.
  7. Election Outcome Uncertainty: It could take weeks to find out who is President without a landslide in Biden’s favor.  The polls say that a Trump landslide is an impossibility given current facts.  This uncertainty could pressure the markets a bit in the short term, but whatever discount is created will be a buying opportunity.
    1. Markets historically have done better under Democrats than under Republicans, so don’t bet against the market just because Biden wins (there may be an initial discount created due to a Trump loss, but it won’t be sustained IMO).
    2. Trump will leave office if he loses.  The GOP will see to that and even the Supreme Court will also do so, despite the tilt to the right that will occur with the addition of Judge Barrett.  There appears to be zero doubt she will be on the court before Election Day barring a Senate COVID-19 outbreak that shuts it down.
  8. Ditch your “Green New” anything stocks if Biden loses.  If Trump wins, the rise of clean energy will be further delayed.  ADDED NOTE 11-02-20: They will eventually recover due to demand globally, but there would be a swoon with a Biden loss IMO.
  9. Earnings will be weak for the Q3 quarter being reported as well as for Q4. The question is whether the market will look past that particularly if COVID-19 cases further pressure earnings… ADDED NOTE 11-02-20: I think the market is currently dividend on this, so have SOME cash in case of a greater drawdown.

Follow me on StockTwits/Twitter and you’ll see when and what I buy and sell…

Now let’s go on to look at investor sentiment…

Keep up-to-date and read my comments on the current setup during the week at Twitter and StockTwits (links below) where a combined 34,571 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.  (real time messages are on StockTwits as always and back on Twitter)

Join the Conversation in the StockTwits “MarketTiming” Room  (I’ll publish comments in the room periodically.)

Now let’s review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -1.09% on 10-14-20, which was the 34th week of a negative sentiment spread!  That is astounding, and I analyzed the subsequent market behavior after such long runs of negative sentiment in detail four issues back (see link at top or to upper right).

The last time the AAII sentiment spread approached zero, it got to around -4% for two weeks surrounding the June 8th top.  The market corrected about 9% within a few days with a 5.89% drop on June 11th after two small red days on the 9th and 10th.

Bulls Neutrals Bears
34.78% 29.47% 35.75%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing – Russell 2000 U.S. Small Cap Index  (click chart to enlarge; IWM, RUT) 

Small caps have higher sensitivity to recessions/economic slowing, so be careful about being too exposed to them at this point unless you are sure Trump is winning the election. They could be a buying opportunity regardless on a pullback particularly if the vaccines work. 

If you don’t want to do anything too extreme, consider taking off 10-25% of your small cap exposure and adding it back later in the case of an IRA account.  Whether being taxed will be worth the sell, is unknown, so you may not want to sell your taxable small caps exposure.  That’s called “Passive Shorting,” a term I coined.  Google it and the page should be at the top…

After you look at the chart below, we look at gold…

Small caps trending up, but vulnerable to economic slowing from a COVID-19 spike.

 3. Gold Market Timing (click chart to enlarge; GLD): It’s just up off support.  No important breach yet. 

Above 179.04, G*LD is OK (the * is there in G*LD to throw off crawlers looking for prices to target), below that means the downtrend is intact and the correction continues.  Eventually I expect gold to continue rising as we spend and spend and spend, but if the Biden/GOP Senate combo happens, spending will be less and gold could pull back.  

Gold above 179.04 is better than below. A dive below would confirm the downtrend.

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

4. Interest Rate Market Timing (10 Year Treasury Yield; click chart to enlarge; TNX, IEF, TLT): The Fed will keep rates within a range.  Sell bonds high (TNX near lows) and buy them back low (TNX near highs) to take advantage of the Fed’s interference. 

Rates are trapped by economic slowing, COVID-19 resurgence and an active Fed.

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 actual BUYS and SELLS in as timely a way as possible on social media (links above).

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

Stock Signal BULLISH for a further U.S. stock market rally with a short term BULLISH and longer term Bullish SP500 Index trend.   The small caps determine the stock signal in this section of the report.  If they are strong/weak, generally the SPX is strong/weak too.

Gold Signal GREEN for a further U.S. stock market rally.  The Gold Trend is  short term Bearish and longer term Bullish.   

Kept for Reference: “Gold can RISE with stocks when real rates are falling, and the dollar is falling.  If the dollar gains significant strength, that will hurt both stocks and gold in the near term.  Watch the U.S. dollar.  And keep in mind that in a financial panic the dollar and gold can rise together.  In liquidity crunches (which the Fed is supposed to prevent) gold can drop with everything else but the US dollar.” 

What gold does mostly as I’ve written HERE is follow real interest rates around the world (if you own “gold in dollar terms” you care about U.S. rates most of all).  The rest of the world does matter however, including massive buying by central banks. 

GUIDE: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise again, it means the market believes real rates are going to fall or stay negative for a period of time.  Investors tend to stay out of gold particularly when stocks are doing well as they provide a higher real return. 

Rate Signal: As long as rates stay within a relatively low range, the signals are not as valuable when the Fed is manipulating them.  The Rate signal on a non-manipulated basis would be Bullish for a further stock market rally with a short term Bullish and longer term BEARISH 10 Year Yield Trend.  (Remember: higher rates mean lower bond and Treasury prices and vice versa).  If rates crash to new lows, the market will not likely behave very well!

Thank you for reading.  Would you please leave your comments below where it says “Leave a reply”… or ask a question if you like…

Pay it forward by sending the link to MarketTiming.Blog (that link will immediately connect them to this webpage) to a relative or friend.  Thanks for doing that.

Be sure to visit the website for more general investing knowledge at:

Sun and Storm Investing™

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

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, contact me for any questions, or click HERE.  Please use that link when you sign up as I am an affiliate (I don’t make much, but it may help to pay for some of my website expenses).  It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.

Note: I’ve updated my criteria for the equity signal for a further U.S. stock market rally to the following: GREEN = Bullish, YELLOW = Neutral, RED = Bearish.  In other words, the colors tell you whether the signal supports the stock rally or not, while the Bullish, Neutral, and Bearish designations are about the trend. 

A BEARISH trend signal does not mean we should not buy.  A BULLISH trend signal does not mean you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold or bought, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL trend signal does not mean the end of the Bull or Bear. It means to wait and look for possible subsequent entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the IWM and GLD charts for now as reference points only; they have historical value for us from the post-2016 election period.

Copyright © 2020 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 09-18-2020 Close: “U.S. Stocks Tipping Over? Gold Pause. Rates Range Bound.”

A Market Timing Report based on the September 18th, 2020 close…

The context for the market timing charts are addressed on social media during the week (links below), so be sure to read those posts as well, or you’ll miss at least half of the picture .  I would review the post three posts back HERE, if you have not yet read it, as it is the ongoing thesis of this earnings season – this is a “BullBear Market” with big winners and equally big losers.  

This month, I’m showing you what I am seeing at the markets, and noting key conclusions, and the rest is on social media…(links below)

UPDATE 9-21-20: The market looks like it IS tipping over this a.m., and I will be taking action after the open depending on what I see.  Keep reading to get a sense of the set-up for further downside…vs. a recovery in the market…

Let’s start by looking at how strong the Bull is… The Bull Market Health Score (BMHS) Update:  I describe how I arrive at the score (HERE).   

The market has pulled back and is weak at the moment.  The BMHS is low enough to allow for a bounce, and my 20 indicator panel is weak as well with possible downside and room for a bounce.  The broken charts of FB, AMZN, AAPL, NFLX, GOOGL, and MSFT, the FAANGM stocks are a warning of more weakness ahead.  The shortest term indicators also say there is room for a bounce and room for more downside.  Trade the direction of the next move for SPX. 

The close Friday was imperfect. Far better, would have been holding up above the 9-08 SPX low,  but holding up above the 9-11 low of the SP500 Index COULD be enough.  The QQQ is weaker, having closed below the 9-11 low, but only by 0.03 points.  It was also a close just above the prior day’s low.  

I explained how to look at the discrepancies of weakness across indices HERE.  

Bull Market Health Score

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

Let’s catch up on SP500 Index Earnings and Revenue projections and then look at the current SPX chart…  The data are through 8-7-20 (because the author is away for two weeks of vacation).  89% of SPX companies had reported results to that point.  

See FactSet.com for original data and some great content. 

They are expecting a relative recovery next year, but it may not come until the expected vaccine is fully deployed and working, which could be delayed until late Q2 of 2021 or later.  Right now analysts are expecting a big bounce vs. last year’s numbers in Q1 2021.  It had better happen…  They are buying stocks AHEAD of better times, which entails risk of disappointment It is so far a V-market, without a V-recovery and the mismatch could further reprice US/global equities.  

FactSet Earnings Data as pf 9-18-2020

SPX Revenue Data via FactSet as of 9-18-2020.

Keep up-to-date and read my comments on the current setup during the week at Twitter and StockTwits (links below) where a combined 34,571 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.  (real time messages are on StockTwits as always and back on Twitter)

Join the Conversation in the StockTwits “MarketTiming” Room  (I’ll publish comments in the room periodically.)

SP500 Large Cap Index (click chart to enlarge; SPX, SPY): That base must hold or we could start to complete Wave 3 of 5 (the biggest wave in a drawdown in Fibonacci terms) or at least a second leg in an A-B-C wave down (Down – Up – Down).

UPDATE at 10:21 am: The target for a 3rd Red Wave down predicted by Fibonacci would be 3007, which is very close to the 6-29-2020 low.  A Wave C down equal to the first wave down, Wave A, would be a target of 3136.71. 

Remember these are simply estimates of future damage and are guesses at best, but they inform whether there is “time to sell” or not.  If we were already close to the target, selling would make less sense. I’m selling incrementally because we’ve breached an important level that entails another 7.33% downside from 3245 for the first target of 3007.    

Market timing the SP500 Index (SPY, SPX) as of 9-28-2020

Market timing the SP500 Index (SPY, SPX) as of 9-28-2020

Now let’s review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -8.37% on 8-19-20, which was the 30th week of a negative sentiment spread!  That is astounding and I analyzed the subsequent market behavior after such long runs of negative sentiment in detail three issues back (see link at top or to upper right).  This means we are not yet at a top.  The demographics of AAII membership is older, but they have considerable net worth on average.  Once they join the party, we will know it’s “getting late,” and time to reduce exposure much more dramatically.  That said, I’ll be following the market today, not AAII data.  What the market does takes precedence over other inputs like that.  

The break off a very stretched market top had me take down my exposure on 9-3-20, but then add some of that back on the QQQ pullback.  I still hold that QQQ exposure, while I’ve taken profits in a number of individual stocks (or reduced the positions to zero in some cases) after the market bounced.  I noted my recent exposure level on social media (see links above).

Bulls Neutrals Bears
32.02% 27.59% 40.39%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing – Russell 2000 U.S. Small Cap Index  (click chart to enlarge; IWM, RUT) 

I’ll keep this from last time: Small caps are higher risk, so watch your stops, as any downturn would be amplified in them.  

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

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

 3. Gold Market Timing (click chart to enlarge; GLD): It’s just up off support.  No important breach yet.  If rates break out, it’s possible gold will break, unless inflation is allowed to rise out of control by a Fed that keeps rates artificially low, but if they fall with further economic slowing, gold should do fine.  Google “When Does Gold Shine and When Does It Decline” with the quotes.  Gold may decline with stocks of course as it has before when liquidity becomes an issue.  When that happened before it rallied ahead of stocks.  Reduce your exposure to what you are comfortable with if it breaks the recent lows.  

Market timing the gold ETF (GLD).

Market timing the gold ETF (GLD). Just up off support.

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

4. Interest Rate Market Timing (10 Year Treasury Yield; click chart to enlarge; TNX, IEF, TLT): The Fed is working hard to keep rates down as the economy continues to be under pressure during the COVID-19 pandemic.  I added TLT (longer duration US Treasuries) last week as a hedge to this economic downside.  I continue to hold IVOL and some muni exposure.  

Market timing the US 10 Year Treasury Yield (TNX, TYX, TLT, IEF) for 9-18-2020. Rates range-bound.

Rates range-bound.

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 actual BUYS and SELLS in as timely a way as possible on social media (links above).

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

Stock Signal NEUTRAL for a further U.S. stock market rally with a short term BEARISH and longer term Bullish SP500 Index trend.   The small caps determine the stock signal.  The small cap signals are pulling back off the most recent high.  I would have preferred to see a hold above the 9-08 low for SPX, but holding the 9-11 low COULD be enough.  The breakdown in leaders like #FAANGM is a problem however due to their dominance.  

Gold Signal GREEN for a further U.S. stock market rally.  The Gold Trend is  short term NEUTRAL and longer term Bullish.   Gold can RISE with stocks when real rates are falling, and the dollar is falling.  If the dollar gains significant strength, that will hurt both stocks and gold in the near term.  Watch the U.S. dollar.  And keep in mind that in a financial panic the dollar and gold can rise together.  In liquidity crunches (which the Fed is supposed to prevent) gold can drop with everything else but the US dollar.  

What gold does mostly as I’ve written HERE is follow real interest rates around the world (if you own “gold in dollar terms” you care about U.S. rates most of all).  The rest of the world does matter however, including massive buying by central banks. 

GUIDE: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise again, it means the market believes real rates are going to fall or stay negative for a period of time.  Investors tend to stay out of gold particularly when stocks are doing well as they provide a higher real return. 

Rate Signal: As long as rates stay within a relatively low range, the signals are not as valuable when the Fed is manipulating them.  The Rate signal on a non-manipulated basis would be NEUTRAL for a further stock market rally with a short term NEUTRAL  and longer term BEARISH 10 Year Yield Trend.  (Remember: higher rates mean lower bond and Treasury prices and vice versa).  If rates crash to new lows, the market will not likely behave very well!

Thank you for reading.  Would you please leave your comments below where it says “Leave a reply”… or ask a question if you like…

Pay it forward by sending the link to MarketTiming.Blog (that link will immediately connect them to this webpage) to a relative or friend.  Thanks for doing that.

Be sure to visit the website for more general investing knowledge at:

Sun and Storm Investing™

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

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, contact me.  It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.

Note: I’ve updated my criteria for the equity signal for a further U.S. stock market rally to the following: GREEN = Bullish, YELLOW = Neutral, RED = Bearish.  In other words, the colors tell you whether the signal supports the stock rally or not, while the Bullish, Neutral, and Bearish designations are about the trend. 

A BEARISH trend signal does not mean we should not buy.  A BULLISH trend signal does not mean you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold or bought, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL trend signal does not mean the end of the Bull or Bear. It means to wait and look for possible subsequent entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the IWM and GLD charts for now as reference points only; they have historical value for us from the post-2016 election period.

Copyright © 2020 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 08-21-2020 Close: “Which Equity Markets Are You In? Gold Still In Bull Trend. Rates Falling Again.”

A Market Timing Report based on the August 21st, 2020 close…

The context for the market timing charts are addressed on social media during the week (links below), so be sure to read those posts as well, or you’ll miss at least half of the picture .  I would review the post two posts back HERE, if you have not yet read it, as it is the ongoing thesis of this earnings season – this is a “BullBear Market” with big winners and equally big losers.  

Bull Market Health Score (BMHS) Update:  Last month’s issue describes how I arrive at the score (HERE).   The S&P500 Index just hit a new all time high (ATH) above the prior 2020 ATH of 3393.52 on Feb. 19, 2020, while the BMHS is falling.  That’s not good for the overall market.  In healthy Bull markets, all stock indices generally move up together. 

Bull Market Health Score

Bull Market Health Score falling as SPX hits new high.

Part of that falling BMHS arises from the fall of both small caps (see 2nd market chart below) and mid caps as the large caps hit new highs.  IWM hit a new recent high on Aug. 11th and has moved down since, while SPX just made a brand new ATH.  That is a warning signal (see further discussion in the small cap section below).  It means that if you were to add to the market given the breakout, you probably should go smaller vs. larger with such a buy.  That’s what market timing is about. 

However, if you use market timing repeatedly to “back up the truck” or “sell everything,” you will eventually run into trouble, especially if the market moves against your decision, and you freeze in the headlights.  If you book a loss quickly on a big, bad timing decision, you’ll do better.  

I promised my social media followers I’d talk about buying pullbacks and bottoms in this post.  If we see a pullback ahead of the election, how should you think about it?  My answer is my mantra taped to the bottom of my computer screen: “Buy levels, not bottoms.”  HINT: You don’t know in advance whether you are looking at a “Bottom” or not.

Of course, you may want to risk manage “Buying Levels” in terms of exactly what you are buying and how much.  Position sizing is a key to investment success vs. failure.  The best approach I have seen to date relies on adjusting position sizes vs. their volatility.  If a stock or ETF is twice as volatile as stock X, then you should own 1/2 the position.  That can be adjusted to taste by your conviction in the idea, but don’t go overboard.  If you depart from your rules on position sizing to make exceptions, those are the exceptions most likely to bite you.

Buying levels in indices like QQQ is much different than buying levels in an individual stock like Intel (INTC).  Is INTC a good buy, because “you know the company will get its act together”?  How much lower could it go, if it does not solve the fundamental competitive issues that brought it down recently?

The bottom line on bottoms in any ETF/Stock/Commodity/Currency is that no one recognizes one until it is in the rear view mirror.  If you are lucky, you’ll see a double bottom or even a triple bottom, but the last major US stock market bottom created no such low, so if you did not buy on the way up, you did not buy.  There were pullbacks on the way back up, but you had to suck up and buy them, not hesitate, “Because I missed the actual bottom!”  Don’t become anchored on the past.  Decide what you will do given the market NOW.  Today.

The NASDAQ dropped 78% from 2000-2003.  Think about how you would risk manage that, even if it doesn’t happen this time around… You’ll be a better investor if you have a plan. If my “level buying” fails, I have a written plan for dealing with it. Do you?  If not, write your plan down now…  Unwritten plans are much less often executed compared to written plans (and that means on paper or in a “Trading Plan File”).

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

Let’s catch up on SP500 Index Earnings and Revenue projections and then look at the current SPX chart…  The data are through 8-7-20 (because the author is away for two weeks of vacation).  89% of SPX companies had reported results to that point.  

See FactSet.com for original data and some great content. 

You can see in the charts below that the current Q2 2020 results have ticked up a bit since July’s actual results started coming in.  Analysts tend to underestimate results, which leaves room for upside surprises.  COVID-19 has further complicated their work.

They are expecting a relative recovery next year, but it may not come until the expected vaccine is fully deployed and working, which could be delayed until late Q2 of 2021 or later. That means the market could experience bumps between now and then, but guess what?   The market has anticipated a recovery for months now, which is why we are at new all time highs in the SPX and NASDAQ (which came first).

SPX Earnings Growth per Factset as of 8-07-20.

SPX Earnings Growth per Factset as of 8-07-20.

SPX Revenue Growth per Factset as of 8-07-20

SPX Revenue Growth per Factset as of 8-07-20.

Keep up-to-date and read my comments on the current setup during the week at Twitter and StockTwits (links below) where a combined 34,571 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.  (real time messages are on StockTwits as always and back on Twitter)

Join the Conversation in the StockTwits “MarketTiming” Room  (I’ll publish comments in the room periodically.)

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

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

New all time high.

Now let’s review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -12.01% on 8-19-20, which was the 26st week of a negative sentiment spread!  That is astounding and I analyzed the subsequent market behavior after such long runs of negative sentiment in detail two issues back (see link at top or to upper right).

When there are still too few Bulls around, markets are generally not at tops. 

In fact, many studies I’ve seen of multiple markets show new highs often result in BETTER market performance, not worse, so “Selling the Double Top” especially since the SPX is above the prior ATH now, is not likely to be a great strategy. 

I would instead set mental stops on positions, so you can take off exposure when the trend changes, and/or rebalance when the market is stretched and add back to your exposure when it pulls back. 

The US equity market is a Bull until it is not.  At the moment, that means the large high quality names and the QQQ (with a high exposure to tech) should be our focus despite the prior gains. 

Now is there some risk in adding exposure in a big way after such a long run?  Yes there is, which is why if you add here, add small and then add more on PULLBACKS, not on the rips.  If you are too overexposed to stocks due to gains, then take some exposure off in steps rather than all at once. 

If it’s money you need in the next year, take it all off now IMO.  But of course, follow your own plan, as you must live with the results.  

Bulls Neutrals Bears
30.39% 27.21% 42.40%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing – Russell 2000 U.S. Small Cap Index  (click chart to enlarge; IWM, RUT) 

Small caps are higher risk, so watch your stops, as any downturn would be amplified in them.  Back in February, the small caps made a LOWER high as SPX was making a higher high, just as is happening now… NOTE: THE DATE ON THE CHART SHOULD BE 8-21-2020

UPDATE 8-24-20: Small caps (IWM) tested the prior breakout at 153.39, bouncing off 153.60 on Friday and then extending the bounce today to 156.23 at the close.  That’s positive as long as the rally continues from here.  A passed retest of a breakout is generally a positive sign.  The close at the end of today was above the high of Friday, which is also a plus.  

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

Small caps leading down?

 3. Gold Market Timing (click chart to enlarge; GLD): Note that “all” GLD has done is drop back to the lower trend line of the prior upward channel.  The gold market was over-extended, yes, but it’s not yet been broken.  There is too much fiscal spending yet to come by EITHER party, no matter who is in power!

Market timing the gold ETF (GLD). It's a pullback in an overextended Bull trend until proven otherwise.

Market timing the gold ETF (GLD). It’s a pullback in an overextended Bull trend until proven otherwise.

My current exposure to gold/metals/metal stocks is shared HERE.  The added exposure (>100%) I consider a trading position and is held only when gold is in a Bull market, which means adding more gold/gold stocks/silver/silver stocks (is silver is also in a Bull market) etc. to core gold holdings.

Commodities are always a “trade only” for me (consider DJP and DBC for general commodity exposure; SLV for silver; I’ve discussed these recently on social media and won’t repeat it here).  I, like others, do not consider gold to be a “commodity.”  It’s more of a currency.  That’s why I hold a core position.

My commodity exposure ranges from zero to max.  Some generic raw exposure recommendations are 5% for gold (Jim Cramer has been saying 10% for a while, but I haven’t heard whether he drops that at times) and 5% for commodities.  I don’t share my exposure choice, because you must always adjust yours to your situation and investing plan.

Ray Dalio suggested in Tony Robbins’ book on money (“Money: Mastering the Game”) to hold 7.5% in gold and 7.5% in commodities with a (low) stock allocation of 30%, 15% intermediate term Treasuries (7-10 yrs), and 40% LT bonds (20-25 yr Treasuries).  That’s a very conservative portfolio, so adjust it to suit your own life and preferences.  It would be considered too conservative even for retired investors with substantial assets, because it does not preserve net worth vs. inflation very well.

Some money managers suggest a minimum of 40-50% stocks for wealthy investors.  60% is aggressive for retired investors, unless there has already been a massive sell-off.  It obviously depends too on what is in that stock mix.  Your stock exposure level should be sized vs. the volatility of the SPX if you want to adjust it apples to apples.  The key is being able to ride the market down by 50-60% in the worst Bear markets (in SPX terms).

Let’s use a 50% drawdown as an example.  If you have 50% of your net worth in stocks and you experience that drawdown, your net worth goes to 75% of prior all else being equal.  Can you stomach that?  What if that happened to your educational savings account in the 3rd year of your kid’s college education?  What would the impact be?

Set up a spreadsheet manually or using software and know what you own across asset classes.  I use an Excel spreadsheet to do it, because I break things down in unique ways I would not find in a generic program.  It also allows you to have a more granular view of your portfolio.  If it becomes “too much work,” then have someone else manage your money or cut down on the number of stocks/ETFs you own (owning just 10 stocks adds quite a bit of risk, so only do that if you consider yourself a master at investing and trading and have a proven track record in Bull and Bear markets).

You can always keep a small trading account to “play with,” but if you are not doing serious work on a daily basis I would say ( others say on at least a weekly basis), then you should stick to your career and make money in it for others to invest with the vast majority of your money.  Of course, if you have a proven track record doing it your way, keep it up!

Finally, fire managers who are not performing year after year.  One or two years or even more of under-performance may NOT be a reason to fire a manager, however,  IF they are meeting their usual benchmark (growth vs value etc.), but consider how much money you have allocated to their approach and how it has worked over 5, 10, and 20 years.

I have seen people keep managers who failed them year after year after year…  Not good.  Tell them I like you, but my spouse says we have to move our money.  😉  Or tell the truth in a nice way.

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

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

This still holds: “The Fed is trying to keep rates very low and must ignore inflation to keep the economy going, which means real rates FALL and gold wins.”  Let’s add commodities to that.  “This is a Fed run economy with a big booster from Congress and the President.  Deficits up the wazoo!  Consumers are already feeling it [the inflation] too…”   

It is clear the Fed is going to tolerate higher than normal inflation to keep all the economic balls in the air. 

THE DATE ON THE CHART BELOW IS the close on 8-21-2020!  (ignore the label at the bottom…)

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

Rates falling again.

And finally, let’s look at the current COVID-19 Active Cases Chart (data through 8-21-20):  Coronavirus is one of the key factors that will dictate future revenues and earnings of US companies here and abroad.  STILL HOLDS: “The more open our economy can remain, which depends on mask wearing, social distancing and hand washing, the better our markets will do.   We should all pitch in by wearing a mask, avoiding large groups, and social distancing.  And take your group outside if you can!”

You can see that the U.S. is still failing to get a handle on the Coronavirus (SARS-CoV-2) vs. the rest of the developed world.  The 5-day moving average is about where it was at the end of May!  The public is going to have to be more consistent to bring success.  

COVID-19 Active Case % Day Over Day Increase with 5-day moving average.

COVID-19 Active Case % Day Over Day Increase with 5-day moving average. Not a lot of progress.

Understanding the pandemic seems to be beyond Trump’s grasp, possibly because he is always worried about his “numbers.”  He once kept a ship of COVID-19 patients offshore to keep the U.S. from having “bad numbers” so to speak.  That is ridiculous.

President Trump very recently said paraphrased “You don’t want to do lots of tests, because then you have a lot of cases.”  You FIND a lot of cases, you don’t create them!  Good grief!  You find cases by testing and isolate the positives and their contacts!  

As I’ve shared, “You wear a mask to help drive down the R0 (“R-naught”), which is the number of people each infected person in turn infects.  It has to be below 1 to drop the new cases/day number.  At 1, you are replacing every old case with a new case.  At 0.5, each new case spreads to only 1/2 a person on average, and eventually the virus dies back to baseline and there are only a few hundred cases at most in the entire country.”

Once the numbers are that low, you aggressively test to ID cases and isolate those patients with their contacts.  Testing is always important, but contact tracing isn’t possible when there are too many infected patients running around.  You have to get the numbers down to contact trace successfully.  That’s what I said (timestamped on my “School of Health” Facebook page) on January 21, 2020, when the first U.S. case was reported.  We did none of that.  The President closed the door to China and left the doors from Europe wide open.  The only “medicine” to speak of until we have a vaccinated population is LOWERING the R0 below 1!  

I’m an independent, but I can see bad leadership when it’s in front of me.  You may not like hearing that Trump failed to lead on COVID-19 in key ways, if you generally support him, but the facts are undeniable.  His leadership on COVID-19 has been objectively awful.  There is still no coordinated national response, largely because Trump doesn’t want to take the blame.  He dissuaded people from wearing masks, even when the Surgeon General said to wear them.  And Trump blamed Obama for medical shortages, when he’s been in office for 3 and a half years.  Huh?  That makes zero sense.

No one should count him out yet, however, despite Biden’s DNC performance that was even praised by Fox News anchors.  That would be naive, considering the experience with Hillary Clinton in 2016.  If the Dems decide to coast again, they’ll lose. 

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 actual BUYS and SELLS in as timely a way as possible on social media (links above).

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

Stock Signal NEUTRAL for a further U.S. stock market rally with a short term BULLISH and longer term Bullish SP500 Index trend.   The small caps determine the stock signal.  The small cap signals are falling at the moment.  See above.  The next step in developing a small cap Bear is a breach of 153.39 and then 144.88. 

Gold Signal GREEN for a further U.S. stock market rally.  The Gold Trend is  short term NEUTRAL and longer term Bullish.   Gold can RISE with stocks when real rates are falling, and the dollar is falling.  If the dollar gains significant strength, that will hurt both stocks and gold in the near term.  

What gold does mostly as I’ve written HERE is follow real interest rates around the world (if you own “gold in dollar terms” you care about U.S. rates most of all).  The rest of the world does matter however, including massive buying by central banks. 

GUIDE: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise again, it means the market believes real rates are going to fall or stay negative for a period of time.  Investors tend to stay out of gold particularly when stocks are doing well as they provide a higher real return. 

Rate Signal: As long as rates stay within a relatively low range, the signals are not as valuable when the Fed is manipulating them.  The Rate signal on a non-manipulated basis would be RED for a further stock market rally with a short term BEARISH  and longer term BEARISH 10 Year Yield Trend.  (Remember: higher rates mean lower bond and Treasury prices and vice versa).  If rates crash to new lows, the market will not likely behave very well!

Thank you for reading.  Would you please leave your comments below where it says “Leave a reply”… or ask a question if you like…

Pay it forward by sending the link to MarketTiming.Blog (that link will immediately connect them to this webpage) to a relative or friend.  Thanks for doing that.

Be sure to visit the website for more general investing knowledge at:

Sun and Storm Investing™

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

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, contact me.  It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.

Note: I’ve updated my criteria for the equity signal for a further U.S. stock market rally to the following: GREEN = Bullish, YELLOW = Neutral, RED = Bearish.  In other words, the colors tell you whether the signal supports the stock rally or not, while the Bullish, Neutral, and Bearish designations are about the trend. 

A BEARISH trend signal does not mean we should not buy.  A BULLISH trend signal does not mean you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold or bought, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL trend signal does not mean the end of the Bull or Bear. It means to wait and look for possible subsequent entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the IWM and GLD charts for now as reference points only; they have historical value for us from the post-2016 election period.

Copyright © 2020 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 07-17-2020 Close: “U.S. Markets Bullish, but Stretched Again. Gold Bull Run Has More Upside. Rates Languish Near Key Lows.”

A Market Timing Report based on the July 17, 2020 close…

The context for the market timing charts are addressed on social media during the week, so be sure to read those posts as well, or you’ll miss at least half of the picture (links below).  I also share buys/sells, while many tell you when to buy, but never say when to sell.  That’s because they are talking their book.  It’s done all the time on the major networks.  They pay by placing adds and then are crowned “experts” to talk up their stock positions.  I am paid zero by followers to do this work.  I am only paid when my decisions are right.

I would review last month’s post HERE, if you have not yet read it, as it is the ongoing thesis of this earnings season – this is a “BullBear Market” with big winners and equally big losers.  

Bull Market Health Score Update:  My score for the health of the SP500 Bull Market, BMHS, is derived from my assessment of 5 factors: 1.  Uptrend or not.  2.  Volatility Trend (VIX ).  3. AD% (a stat that looks at the cumulative percent changes day to day of the % advancing – % declining for NYSE stocks).  4. Increased volume on up moves and decreased volume on down moves.  5. The US Index Matrix.  Does the rest of the stock market support the move up in the large caps?  Equivocal market timing signals are given a score of 0.5.   

When the market has reached this level recently (4.5), it has had the ability to rise further (e.g. 12-20-19), but then gave back the gains.  The uptrend then resumed.  What’s the point then?  If you add to the market, wouldn’t it be better to add more when prices were lower vs. higher?  That’s the whole point of market timing.  Both Buffett and Dalio say to hold no less than 30% in stocks (their general advice to long term investors).  I’m fine with that as a minimum, but it’s reasonable to hold more when 1. There has been a significant drawdown in the market or 2.  The market is in a strong uptrend having hit a major bottom.  

Bull Market Health Score Near a Top (thru 7-17-20)

There is a caveat coming as you may have guessed.  Here it is… When the market is stretched, as I will show you below it currently is, that is a time to stop adding and to in fact trim profits and have mental stops ready to keep some portion of your profits, particularly for individual stocks.  IF you own stocks that are still in uptrends, you can wait to sell when they break trend or take some profits and retain a core holding if you still believe in the business longer term. 

Indexes tend to go up over time, because they drop the losers.  GE was kicked out and replaced by Walgreen’s (WBA) in 2018 after more than a century.  Kodak was kicked out along with T and IP and they were replaced by AIG, PFE and VZ.  AIG was kicked out 4 years later!  NOT EVEN THE DOW IS “Buy and Hold”!  Yet sheep investors are told to what?  “Buy and hold.”  

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

Let’s catch up on the earnings and revenue projections and then look at the current SPX chart…

See FactSet.com for original data and some great content. 

You can see in the charts below the numbers have not changed much at all since mid-May, which would add concern for more misses. 

So what’s the data show this earnings season to date?  FactSet says, “For Q2 2020 (with 9% of the companies in the S&P 500 reporting actual results), 73% of S&P 500 companies have reported a positive EPS surprise and 78% have reported a positive revenue surprise.”  That means roughly 3/4 of companies were able to beat analysts estimates despite companies suspending guidance.

How does that compare to Q1?  FactSet said on 5-29-20 “For Q1 2020 (with 97% of the companies in the S&P 500 reporting actual results), 64% of S&P 500 companies have reported a positive EPS surprise and 56% of S&P 500 companies have reported a positive revenue surprise.”

Despite the huge drops in earnings and revenues, more companies are surprising than for Q1 of 2020.  Remember the market was already rallying after the March 23rd low (end of quarter is March 31,2020), so the current BETTER results to date are a potential stimulus for more market upside.  “Better than awful is OK,” investors think.  It is OK, at least until the economic drag becomes a more chronic problem, say with a delayed vaccine deployment.

You can see that the Q1 2021 and calendar year 2021 projections are floating far above current levels.  This assumes deployment of a vaccine by late 2020 or early 2021 at the latest.  It assumes growing economic strength as well.  It could happen, but these expectations are built into the market.  We need to recognize there would be a negative reaction to the slower arrival of a vaccine.

FactSet U.S. Earnings Data for 7-17-20

FactSet U.S. Earnings Data Updated to 7-17-20

FactSet U.S. Revenue Data Updated to 7-17-20

FactSet U.S. Revenue Data Updated to 7-17-20

Keep up-to-date and read my comments on the current setup during the week at Twitter and StockTwits (links below) where a combined 34,571 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.  (real time messages are on StockTwits as always and back on Twitter)

Join the Conversation in the StockTwits “MarketTiming” Room  (I’ll publish comments in the room periodically)I

In my last chart issue, I said, “If the SP500 does not take out the 4-17 AND 4-29 highs, there is no point in adding further market exposure IMO.”  The market did make it above those highs, but it is now stretched above the longer term uptrend (two parallel yellow lines).   The last time that happened, the market went higher and then lost all the ground it gained.  I think we are in a similar position.  There are possible further gains that will likely be lost.  The trend, however, is still UP as indicated by the magenta line.

SP500 Large Cap Index (click chart to enlarge; SPX, SPY): That 4-29 High you cannot quite see is 2954.86.  😉   6-08 H = 3233.13.  Friday, the market failed a breakout attempt there.  

Market timing the SP500 Index (SPY, SPX).

The SP500 Index is now stretched above the prior uptrend (yellow lines).

Now let’s review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -14.53% on 7-15-20, which was the 21st week of a negative sentiment spread!  That is astounding, as I analyzed in detail in the prior issue (see link at top or to upper right).  Bearishness has come down just a bit to 45.37%.  Bullishness has been constrained despite the big jump in the overall index (despite the Bears that live within it; however, since my last issue, those Bears have weakened).

I’ll leave this here as it’s worth rereading: “Sentiment is fairly negative near a high in the market, which is unusual for a top.  This still allows for more Bear recruitment to the Bullish side, which is fuel for the market.  The other side of this is that Bearishness need not top out at 50%ish as said before, so if the market tips over here, the Bulls could easily fall below 20%, and the Bears could soar much higher to around 70% as they did in 2008.”   

Bulls Neutrals Bears
30.84% 23.79% 45.37%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing – Russell 2000 U.S. Small Cap Index  (click chart to enlarge; IWM, RUT) 

Small caps are higher risk, so watch your stops, as any downturn would be amplified in them.  They also have less access to capital and pose more risks in a prolonged downturn.  Above the 6-16-20 high, the uptrend will be confirmed.  The first attempt on Friday failed to breach that level by 0.10 points.  Close huh?  I call that “anointing” of a price level.  Think dog on a walk/hydrant.  Marked!  If it makes it above that level, the 6-08 high is the next test, but this one has more weight, because it marks a lower high.

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

Test of trend right here!

 3. Gold Market Timing (click chart to enlarge; GLD):

Gold is on pause, but up trend is still intact.

Ditto my prior comment: “If the market dives, gold may not be immune from liquidity driven selling as we saw in 2008, followed by a brisk recovery to new highs.  If you buy here, you may have to suck it up and “take it,” should gold fall with stocks, or otherwise risk selling on stops and booking a large loss.  Or trade it with narrower stops than usual IMO.  If it falls as in 2008, you’ll be out early, and be able to buy back shares lower.” 

For now, the SPX and gold trends are both UP.   See the next section for more gold comments…

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

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

A breach of the base marked by the red line in the chart would cause stocks to tank IMO.  It would say the economy is nowhere close to a true recovery trajectory.  The most recent pattern is a head and shoulders pattern, the base of which must be held.  The fiscal spending is unlike anything we saw in 2008-2009, so I expect inflation to arise over the intermediate term at least, even if there are intervening deflationary pressures due to economic slowing.  If the global economy can be kept “open enough,” inflation will be with us.  Gold will be a great hedge against it as the dollar is further weakened. 

The Fed is trying to keep rates very low and must ignore inflation to keep the economy going, which means real rates FALL and gold wins.  If you look at CME Group futures as a predictor of future rates, they are UNCHANGED from the current 0-0.25% level as far as the eye can see, which for their data is to March 2021!  NO ONE expects any different interest rate through the entire data series!  That is remarkable and shows you how artificial this environment is.  This is a Fed run economy with a big booster from Congress and the President.  Deficits up the wazoo!  Consumers are already feeling it too…  

Rates near important lows.

And finally, let’s look at the current COVID-19 Active Cases Chart (data through 7-18-20):  Coronavirus is one of the key factors that will dictate future revenues and earnings of US companies here and abroad.  The more open our economy can remain, which depends on mask wearing, social distancing and hand washing, the better our markets will do.   We should all pitch in by wearing a mask, avoiding large groups, and social distancing.  And take your group outside if you can!

You can see that active cases are still increasing last check at a rate of 1.30% day over day which is too many cases to be able to contact trace and isolate the contacts along with the primary case.  THAT is why we must wear masks. 

 

2020-07-18-US COVID19 Day Over Day Increase in Active Case % with 5 Day MAV

US COVID-19 Day Over Day Increase in Active Case % with 5 Day moving average (through 7-18-20)

You wear a mask to help drive down the R0 (“R-naught”), which is the number of people each infected person in turn infects.  It has to be below 1 to drop the new cases/day number.  At 1, you are replacing every old case with a new case.  At 0.5, each new case spread to only 1/2 a person on average, and eventually the virus dies back to baseline and there are only a few hundred cases at most in the entire country.

That is where we need to achieve.  The current rise is out of control in some areas like Florida and California, but overall for the country it’s elevated beyond where it should have gone, but not exploding.  We cannot beat this virus without everyone throughout the country obeying the guidelines for COVID-19 prevention. 

About 100 years ago, about 50% of doctors STILL did not believe in the germ theory.  It’s as if Trump and those believing his confused and scientifically ignorant statements about masks are still back in the early 20th century.  This is the 21st century!  The world is not flat either btw….  Read my comment on the history of mask wearing HERE.

If we keep passing the Coronavirus (actual name is SARS-CoV-2; the disease is COVID-19)  from New York to Florida and back again, without a vaccine and/or drugs to treat it much more successfully than with what we have now, the pandemic will continue to hurt our economy.

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 actual BUYS and SELLS in as timely a way as possible on social media (links above).

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

Stock Signal NEUTRAL for a further U.S. stock market rally with a short term BULLISH and longer term NEUTRAL SP500 Index trend.   The small caps determine the stock signal.  The small cap signals are mixed at the moment.  See above.

Gold Signal RED  for a further U.S. stock market rally.  The Gold Trend is  short term NEUTRAL and longer term Bullish.   In consolidation now but still in an uptrend longer term. 

What gold does mostly as I’ve written HERE is follow real interest rates around the world (if you own “gold in dollar terms” you care about U.S. rates most of all).  The rest of the world does matter however, including massive buying by central banks. 

GUIDE: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise again, it means the market believes real rates are going to fall or stay negative for a period of time.  Investors tend to stay out of gold particularly when stocks are doing well as they provide a higher real return. 

Rate Signal RED for a further stock market rally with a short term NEUTRAL and longer term BEARISH 10 Year Yield Trend.  (Remember: higher rates mean lower bond and Treasury prices and vice versa).  See comments above for context.

Thank you for reading.  Would you please leave your comments below where it says “Leave a reply”… or ask a question if you like…

Pay it forward by sending the link to MarketTiming.Blog (that link will immediately connect them to this webpage) to a relative or friend.  Thanks for doing that.

Be sure to visit the website for more general investing knowledge at:

Sun and Storm Investing™

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

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, contact me.  It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.

Note: I’ve updated my criteria for the equity signal for a further U.S. stock market rally to the following: GREEN = Bullish, YELLOW = Neutral, RED = Bearish.  In other words, the colors tell you whether the signal supports the stock rally or not, while the Bullish, Neutral, and Bearish designations are about the trend. 

A BEARISH trend signal does not mean we should not buy.  A BULLISH trend signal does not mean you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold or bought, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL trend signal does not mean the end of the Bull or Bear. It means to wait and look for possible subsequent entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the IWM and GLD charts for now as reference points only; they have historical value for us from the post-2016 election period.

Copyright © 2020 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 6-25-2020 Close: “Individual Investors Negative for 18 Weeks Straight! What Does Sentiment History Say? Plus: Is this a Bull Market or Bear Market? It’s BOTH. It’s a “V with a Weight On It.”

A Market Timing Report based on the June 25, 2020 Close…

No charts today…  Just straight talk about the markets and what I believe is hugely important in determining what lies ahead…

Bull AND Bear

Bull AND Bear.  Hmmm should the Bear or Bull be Nervous?  😉

First the data on sentiment…

Survey Says!

Bulls Neutrals Bears
24.17% 26.96% 48.90%
Thurs. 12 am CT close to poll

AAII Individual Investor Sentiment is at a -24.76% Bull – Bear % Spread this week (last night’s poll closing).

That is a record for an interesting reason; it’s 18 straight weeks of a Negative Investor Sentiment Spread.

I just looked back to 1995 before the prior Punch Bowl Market of the late 1990s of “over-exuberance,” and the longest periods of continuous negative sentiment (every single week in a row) were:

  1. 14 weeks straight starting 12-19-07 leading to a 1st low at -12.6%. The declines I’m stating here are from the start date of the long runs of negative sentiment.  The final low 3-06-09 was MUCH lower (-41-5% from the 10.9% bounce I’ll discuss with you below).
  2. 13 weeks negative starting 5-9-12: Pullback of -6.5%. That was after the 2011 Mini Bear Market (my nomenclature for the smaller Bears within Bull Markets. The current one we are emerging from or about to dive back into depending on whom you talk to was/is a “Big Bear Market” by any standard including my own nomenclature. See New Rules for Dips, Corrections and Bear Markets (scroll to “New Rules” in blue…)
  3. 9 weeks straight negative starting 1-14-09: -20.9%.
  4. 8 weeks straight negative starting 1-22-03: -10.2%. As noted below, if you count 11 weeks as the run, the drop was a similar -10.3%.

It’s fascinating that this sort of continuous negative sentiment in 2003 did not develop until 2.75 years after the top of early 2000.  Investors were still anchored on the good times perhaps.  If you count the 0.00% spread of 1-15-03 as “negative,” there were 11 straight weeks of negative sentiment and if you calculate the drop from the first week of 1-01-03, you get a drop of -10.3%.

Can we use valuation to do market timing today?  Valuations for the SP500 as a whole are not near 2000 valuations, but some stocks in the index are inflated for sure, and many NASDAQ stocks trade at nose bleed levels of Price/Sales ratios (anything over 10 used to be considered sky high).  The final drop for the 2000-2003 Bear noted above was modest as it did not come until virtually the end of the Bear market.  That is not our current setup.

Based on massive Fed and fiscal stimulus, the market has become overvalued vs. the current reality of economic weakness after a period of 4 quarters of negative earnings growth in 2019 for the SP-500 Index per FactSet.  The weight of valuations and the effect of COVID-19 itself may be the cause of the current unprecedented post-1995 negative investor sentiment streak.

Now going back to our 4 data points above, the declines were from the day of the FIRST negative sentiment week.  What if we look at the market response after the final negative week?  The response was positive, which is not shocking, but must be verified of course… Below I list the reactions at the END of the negative sentiment runs to the first top, ignoring all corrections of 10% or less…

  1. 12-19-07 to 3-19-08 (14 weeks): +10.9%. This was just part way into a Big Bear Market. Pullback from first negative sentiment week was -12.6%.  The losses after the 10.9% bounce were immense.  -41.5% to the final low on 3-06-09.  This shows a long run of negative sentiment can lead to a bounce followed by a trounce.  That bounce was much less than the current 48.0% bounce, however.
  1. 1-22-03 to 3-12-03 (8-11 weeks): +45.75%. This run marked the END of a Big Bear Market. The pullback from first negative sentiment week was -10.3% (counting an 11 week run).  This data point shows long negative sentiment runs may mark the END of Big Bear Markets as said, but the gain came off a low that matched the end of the sentiment run.  The current negative sentiment run is still continuing after 18 weeks in a market that has “Mega-Bounced” 47.0% to the 6-08-20 high!

Answer this…  Has the current negative sentiment run marked the END of a Bear market?  No.  It is still ongoing after the elimination of the losses from a Bear Market (for certain parts of the market)! 

  1. 5-9-12 to 8-1-12 (13 weeks): +54.1%. This was well after the Great Recession Bear Market hit bottom, when the central banks were fooling around with various methods of goosing the economy and markets. It worked. Pullback from first negative sentiment week was -6.5%.  This pessimism run started AFTER the Bear Market had ended.  The one we’re in started at the beginning of the decline and has not ended despite the “Mega-Bounce.”  This does not match the current situation as the Fed/Congress/POTUS have had no difficulty in quickly responding with trillions of dollars to “save the economy.”  And eventually kill the dollar of course… And the pessimism continues even today.
  1. 1-14-09 to 3-11-09 (9 weeks): +70.9%.  The end of this sentiment run almost exactly matched the low on 3-06-09 of the Big Bear Market of the Great Recession. Pullback from first negative sentiment week was -20.9%.  This is the second example of a massive rally at the END of a Bear Market and at the END of a long negative sentiment run.  Again, this is NOT a match.  Currently, sentiment has not corrected itself and turned positive!  This is why # 2 and #4 on this list don’t match the current situation.

Really NONE of the prior long runs of negative sentiment fit today’s picture.  The closest is #1 above, but the bounce has come before the horse.  😉  Sentiment has NOT turned positive despite a Mega-Bounce!

Where Are We Today at Negative Sentiment Run #5 Since 1995? 

  1. 2-27-20 (first neg. sentiment week) until WHO KNOWS? Now 18 weeks of Negative Sentiment Spread. The market is just -1.9% from the date of the beginning of this negative run on 2-26-20.  We’ve had a massive stimulus from all sources.  This follows a full year when the market rose despite negative earnings growth for ALL OF 2019 per FactSet.  Remember too, this negative sentiment run has not ended.  That means the bounce we should be expecting has yet to show up despite a “Mega-Bounce” of 47.0% to the June 8th high.  Huh?  There’s that bounce before the horse!

My conclusion, which is more of an hypothesis, is that the Fed et al through massive immediate stimulus were able to short circuit the element of time.  In other words, time was compressed vs. the prior Bear markets.  For certain stocks it was.

So what’s the big deal then?  The problem is that time was NOT compressed for the businesses that are not doing well in the COVID-19 pandemic.  They are a huge drag on the economy and on its prospects for rapid recovery. They cannot expand their businesses when their businesses have in fact contracted or are still contracting!

When you consider the prior two Big Bear Markets of 2000-2003 and 2007-2009, you’ll note a big difference.  Prior Big Bear Markets took YEARS to unfold.  This Bear market lasted 34 calendar days, “if you believe it’s over” based on the rise to new highs of the NASDAQ/NDX and the recouping of most losses for SPX.

From the sentiment analysis above and the usual duration of Bear Markets, this one is a stand out.  Some say it’s because it’s all about COVID-19, which will be solved by early 2021.  Then why are sectors with 45.5% of the SPX stocks in Bear markets still if “it’s already over”?

Also, why did we have a Mega-Bounce, in the midst of this negative sentiment run that never ended?  The most Bullish explanation is that investors are still negative because of the continuing risk to them that COVID-19 represents.  Their negativity has not served them as 35% of investors over age 65 sold all their stocks per Karen Firestone’s comment on @CNBC yesterday.  But is the Bear Market really over and for whom is it over?

The Big Bear Market is over in NASDAQ/NDX (QQQ) terms and mostly over in SPX terms, but it is NOT over in RUT/IWM terms, as that market is -19.86% from the August 2018 high.  The small caps (RUT; IWM) are in a Bear Market that is now nearly 1 year 10 months old. 

Tell that to the NASDAQ that is now near an all time high as is the NDX (NASDAQ 100; QQQ). 

What does this discrepancy mean? This is a “Tale of Two Markets,” a Tech market (particularly big cap tech by weight) that is being bid up as its services are in higher demand, along with four other stronger sectors, and the current and longer terms losers, which I’ll call New Bears and Old Bears that are in the S&P 500 Index:

  1. Oil stocks (XLE) are -63.2% since 6-2014.  An “Old Big Bear Market.”
  1. Financials: Still in a Big Bear Market, -25.6% from the 2-12-20 high. A “New Big Bear Market.” Based on horrifically low interest rates as far as the Fed’s eyes can see.
  1. Retail (I’m looking at XRT here which includes AMZN which is NOT participating in this Bear!) -21.6% since 8-31-2018 high when the small caps topped out last time. An “Old Big Bear Market.” Although not an SPX sector, I wanted to see if retail was still a Bear and it is, even with AMZN included.
  1. Real Estate: Close to a Bear (Mini Bear Market still by my nomenclature). -19.4% since the 2-21-20 high. A “New Mini (prev. Big) Bear Market.”  Based on people not being able to be congregated in close quarters in buildings and with a trend that could reduce in office head counts for those who can work from a home office.
  1. Utilities: -22.1% from the 2-21-20 high. It’s a “New Mini (prev. Big) Bear Market.” 
  1. Industrials: -22.1% from the 2-21-20 high. It’s a “New Mini (prev. Big) Bear Market.” 

That means 5/11 SPX sectors are in Bear Markets…

Consumer Staples, XLP, is -10.6% (in “Correction” per my definition) while the relative winners are XLK, XLY, XLC, XLB, and XLV, which are all down less than 10% with XLK the best at -0.25% from its Feb. 2019 high.  

What’s working better are in other words: Tech/Communications (XLK/XLC), Consumption by Wealthier people who have jobs (XLY is doing better than those selling products required by all consumers (XLP), which is also sold at lower prices), Companies that Sell Input “Stuff” to other companies (Chemicals to Mining to Paper), and those (XLV) that “Sell Drugs/Provide Medical Care/Devices.”

The groups of companies in Bear markets are 224 companies/503 today in SPX or 44.5% of the SPX (retail is excluded from the losing group because both XLY and XLP are in corrections, not Bear markets; the smaller retailers are in a Bear Market).

In what sense can this be a healthy market with 44.5% of SPX in a Bear Market?  And how do the other sectors end up getting MORE business from the 44.5% group of losers (on average; there are always standouts in losing sectors) to grow their own business?  Who is taking on extra online cloud storage based on a falling business?

Just as an example, how can Microsoft’s (very close to an all time high) sales numbers just keep going up while the global economy is shrinking?  Perhaps some must move to the web in these COVID-19 days, and that is the temporary driver of their cloud business.

But this concept is why the market could be bumpy over the coming weeks and months with the added fun of the impact of the election on corporate profits.  I first bought MSFT when it was around 10 X EV/EBITDA which is a good way to value companies. It now trades for over twice that at 21.14 X EV/EBITDA.  The growth in its cloud business may continue for a while, but competition and global slowing could take their toll at some point.  Then how will the stock price adjust?  Until then, the sky’s the limit they say.

We don’t need to focus on MSFT alone here, and I’m not doing any full analysis here, because it’s a general point I’m making.  Tech companies depend on non-tech companies for business.  If the business for weaker non-tech companies is slowing, when will it hurt tech companies and bring the entire market down a significant notch? 

And when will layoffs cycle back to consumption?  We’re 70% tied to consumption in the US.  

There is a lot that could come home to roost.

What letter of the alphabet is this market?  V, W, L???

 I say the market is a “V with a Weight On It.”  Unless the Fed et. al. continue to pour gasoline on the fire, the fire will diminish over time… That’s the caveat.

The above says it’s been a V, but the V now has a weight on the right part of it, which will be weighing it down, likely also with the stock market in the coming weeks to months…

The Shortest Term View?  Yesterday my market timing indicators were mixed with some saying the selling was enough and others saying “more to come.”  Today’s numbers as of 15 min prior to the close did not look a lot different.  Price-wise the market rose today by less than half of the drop yesterday.  Not good enough, but it’s a bounce off the 200 day moving average, which provides a story for the Bulls to tell.  😉  I remain prepared, as always to buy higher or lower!  If you control your risk and preserve enough of your capital, you can make money over the longer term, whatever the market does over the short term.  

The fact I believe that the market is “V with a Weight On It” is why I am maintaining more cash now than I would in a Bull market in which the market is healthy as a whole.  Last check (6-23-20 close) I was at 78.75% (rounded to nearest 0.25%) of my usual maximum exposure during a healthy Bull Market. If you have more exposure than I do, I would watch your stops if you believe at all in market timing!

Adjust to taste!  “It’s your money, and your decision as to how to invest it,” as I always say… 

Keep up-to-date and read my comments on the current setup during the week at Twitter and StockTwits (links below) where a combined 34,571 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.  (real time messages are on StockTwits as always and back on Twitter)

Join the Conversation in the StockTwits “MarketTiming” Room  (I’ll publish comments in the room periodically)

Thank you for reading.  Would you please leave your comments below where it says “Leave a reply”… or ask a question if you like…

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.

Bull and Bear pic courtesy of Knowmadic News HEREGreat shot!  

Copyright © 2020 By Wall Street Sun and Storm Report, LLC All rights reserved.

Posted in Bear Markets, investment, investor sentiment, large cap stocks, S&P 500 Index, small cap stocks, tech stocks | Tagged , , , , , , , , , , , , , , , , , , , , , | Leave a comment

Coronavirus COVID-19 Brief™ on 5-21-2020 (Updated Charts 6-07-2020): “It Can Start All Over Again, Just the Way It Began in the First Place.”

6-07-2020 Coronavirus Update: The daily increase in active cases has ticked up as shown below.  Our market timing may hinge on the development of this chart alone.  The virus has NOT been defeated.  If people have that impression, they need to study the statistics a bit more.  Our pandemic in the US was at 107 active cases on March 4th.  Active cases are now at 1,133,272.  Sound like a cure?  There is still far too much community spread going on, and it’s likely related to the failure of about half the public to participate in mask wearing and social distancing.  The two lines shown both need to turn back down within a day or two.  If they do, the recovery will continue, even if slow.  If not, there could be a strong reaction in the global equity markets.

US COVID19 Day Over Day % Increase in Active Cases for 6-07-20

US COVID19 Day Over Day % Increase in Active Cases for 6-07-20

Primary Data from Worldometer.com

6-01-2020 Coronavirus Update: Note the bump up tonight in the active case stat I follow, which I predicted last night, because the data is lumpy, and the dive yesterday was a bit too extreme.  Still, the trend in the COVID-19 Active Case Day Over Day Percent increase is down.  In fact the 5-day moving average (mav) is both down and slightly negative tonight (-0.27%). 

The death numbers are less impressive, but deaths occur on a lag to cases, so this is not discrepant.  Overall, it’s a good trend, which I am hopeful will continue, although the close quarters in the protests could pose a challenge in multiple U.S. cities… 

What about market timing?  If this continues, the U.S. equity markets will be encouraged to continue the recent uptrend.  

6-01-2020 US COVID19 D-Over-D Inc Active Case %-Recent-5 Day MAV

US COVID19 Day Over Day & Increase in Active Cases with 5 Day MAV on 6-01-2020

US % COVID-19 Death Inc D-Over-D-Recent Data for 6-01-2020

US % COVID-19 % Death Increase Day Over Day for 6-01-2020

5-21-2020 Coronavirus Update  (COVID-19): You can see the very slight incline in the Active Case Day Over Day % Increase – that indicates a slight acceleration in active case numbers.  It’s an increase in the rate of increase in cases Day Over Day (the 2nd derivative). 

Because testing facilities are not being fully used per reports, this slight acceleration is not likely due simply to increased testing.  We’ll have to continue to closely monitor this incline.  It could represent the edge of failure with another surge of cases and deaths on the way.  Notice that the 5 day moving average is also on an incline after being on a decline previously.  This may be the first sign that “Back to Work” is taking a toll, but we’ll look for corroboration in a rise in the 2nd chart below as well.

2020-05-21-US COVID-19 Day Over Day Active Case Percentage Increase and 5 Day MAV

2020-05-21-US COVID-19 Day Over Day Active Case Percentage Increase and 5 Day MAV

If the active case number is truly going up, and we are not just identifying patients without symptoms, the Death Percentage increase Day Over Day should increase as opposed to continue to flatten at 1.35% (last check today).  That line for deaths should head to zero (the active case % D/D increase can turn negative, but total cases and deaths obviously can only stay constant as the theoretical end point of the pandemic).

2020-05-21-US COVID-19 Day Over Day Death Percentage Increase and 5 Day MAV

Conclusion on Market Timing Impact: Recognize, as a published paper today did, that the small number of cases that started the pandemic leading to nearly 100,000 deaths just in the U.S., can start all over again if we throw social distancing and mask wearing to the wind.  We just need the same small number of positives to show up, and if their contacts are not traced immediately, we can easily be back to square one.

The fewer people who wear masks, the higher the Coronavirus transmission rate is, which is called the R0, pronounced “R naught.”  Without masks the R0 is around 2.5ish for this virus which means it spreads exponentially (2.5 X 2.5 X 2.5 X 2.5 etc.), again without the barriers we put up in front of it by staying at home and wearing masks, washing our hands.  Each of those reduces the transmission rate/R0.  

The virus has not changed.  It’s still in the population, just at levels that won’t currently overwhelm the healthcare system.  We need to keep it that way, or the equity markets will respond negatively.

Please read my latest messages on social media to keep up with my latest view of the market.  Lately an important market timing level has been “anointed” as the market is deciding whether to discount any more recovery or not…

It is very difficult to see how the market can simply retop at the prior all time high (ATH) when there is such resistance to normal consumer behavior locked into the current circumstances.  It seems very naive to think that would be the case, which is why some level of retracement is likely toward the March 23rd low (but not necessarily all the way back to it)…

Keep up-to-date and read my comments on the current setup during the week at Twitter and StockTwits (links below) where a combined 34,477 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.  (real time messages are on StockTwits as always and back on Twitter)

Join the Conversation in the StockTwits “MarketTiming” Room  (I’ll publish comments in the room periodically)

Copyright © 2020 By Wall Street Sun and Storm Report, LLC All rights reserved.

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