Market Timing Brief™ for the 7-08-2022 Close “Stocks Stabilize Ahead of Earnings Slowdown. So You Want to Fight the Fed? Gold Slips with Commodities. Treasury Yields Flat Vs. Early May.”

A Market Timing Report based on the July 08, 2022 close…

The Fed has just ONE mandate now: Get Inflation Lower, as I said in my last issue.  The Fed has egg on its face for letting inflation run to 40 year highs.  They are fortunate that the blame is being placed on the Biden Administration (both the GOP/Trump and Dems/Biden have made contributions to current inflation as covered in my prior post as well; click the second link down to the upper right).

There is nothing in the Fed’s mandate that says they are supposed to keep rates low for too long if the administration is engaging in fiscal spending.  They are supposed to be an independent body.  What the Fed has FINALLY done is prioritize inflation over employment, the former of which in the end hurts more poor people than it helps, while getting the rest of the electorate upset while pumping their gas.

What is happening in response the the Fed’s last 75 basis point hike (0.75%)?  Initially, the U.S. stock market fell and then recovered most recently above the May low, which is the first step in reversing the downtrend.  At this point, among SPX SPY (Large caps), QQQ (Large Caps heavy in Tech), IJH (Midcaps), and IWM (small caps), only IJH closed on Friday below its May low.  It is the least manipulated index as traders tend to gravitate toward the two ends of the spectrum, large and small caps.  For that reason, it is a “tell” in my book and speaks some caution as long as it doesn’t recover with the rest.

What may be holding U.S. stocks back?  Earnings and recession risk.  The year over year (Y/Y) earnings slowdown for Q2 about to be reported this week in earnest is the most dramatic in a long time, because we are comparing the 2nd quarter of this year to that of last year, when the increase over the pandemic shutdown was being measured.  The “growth” vs shutdown was huge, so companies cannot possibly match that relative performance.

You may be thinking, “Hasn’t the market taken that into account already?”  Probably not.  Bob Pisani @CNBC recently reported on July 1st that earnings estimates for both Q3 and Q4 of this year had GONE UP from 10.6% to 11.1% and from 104% to 10.6% vs. April 1st.  One would think those estimates would have fallen.

The Fed can only slow inflation by slowing the economy, so the risk of at least a shallow recession is high according to many market observers including me.  

And now you may be thinking, “We had a shallow recession in 1990 (GDP decline of 1.5%), and the SP500 Index was down 20%, and since we’ve already been at -20% and a bit already, couldn’t the downside be done?”  Doubtful.  The Fed has just begun to raise rates and has to get to at least a Fed Funds rate of 3.0% to 3.4%, which may be inadequate, although they won’t say that part out loud.

In 1990, the market was not as stretched as this one had gotten at its peak.  This market became more overvalued than even the 2000 market by some measures, and the recession after the 2000 pullback started was how deep exactly?  There was just a 0.3% GDP drop in the March 2001 to November 2001 Recession per Investopedia

The depth of recession is not well correlated with the depth of a market drawdown.  Recessions ARE associated with the largest drawdowns, but the depth is not as important as the slowing itself.

Another important fact (covered at the above link) is that the current inflation rate of a CPI of 8.6% Y/Y was higher than the inflation rate Fed Chair Volcker had when he started in Aug. 1979.  It was “only” 7% in January 1979, and it rose to 11.1% by the 4th Quarter of 1980 despite a Fed Funds rate of a whopping 10.5% when he was appointed, which was raised to 17.5% by April 1980.

That led to a recession at which point Volcker relented, dropping the rate to 9.5%, at which point inflation rose again to 11.1% in Q4 1980, pushing Volcker to hike rates to 19% by July 1981.  By Q4 1982 inflation had been beaten back to 5%, while unemployment remained above 10% until mid-1983.  The double dip recession part 2 ended in Nov. 1982 despite the high unemployment rate.

What’s the lesson?  Despite sky high Fed Funds rates, inflation kept rising until Fed Funds were raised to what now seem ridiculous levels.  The retrospectoscope often says Volcker did the right thing.  But history (and the media) often fails to mention that Volcker FAILED on his first try to tame inflation despite a very high Fed Funds rate at the time. 

TIME at those high rates was needed to cure the economy of its excesses, and the current Fed and investors may have next to no clue as to the job that lies ahead of the Fed in controlling inflation.  I am not saying all the numbers will end up matching the inflation of the late 1970s, but the Fed may have to be much more aggressive than is currently thought. They think they’ll push Fed Funds to 3.0-3.4% and stop.  Maybe that won’t be enough…

In the late ’70s investors were losing money in the stock market, WHILE STOCKS WERE RISING, due to the impact of that high inflation.  Investors only started making a REAL return above inflation starting in Q4 1982.

Now we’ll look at the current charts…

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

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

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

The SP500 Index has finally risen above the May low (again!).  That is the first step in the recovery process, but just as with alcoholism recovery, there are further steps required for a full recovery to a Bull market trend.  Technically, the first point one could say the trend had changed to Bullish would be a rise above the June high.  Even if it gets there, it could just roll over at the 200 day moving average of course.

But first things first.  After the reversal we’ve seen, the level of which was retested by a drop below by the way, a rise above the 50 day moving average (mav) is now required, a move that failed in early June.  Success in the near future above the 50 day mav would be a positive sign.

The prior rally into the end of March matched the February high.  That sent us into the third wave down as I predicted, and that wave may not be over yet.  Why?  Because we just made a new lower low.  That means the downtrend is still intact until, as said above, we see a higher high of significance (meaning above the early June high, and not just above the little blip up in later June).

If you don’t know my market naming “Rules,” they are HERE (scroll to “New Rules” in blue type).

Click the chart to see the details… (the RED arrow marks the May low)

spx-sp500-index-sector-market-timing-2022-07-08-Close

First step in recovery. More progress needed!

Now let’s review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -33.4%.  That is a Bearish spread, but not maximally so as it reached -41.1% on 6-22-22 and -42.9% on 4-27-22.  The SP500 Index rose after the June sentiment low and sold off after the April low.  Chronically Bearish readings, which is a period we’re in now, can be misleading.  Investors can be turned off to investing enough that they virtually fall asleep on the markets.  That happened as recently as the COVID Crash.  AAII investors stayed Bearish even as markets started recovering and continued to be Bearish for many weeks…

I would be more impressed to see investors become overly Bullish at this point.  That could indicate a good place to “sell more.”  

If you look at the last issue, I said I expected the SP500 Index to reach the “magical” (it’s not) -20% level.  And we did… 

Whether we get a bounce here or not, there is likely more downside to go, given the above discussion about inflation and the Fed and the earnings slowdown. The “Big Red Wave” (see prior issue and the lowest red line on the SP500 Index chart) continues…

Bulls Neutrals Bears
19.4% 27.8% 52.8%
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 have managed to pull off “Step 1 of Recovery” (moved above the May low).  The above discussion about the SP500 Index applies here as well.  The trend does not change until the June high (June 7th in this case) is exceeded.

iwm-russell-2000-market-timing-chart-2022-07-08-close

Small caps are above the May low. More buyers are needed!

Gold is next…

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

Back at the end of April I wrote: “The March lows COULD yet save GLD from that sort of fall, but I believe it will sell off with everything else if the stock indexes break down further…”  They did, and it did. Gold having broken that triangle you see (yellow lines) continued down and has been sucked into the generalized commodity selling. 

The rebound in May never made it back to the March lows.  Gold could recover with lower rates (TNX, covered below, is close to re-topping) even if inflation falls.  Falling real yields is the top ranked factor in gold pricing.  Economic slowing tends to favor gold for that reason.  

gld-etf-market-timing-chart-2022-07-08-close

Gold broke the triangle and gave up all gains going back to Oct. 2021.

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):  

We had the first step in a reversal for TLT (above 112.62, the May low) the other day, and yet as of Friday’s close, we are back below it for Day 1 at least.  

As before, the key is to wait for the trend to change.  We need a closing high with follow through for a couple of days above the May high in TLT to add to the position (preferably on a pullback after the breakout).  

In the last issue I said, “Note that on high magnification you would see the current 10 Year Yield is ABOVE the top yellow line, which means it’s back to being STRETCHED to the upside and vulnerable to correction.  The trend is still UP for now however….”   

Here’s the current chart…

tnx-10-year-treasury-note-market-timing-chart-2022-07-08-close

Consolidating since early May despite a slight correction.

Up TNX means down TLT, as many of you know. 

The trend has been corrected a bit, but over the past 3 days, TNX has bounced back somewhat.  The May and June highs are goals for the Rate Bulls.

With the Fed hiking at the short end, barring any chickening out as even Fed Chair Volcker did in the early 1980s, I expect rates to moderate at the long end to the benefit of the TLT trade.  We have to have proof in price terms though!  The 10 Year Yield (TNX) trend over the past two months is sideways.

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 Bearish for a further U.S. stock market rally with a short term NEUTRAL and longer term Bearish SP500 Index trend.  The small caps determine the stock signal in this section of the report. 

Gold Signal Bearish for a further U.S. stock market rally.  I’m labeling the Gold Signal as “Bearish” due to the current context.  The Gold Trend is short term Bearish and longer term Bearish.  The Fed raising rates is a problem for gold until the economy starts slowing or until the market starts anticipating that happening.  

As said before, “If real rates rise as the Fed acts, gold will be hurt, but in the short term, the Fed is hiking into economic slowing Y/Y, so that means rising short rates can LOWER long rates, which could help gold by depressing long term real rates.”  

Kept for Reference: “Gold can RISE with stocks when real rates are FALLING, and the dollar is falling.  The dollar has been stronger of late, due to the Fed’s planned pivot.  Gold could rise WITH the dollar if the economy slows and real long rates fall. 

These are thing gold doesn’t like:  1. Rising real rates (bonds/Treasuries become a threat to gold which pays nothing; banks and other companies make more money with rising rates) and 2. Economic recovery with higher corporate earnings. Earnings drive stock prices higher. Stocks pay dividends that compete with bonds, and companies use cash to buy back stock, which drives up stock prices, while gold pays nothing.

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.  Real interest rates have been rising around the globe.  Bad for gold.  

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.  

Rate Signal: At this point Bearish for a further U.S. stock market rally, as rates have risen too quickly.  The 10 Year Yield trend is short term NEUTRAL, and intermediate term Bullish.

(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 normally.  The Fed raises rates slowly as the economy continues to grow until it doesn’t.  What we don’t want is rapidly rising OR rapidly falling rates, both of which I call “Rate Shocks.”  We are currently experiencing a “Rate Shock” due to the Fed 1. Hiking Fed Funds rates and 2. Reducing the Balance Sheet.     

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 © 2022 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 , , , , , , , , , , , , , , , , , , , , , | 1 Comment

Market Timing Brief™ for the 4-29-2022 Close “Markets on the Edge of the ‘Big Red Wave.’ Gold Off Its Top. Long Term Treasuries Taking a Fed Beating.”

A Market Timing Report based on the April 29, 2022 close…

The Fed usually explains that it has two mandates, “Full employment and price stability.”  What they don’t tell you is that they favor price stability over employment when push comes to shove.  By employing the last person needing a job, you drive up inflation, which defeats the purpose as it degrades the well being of even more people who are bordering on poverty.

They have ONE mandate now: Get Inflation Lower.  They must, because the political damage from inflation in the midterm elections is likely to be great, and it will take time to bring inflation down.

I now expect the GOP to take back both the House, which was assumed, as well as the Senate, because of the level of inflation, and from the economic slowing that is likely as a post-Fed party and Congressional Stimulus hangover.  BOTH parties are responsible for sending checks to many who did not really need them.

I am not saying the checks were not deserved by some, particularly poor savers who have gotten nearly ZERO on their cash for many of the years since 2009.  I’m focused here on the fact that the extra funds, first from Trump/GOP and then from Biden/Dems, fueled inflation, as did the shift from services spending to spending on goods during COVID, the fault of no one. 

Trump’s tax cuts, which were unpaid for from the start, continue to add to inflation as well.  We did not have the money to decrease the top marginal rates on very wealthy people, like it or not politically.  That was the 3rd failure by the third U.S. president of what I call “Tinkledown Economics.”

The “Tinkledown” GOP Tax Cut policy failed to create tax revenue to pay for the tax cuts THREE times, under Reagan (he left us with a 3 Trillion dollar national debt), G.W. Bush, and Trump.  I wish the upper middle class on down would stop buying into that GOP lie.  (I’m a fiscal conservative and a registered Independent as my loyal readers know.).  Bad fiscal decision making is a bipartisan illness.

The big COVID Retirement also hurt goods production and drove up inflation.  Spot shortages have even hit Florida, although they are inconveniences, not deprivations that others must endure.

Many like staying home vs. going to work apparently!  The stock market decline may end up driving some of those retirees and Bull market traders back to work, but the big retirement wave has made it tough for many businesses to find workers, which has driven unemployment back down to 3.6% last month (it reached 3.5% under Trump) and wages up about 6%. 

While there’s inflation, there has also been wage inflation, just not enough to make up for inflation.  As of Jan. 2022, “Real wages fell by 2.4 percent over the last year and are now 1.2 percent lower than they were in December 2019.  If real pay had kept pace with its pre-pandemic trend, it should have risen by 2.1 percent over the period.”  Ref. Wage Chart. Where wages should be and where they are. (see chart at that link)

Inflation has continued higher since, although Bloomberg data says that the inflation rate will be falling through the end of 2022 from its peak.  As of March, the Consumer Price Index (CPI) “rose 8.5 percent over the last 12 months, not seasonally adjusted.”  Ref. BLS – US Inflation Update

If there was one thing that killed President Jimmy Carter’s chance of a second term, it was the off-the-wall inflation rate back then of 14.4% at the peak in the late 1970s, just before the 1980 Election.   

The probable election losses (the Senate loss is not written in stone quite yet although the loss of the House is highly probable per recent stats and historic results for a midterm elections) mean there will be no major programs passed by Congress through 2024.  Sen.s Joe Manchin and Krysten Sinema can take a rest most likely from being the center of attention.

Although POTUS Biden’s approval rating is climbing again, back to 42% from 37% in part due to approval of his Ukraine War leadership, a Biden re-election may be imperiled by

1. Continuing inflation along with loss of stock market gains since he took office, which we know is largely due to factors beyond his control, just as the initial market decline under Trump during COVID was not Trump’s fault (his objectively weak leadership around the COVID pandemic was unhelpful, however).

2. Biden’s age, especially if things deteriorate for him.  Biden is now 79 yrs old.  Once a person gets that old, there is a chance of simply dropping dead unexpectedly.  The average risk of death for 75-84 year olds is 5.0% per the CDC. (That would also apply to Trump by 2024 as he’s 75 yrs old now. The GOP would do better with a younger candidate who could also serve two terms.)

All this means the Fed has to get inflation off the table as a political risk before 2024, or they run the risk of looking partisan.  There will be no other excuses for inflation EXCEPT the Fed by then. 

Recently I posted a link to a chart showing that oil production had INCREASED under Biden.  It probably will increase even more simply due to the high pricing.  You make hay while the sun shines.  The Europeans’ oil problem is worse, given their dependence on Russian oil and natural gas, but the global nature of energy markets could prevent US prices from dropping by very much without a substantial increase in production.

The key is this – the Fed has said out loud that it will need to SLOW the economy to get inflation down.  Since inflation is its SOLE MANDATE for now, that will increase unemployment and bring down wages over time.  Less GDP growth means lower revenues for companies, which means lower stock prices.  It will take the Fed multiple hikes to get inflation down. They still want to move stepwise in 50 basis point hikes (0.50%), but they will be steady until the markets react so negatively that they are moved to pause.

The Treasury trade game is (when the Fed really gets going with their hiking!):

1. Short rates up (by the Fed)…

2. Economic slowing foreseen (inflation expectations falling) or GDP growth slowing actually happening…

3. Long rates down.  Long bonds and Treasuries up.  The latter is NOT yet happening.  Interest rates have yet to change to a downtrend.  When they do, there will be an investment opportunity for a trade.

Where Among Stocks Can You Hide from the Tech Re-Valuation Crash?

IF the major indexes all break lower with IWM, even the places investors have been “hiding,” like XLP, Consumer Staples Sector of SPX, won’t work. Here is why…

XLP went up because 1. The staples companies can pass on much of the inflation, because they sell “staples,” or necessary, non-optional products and 2. The long only traders have to shift from stocks that aren’t working into something else that is cheaper on a PE basis as rates rise and kill off the high PE Tech stocks.

Either way they are vulnerable because 1. If the market bounces, that means tech will be bouncing and the rotation back into tech and consumer discretionary works against XLP. 2. IF the indexes crash to new lows (IWM already testing below the prior lows), valuation is relative and XLP will sell off too, just not quite as much percentagewise, but all sectors will be losers.

The same goes for other sectors that are supposed to work on a relative basis during a period of economic slowing and declining inflation such as healthcare, utilities and REITs (if we see that; current projections are that inflation will drop into year end; remember inflation rates are RELATIVE to the prior year’s pricing).

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

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…

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

How has my method of “Passive Shorting™” worked?

All exposure levels are “percentage of usual maximum Bull market exposure.”  If you are normally at 80% stocks and I move to 50% of usual max., you would go to 40% exposure to equities if you agree with my decision.  Numbers over 100% indicate use of cash, NOT leverage, which works during a Bull market and then punishes during a Bear market.

TOP 11-08-2021 106.75%   (I round to the nearest 0.25%)

1-11-22  107.50%

1-14-22  98.50% (broken trend)

1-19-22  85.25% (took off more exposure on further break lower)

1-26-22  90.25% (indicators pointed to a bottom)  Added 1-24 and 1-26.

2-02-22  80.50% (sold exposure close to the lower high on 2-01-22 and 2-02-22)

2-25-22  80.40% (added back exposure to the level of 2-02 near the low in Feb. on 2-02-22 and on 2-24-22, the actual low).

4-01-22 72.00% (sold a chunk of exposure near the last lower high on 03-30-22, the day after the actual high day of 03-29-22, and on 03-31-22, and 4-01-22, days 2 and 3 off the high).

I have not bought back exposure at this retest of the lows yet.  I have sold some individual stock exposure as individual stocks have broken down to new lower levels to protect profits.

Why not?  Because there is a risk that we break down further.  Sometimes multiple tests of lows fail after several attempts to hold them.  Some may believe the Fed is going to be a bit dovish at the edges to take some pressure off of stocks, but I have already stated on social media that such a move is impossible.

Although as I said on social media late this week (links above), my indicators favor a bounce from here, some of the strength I saw on Thursday, was weakened on Friday, and NO ONE can tell you if the current levels will hold.

I’ll say more about that in the next part on Small Caps (IWM)…

If you don’t know my market naming “Rules,” they are HERE (scroll to “New Rules” in blue type).

Click the chart to see the details…

SP500 Index Market Timing Chart for 04-29-2022

Will it hold?

Now let’s review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -42.9%, which has not been seen for 32 YEARS!  I need to be brief to get this issue out but here are the key numbers and dates:

US Recession 7-1990 through March 1991.

Gulf War: 8-02-90 to 2-28-91

8-16-90 -41.0% Bull Bear Spread

8-30-90 -38 .0%

9-20-90 -43.0%

9-27-90 SPX 295.98.

10-11-90 Low in the SP500 Index at 294.46.

Mid-October 1990 Oil up 119% due to the war.  

10-18-90 -54%

Desert Storm (U.S. war to free Kuwait) 1-17-91 to 2-28-91

Note that the Gulf War was also an oil related event.  Oil went from $21/barrel to $28 by Aug. 6, 1990 and then to $46/barrel by mid-October 1990.  

Note there is room for sentiment to get even worse, although that would come from a recruitment of more Bears rather than loss of many Bulls.  On 10-18-90, Bulls were 13.0% and Bears were 67.0% vs. 16.4% and 59.4% today.  Even the current numbers are extreme as noted, which is ONE factor that suggests the market could hold either at these levels or somewhat below them.  Could…

Note that in 1990, the S&P500 Index reached a point barely above the ultimate low in October, just one week after the -43.0% reading on 9-20-90.  In other words, at least back then, a further deterioration of sentiment did not add to the drawdown significantly.  

This is not to say we can conclude what will happen today will match what happened in 1990, as the context is VERY different.  It could get worse, due to the Fed.  In 1990, the Fed was in the process of lowering interest rates, NOT raising them. 

The prospect of significantly higher rates added to the oil stress could certainly lead to at least a mild recession and a 1990’s level (also a mild recession) pullback in stocks.  That would be -20% for the SPX which would mean -30% or more for Tech and small caps IMO.  (The COVID Crash lows were SPX -35%.  IJH and IWM -45%.  QQQ bottomed at -30.55%, but given rising interest rates, Tech would probably match IWM on a further drawdown in the “Big Red Wave.”)

Bulls Neutrals Bears
16.4% 24.2% 59.4%
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 have failed to hold the prior 2022 lows.  Though sometimes small caps overshoot vs. the large caps at bottoms, they need to reverse quickly from the breach (within 1-2 days optimally). 

Look at what happened to small caps when they violated the long consolidation range low that held throughout 2021.  It got us to these levels.

iwm-russell-2000-market-timing-chart-2022-04-29-close

Small caps have broken the prior lows of 2022.

Gold is next…

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

I started my comment for the last post on gold with “Gold was caught up in the Friday ‘Sell Everything’ pattern.” Deja vu.  Friday was a “Sell to Cash” day.  

Gold moved up out of the triangle I pointed out in the prior issue, which was a great trade.

This time gold is coming off a top and has breached a similar triangle to the downside.  They work both ways!

To recover, GLD must rise back above the 6-01-22 high of 178.85.  If it does not, that orange line may prove to be a level of interest.  We only know if and when we get there!  They are “Levels, not Targets” as I like to say.

The March lows COULD yet save GLD from that sort of fall, but I believe it will sell off with everything else if the stock indexes break down further…

gld-etf-market-timing-chart-2022-04-29-close

Gold could be sold off in a move to higher liquidity. That may have started.

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):  

My prior suggestion of lower levels of interest rates holding were not borne out.  Not even close.  That’s why I simply examine the behavior of the market vs. predicting the future.  I do consider potential levels using different methods, but in the end none of them count as predictions.  They are possibilities. 

In my early buys of TLT recently, I violated that principle to attempt an early entry.  Bad idea.  My failure, for now, with that trade, which was fortunately not a large one, because I kept the position size small as an early trade, was that there were many sources/voices that were suggesting the Fed could not raise rates much without taking down the economy. 

I take 100% responsibility for buying into bad inputs though, as we all should.  To be fair, the Fed did surprise the market by doing a pile on with both rate hikes and balance sheet reduction going on simultaneously.  Perhaps they could have just let their balance sheet run off had they raised rates early enough.  “They are lagging” is the common refrain about the Fed now…

I’ve gone over the interest rate game in the top section, but the key is to wait for the trend to change…

And now to the WEEKLY chart…  

Note that on high magnification you would see the current 10 Year Yield is ABOVE the top yellow line, which means it’s back to being STRETCHED to the upside and vulnerable to correction.  The trend is still UP for now however….

tnx-10-year-treasury-note-market-timing-Weekly-chart-2022-04-29-close

Rate trend has not yet reversed.

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 Bearish for a further U.S. stock market rally with a short term Bearish and longer term Bearish SP500 Index trend.  The small caps determine the stock signal in this section of the report. 

My longer term view of SPX could change if it holds the Oct. low and bounces.

Gold Signal NEUTRAL for a further U.S. stock market rally.  The Gold Trend is  short term NEUTRAL and longer term Bullish (on an intermediate term, it won’t be below the March lows).  As said before, “If real rates rise as the Fed acts, gold will be hurt, but in the short term, the Fed is hiking into economic slowing Y/Y, so that means rising short rates can LOWER long rates, which could help gold by depressing long term real rates.”  

Kept for Reference: “Gold can RISE with stocks when real rates are FALLING, and the dollar is falling.  The dollar has been stronger of late, due to the Fed’s planned pivot.  Gold could rise WITH the dollar if the economy slows and real long rates fall. 

These are thing gold doesn’t like:  1. Rising real rates (bonds/Treasuries become a threat to gold which pays nothing; banks and other companies make more money with rising rates) and 2. Economic recovery with higher corporate earnings. Earnings drive stock prices higher. Stocks pay dividends that compete with bonds, and companies use cash to buy back stock, which drives up stock prices, while gold pays nothing.

In liquidity crunches (which the Fed is supposed to prevent) gold can drop with everything else but the US dollar.”  As it did on Friday, the 21st of Jan.

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.  Real interest rates have been rising around the globe.  Bad for gold.  

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.  

Rate Signal: At this point Bearish for a further U.S. stock market rally, as rates have risen too quickly.  The 10 Year Yield trend is short term Bullish, and intermediate term Bullish.

(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 normally.  The Fed raises rates slowly as the economy continues to grow until it doesn’t.  What we don’t want is rapidly rising OR rapidly falling rates, both of which I call “Rate Shocks.”  We are currently experiencing a “Rate Shock” due to the Fed 1. Hiking Fed Funds rates and 2. Reducing the Balance Sheet.     

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 © 2022 By Wall Street Sun and Storm Report, LLC All rights reserved.

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

Market Timing Brief™ for the 1-21-2022 Close with Updates at Top “Big Red Wave Warning” and “Inflation Strategy Addendum”: “The U.S. Stock Market Has Two Choices. The Golden Triangle. Rates Have Peaked?”

A Market Timing Report based on the January 21, 2022 close…

3-25-2022 UPDATE

This morning, the SP500 Index challenged the market timing reversal I posted about on 3-22-22.  A “Reversal of the Reversal” will not or would not be taken lightly by the market if it occurs.  I am talking about a reversal of SP500 Index below it’s December low.  It went UP through there the other day and should it reverse, it would be a bad prognostic sign.

Earlier today SPX got to about 6 pts from the reversal level.  SPX could even go to the Feb. high from here and reverse and still be within the bounds of an early Bear Market.

At this point we are talking about the risk of a “Mini Bear Market,” by my “New Rules” definitions (see Oct. 26, 2018 issue for the rules; directory is to the right), because recession is not in the picture at this time.  Some big firms say the risk of recession is increasing, which would mean even greater losses depending on the degree of GDP slowing.

The next wave down, if the Bulls do lose this fight, is the big one…the “Big Red Wave.”  That would wipe out all the gains going back to the day after the 2020 Presidential Election.

My prior “Big Red Wave” warning of this kind was covered by Market Watch in 2018.  We reached 88.2% of the way toward the 3rd Wave target in December 2018.  Regardless of whether SPX reaches the precise number, it’s a long way down.

In brief, the 3rd Wave Down in this case for the SP500 Index appears in this sequence…
First Wave down
was from the SP500 Index all time high (ATH) of 4,818.62 to 4,222.62, the Jan. 24th low.

2nd Wave up occurring as a doublet: The first of these was a bounce to a high of 4595.31 on 2-02-2022.  That wave fell back to 4114.65, the Feb. 24th low and gave rise to the 2nd Wave 2 Up that rose to 4,543.06 as of the Friday, 3-25-2022 close.  To see this, you do have to look past some noise in between these points.  The Wave 2 lows are not perfectly aligned.

The next wave, if the prior pattern in fact breaks lower, would be the largest wave of the Fibonacci series, the 3rd Wave Down, which assuming the current Up wave ends at the same level as the prior wave of the doublet, would bring the SP500 Index to about 3,461.  That, as said above, falls within the price range of the day after the 2020 Election, 11-04-2020. 

We’ll deal with the 4th Wave Up and 5th wave Down at another time, if this one pans out.

Where is that Feb. high, if SPX moves up just a bit more?  It’s only 4.64% off the ATH of the SP500 Index. That’s practically a re-topping of the market!

This is not to predict where the market will go.  No one can tell you that.  Many have guesses.  What I’m indicating is that if the market breaks here or a bit higher, the downside could be considerable, and you may not want to keep the same exposure level you’ve had on the way down.

I will post my exposure level on social media today (links below).  It’s down significantly already from my prior exposure when things were clearly Bullish, but I’ll take it even lower if I see the signals I mentioned, and I may trade out of some exposure on the way up with the risk of missing out on some upside.

That carries some “opportunity risk” as I call it, so only make those moves if you intend to buy back exposure after selling it, should you be proven wrong.  Notice I said “should you.”  Taking 100% responsibility for all our investing and trading decisions is the only path to real success.  If you do that, you’ll just keep getting better and better.  Use the information you gather to make up your own mind and then take the corresponding actions.  That’s the adult version of this game..

In the meantime, please stay in touch via StockTwits and Twitter…

2-25-2022 Market Timing Update

What will Happen with Inflation Going Forward? Is the Tech Stock Wreckage Due to Inflation and Rising Rates Over for Now?

The answer I believe is NO. You will have to be in stocks representing what I am calling #UnqualifiedGrowth IF you choose to buy growth.

We need to use market timing of our stock selection to navigate inflation and be careful about what stocks we buy as inflation continues.

The inflation consensus among people who know what they are talking about (multiple sources) is that inflation has peaked and is likely to come down over time. But it’s likely to remain elevated, despite falling to around a CPI of 3.9% Y/Y by Q3. That’s still well above the Fed target and some say it will remain higher than 4%.

So inflation is stickin’ around.  That’s what they mean by “sticky inflation.”  It’s continuous high inflation vs. the less than 2% headline CPI  we were used to.

==> That means the Fed will be raising rates to some extent even if it slows growth somewhat, because they have to per their mandate as long as the economy does not start to slow too much and as long as unemployment remains low.

==> That means “short rates” will still be rising slowly but steadily (e.g. 2 Year Treasury Notes) but steadily as the Fed actually begins raising rates. That will bring down growth a bit or a lot depending on how fast the Fed hikes, which will cause long rates to fall (e.g. 10 year Treasuries, the yield for which is represented by TNX).

==> That means that any growth stock that has no earnings with even a whiff of revenue slowing will be punished even further as rates rise.  Yes, some stocks that are at -30% vs. their prior all time highs (ATHs) will drop to -50%.  Those at -50% can drop to -75%.

==> It also means stocks with higher valuations depending on growth will be watched closely.  If they miss and their earnings and revenue become questionable in their growth, their prices will also be slashed as well.

==> It also means Value stocks may enjoy a period of outperformance as rates rise.  None of the high valuation tech stocks for example should be in the value indexes.

==> Low debt is better as rates rise, so larger companies with better balance sheets will do better.  Those are generally larger companies (higher mid to large to mega caps).

CONCLUSION: Larger (large mid to mega) Value stocks and #UnqualifiedGrowth Stocks will outperform the SP500 Index as the Fed raises rates slowly.  Lower valuation higher growth stocks will do better than the more expensive ones obviously.  When I add to these position, you’ll see it first on social media (links below), and you’ll see me label the trades as “Large Value” or “#UnqualifiedGrowth.”

There are never any guarantees, but this will be my near term to intermediate term internal guidance on picking both stocks and index exposure…  Thanks for reading.  Click “Like” below if you benefited.  Thanks!

…Back to the January Issue….

What’s the Market Timing Set-up Now?

Back in October 2021, I wrote, “We are getting through COVID-19 one way or another.  The easy way is vaccination.”  The other way is natural infection, and as I predicted before the press caught on, the Omicron variant may help us create a lull of some length in the pandemic much faster than would have otherwise occurred, by infecting nearly all of the unvaccinated people.

Sadly, with many still unvaccinated, the 7-day moving average (mav) of deaths is up to 1,924.  Despite that, the 7-day mav of daily new cases peaked in the U.S. on Jan. 14th per the data at Worldometer.com.  Hospitalizations and deaths will peak a bit later.  This is not unlike the pattern back in Jan. 2021, when the peak occurred on Jan. 11th.  This is Bullish for the U.S. economy as warmer temperatures start to occur in a wave from south to north.

How are earnings going for the SP500 Index companies?  FactSet reported on 1-18-2022 “Of the 20 S&P 500 companies that have reported actual earnings for Q4 2021 to date, 76% have reported actual EPS above the mean EPS estimate. In aggregate, actual earnings reported by these 20 companies have exceeded estimated earnings by 7.5%. Therefore, at this very early stage of the Q4 earnings season…the magnitude of the positive surprises are trending closer to the five-year average. Since December 31, the earnings growth rate for the S&P 500 [Q4] has increased by 0.4 percentage points (to 21.8% from 21.4%).”  Read more HERE.

You’ll also note there that in Year Over Year earnings growth results going forward in 2022, the setup is completely different from last year, when the comparisons were easy due to the earnings recession at the start of the pandemic.  Earnings growth was actually NEGATIVE for three quarters in a row from Q1 to Q3 2020.  See the graph at the prior link.

U.S. companies are now reporting Q4 calendar earnings, all with easy comparisons.  Starting with the next quarter, there will be tough comparisons in Q1 and even tougher comparisons in Q2, which could pressure the equity markets.  That will particularly be the case if the Omicron impact on numerous SP500 companies lowers earnings and revenue results for Q1.  As said, the Q2 comparison will be even tougher and that is even without any “Omicron slowing” added on.  Make sure you are checking regularly for updates on the earnings of the companies you own.

Now let’s consider the technicals of the large caps…

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

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…

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

Back in October, the SP500 Index had already tested below the lower channel line (magenta) in what amounted to a correction by my “New Rules” summarized previously on this blog.  If you don’t know my market naming “Rules,” they are HERE (scroll to “New Rules” in blue type).  The SP500 Index is solidly back in correction mode at -8.73% as of Friday’s close.

I follow a Market Indicator Panel™ of 20 indicators that flashed some warnings signs on Friday.  Two of my indicators stood out as flagging not only the COVID Crash in March 2020, but also the lesser crash in December 2018.  There are some caveats to interpreting any signals including those two, however.  First, the Bull Stock signal implicated has not reached the level of the Oct. 2020 pre-election low, nor has it reached the extreme level seen at the Jan. 2018 low, and yet it has broken definitively to new recent lows.  “Could get worse, but already flashing red” is the summary for that indicator. 

The second warning signal is from a Bear Stock indicator, but it’s a marginal one, barely above the recent extremes.  Are these signals early warnings or simply too sensitive?  They could be confirmed on Monday by having a number of my other indicators chime in with similar crash readings.   Two other signals of the 10 are flashing red, but they both gave false positive signals back in the Sept. 2020 correction that lasted several days before reversing, so I can’t use those for confirmation…yet.

What else don’t I like that I’m observing?  The midcaps represented by the ETF IJH broke the May 2021 low in a big way on Friday.  Will the July low provide support (chart not shown, but you can dial it up on Yahoo Finance etc.)?  Perhaps, but it’s not substantial, as it was only one down day below the prior consolidation band.  IF we see an UPSIDE reversal back up into the consolidation of midcap US stocks back above that May low, that could indicate the end of the selling.

Another crash signal we got on Friday was the 3rd day small caps have been below the low of their entire consolidation going back to Feb. 2021.  Small caps are now just above their 12-31-2020 close of 196.06 at 196.99.  That is a loss of 19.42% off the ATH (all time high).  They are in a Mini Bear Market all of their own.  Remember my terms technically apply only to large caps.  In relative terms, when the SP500 Index was down 35% during the COVID Crash, small and midcaps were both down about 45%.  

Note that this is the SECOND trend break for the SP500 Index.  The first was the lower magenta line.  The second is the rising yellow line…

The Two Choices are clear: The market indexes must stop falling very soon, possibly by Monday up to Wednesday, which is Fed day, or the large cap correction will join the small cap crash. 

Do not act out of fear; act out of understanding and in steps unless you must immediately protect certain assets such as college funds, money you will need over the nearer term…

Click the chart to see the details…

SP500 Index Crash or a Correction?

Correction or beginning of a crash?

You can see a couple of levels of interest on the chart above – the August low is closest, and then the October low, which was reached for the QQQ on Friday (just over a point away).  (Ignore the lowest red line.)  Often key levels pull the market to them in rapid selling periods like these.  That’s why I suspect the October low is the first best chance for SPX to catch a bounce.  The August level is of interest, because another system of analysis, Fibonacci levels, arrives at at similar conclusion as noted HERE.  Even Fibonacci levels are “just levels.” Some work, some don’t!

“Levels” is a term I use very specifically to indicate that I don’t believe in ANY predetermined “targets,” because what I do at them is determined by what I see if/when we get to them.  They are just POSSIBLE places to buy or sell for that matter.  I’ll let you know on the social media feeds (links above), when I am a buyer.

Now let’s review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -25.7%, which is sizable, but not at an extreme of negativity.  The Bearish percent number is the most negative it’s been since the Dec. 1, 2021 low, when Bears were at 42.4%, but the Bull – Bear % spread was a more optimistic -15.7%.

Although there is room for it to go lower, it doesn’t have to do so.  There is also room for it to the upside.

The poll for this week ends the day of the Fed meeting on Weds.  That is a big risk for the markets IN BOTH DIRECTIONS, because if the stock market is still crashing by then, the Fed through Powell may provide some dovish talk to reverse the recent selling to some extent.  Or if he/they provide no reassurance, the markets could crash.  There has been talk of up to 5 rate hikes this year, and doing that at a time when earnings will be slowing down on a Y/Y basis, would be overdoing it, most likely.  If the Fed doesn’t indicate they may go slower than 4-5 hikes this year, stocks may pay for it. 

Whatever I do PRIOR to the Fed statement and press conference, I won’t complete until AFTER, because the Fed news could push the U.S. stock market in either direction.  If I get a buy signal before the meeting, I’ll only do part of the buying.  For a sell signal, I’ll only do part of the additional selling.  I’ve documented my equity exposure reduction on social media.  I’ll be updating it this evening…

Bulls Neutrals Bears
21.0% 32.3% 46.7%
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 are crashing on high volume.  I own close to zero small cap or mid cap exposure with a couple of individual stock exceptions.  So much for “following the Wall Street diversification rules.”  Diversity in owning crashes is not my cup of tea.

The volume spike on Friday was partially due to options expiration, but it was impressive.  It was the most volume recorded for a single day going back to 2017 at least, and more than the peak selling volume in the COVID Crash of 2020.  That sends us a message about the seriousness of this selling in my view.

I wrote above about the small cap “3rd day below” a key level, which is part of the trader’s handbook.  You sometimes wait up to 3 days to confirm a market move.  Friday was day 3 of a bad breakdown for small caps.

IWM U.S. Small caps are crashing.

Small caps are crashing.

Let’s get to gold…

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

Gold was caught up in the Friday “Sell Everything” pattern.  Trade in the direction of the move above the triangle if we see it, but try to buy pullbacks even if you add to your long position on a breakout.  But don’t chase it too far to the upside.  Buying the dips is a better idea, but without a breakout above that top magenta line, I’ll wait.  The recent action is promising, but I’ll wait to see the Bulls eyes up close…

The risk to gold is actually that the Fed moves in a concerted way to control inflation.  Rates have been going up while the Fed fell behind.  That raises real rates and hurts gold in general.  I am concerned now that they cannot pivot away from pursing inflation as their prime goal.  They failed to control it, and they are being correctly blamed. They should have raised rates when things were improving in Q3, but the pandemic and wanting employment to return to the prior levels was their focus.  So inflation started winning.  Rates still rose with inflation, which hurt gold as gold hates rising real rates.

Again, I’ll wait for the breakout…

Gold is coming off the top of the triangle. It was dragged into a “sell everything” pattern on Friday.

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 may have topped at that 1.765% line.  Inflation should ease as the economic growth slows a bit.  Not an economy killing slowing, just a relative slowing.  No recession in earnings growth or GDP, but Y/Y slowing in the percentage of growth.  When the Fed raises rates into that, there will be even more slowing and inflation will ease.  Bottlenecks go away if COVID turns from pandemic to endemic.  Even less inflation.  Fed rates up, long rates down…unless they stop short!

Have rates peaked?

Rates have peaked for now perhaps.

Let’s Check back on my previous list of risks…

What Downside Risks Are There?

1. They are tapering now.  “The Federal Reserve will start as early as the next meeting to taper the size of their balance sheet, but the Treasury and mortgage backed security buying is not going to be done for a while.  Then and likely only then, will they raise the Fed Funds rate.”

Some believe they’ll raise rates before the taper has ended.  Some say this Weds.  After this week, I would not be so sure of that.  March is still a given for one 0.25% rate hike.  0.50% only if inflation is not coming down by then.

2. Still on again:  “Still on: The drag on reopening will lengthen the rally of the stock market.  A slower reopening abroad will help our multinationals show increasing sales over time, as will the economies and stock markets of the slower to recover countries.”  This is why having some money in European stocks may be a good idea, at least once this selling period is over.  That may apply to some emerging markets as well.

3. Sentiment I covered above: “Check: Sentiment has not peaked yet.  It will before this is over.  There is plenty of cash sitting and making nothing with increasing inflation.  Those investors are losing buying power as they sit in too much cash.”

I still don’t believe the Bull market is over, so the max drawdown I’m looking for is a “Mini Bear Market.”  It’s an interruption of of a Bull vs. a “Big Bear Market,” such as the COVID Crash.  That one was shorter in time than the market reaction was deep, because the economy was turned off like a hose under a car tire.  See my “New Rules” if you don’t know what the percentage range is for various dips to corrections to Bears.

4. Last time I said, “Check: Valuations ARE high, but they often go higher than anyone expects before the bell rings on Wall Street.”

That’s done.  Buy quality earnings and revenue growth, not high Price/Sales companies.  Cathie Woods’ ARKK etc. have been slaughtered.  ARKK is down about 50% (last I looked and it dove on Friday once again).

A time will come when ARKK will be so oversold it is again a buy of course, so follow that one down… Buy in steps if you buy early!  It could go lower than low…

I post my exposure level on social media and will post the update tonight.  In October I said, “I remain at just over 100% of my usual maximum exposure for a Bull market for those reasons.

NOTE: I change my exposure when things change, led first and foremost by stock market signals. 

Don’t be surprised if I drop my exposure from 100% to 80% or less, in one day at some point.  I don’t share my raw exposure to stocks for a reason.  Your allocation should depend on your net worth, your age, and your need for cash in the next 4 years among other things. Find the number that suits you. 

I had about 107.00% of my max. Bull exposure near the market top (I go over 100% of my max using cash, NOT leverage).  Now my exposure is lower!  

My Fed prediction.  The Fed did lag.  I said, “I believe the Fed will lag behind on inflation, and the 10 Year Treasury will rise further, but how much higher and how fast remain questions…” 

The 10 Year rose a lot to above that 1.765% level, and is now just below it.

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 Bearish for a further U.S. stock market rally with a short term Bearish and longer term Bearish SP500 Index trend.  The small caps determine the stock signal in this section of the report. 

My longer term view of SPX could change if it holds the Oct. low and bounces.

Gold Signal NEUTRAL for a further U.S. stock market rally.  The Gold Trend is  short term NEUTRAL and longer term NEUTRAL.  If real rates rise as the Fed acts, gold will be hurt, but in the short term, the Fed is hiking into economic slowing Y/Y, so that means rising short rates can LOWER long rates, which could help gold by depressing long term real rates.  

Kept for Reference: “Gold can RISE with stocks when real rates are FALLING, and the dollar is falling.  The dollar has been stronger of late, due to the Fed’s planned pivot.  Gold could rise WITH the dollar if the economy slows and real long rates fall. 

These are thing gold doesn’t like:  1. Rising real rates (bonds/Treasuries become a threat to gold which pays nothing; banks and other companies make more money with rising rates) and 2. Economic recovery with higher corporate earnings. Earnings drive stock prices higher. Stocks pay dividends that compete with bonds, and companies use cash to buy back stock, which drives up stock prices, while gold pays nothing.

In liquidity crunches (which the Fed is supposed to prevent) gold can drop with everything else but the US dollar.”  As it did on Friday, the 21st of Jan.

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.  Real interest rates have been rising around the globe.  Bad for gold.  

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.  

Rate Signal: Bullish for a further U.S. stock market rally, but ONLY if rates continue up SLOWLY.  The 10 Year Yield trend  is short term Bullish, and intermediate term Bullish, again, as long as rates have NOT topped, which they may have done!

(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 normally.  The Fed raises rates slowly as the economy continues to grow until it doesn’t.  What we don’t want is rapidly rising OR rapidly 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 © 2022 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 10-01-2021 Close: 1) “Is the Correction Over? 2) Why Is Gold Doing Badly with High Inflation? and 3) Interest Rates Are Rising Again.”

A Market Timing Report based on the October 01, 2021 close…

What’s the Market Timing Set-up Now?

We are getting through COVID-19 one way or another.  The easy way is vaccination.  The hard way is resisting vaccination based on anti-scientific views and comments by video bloggers who get far too much attention. But this group of unvaccinated people turns out to be a bit more complicated than the media generally discusses.

Who are the unvaccinated who continue to place the U.S. economy at risk?  There are 70 million of them, more than the population of the United Kingdom by 1.7 million, but there is a catch to that number.  Some of them have been “naturally vaccinated” by SARS-CoV-2, and although some data seems to support the idea that vaccine immunity is better, I do not believe natural immunity has been fully studied.  There should be such studies as antibody testing in most labs is a crude, yes or no, and no routine testing is done to look at T-cell immunity.

Around 44 M Americans have been infected (possibly 2-3 times that number due to asymptomatic infections, particularly in younger patients), although there are not good stats I was able to find on how many of the infected are among the vaccinated.  Those who had a bad case of the virus were likely subsequently vaccinated to avoid getting back into the same situation.

Those who have not been infected or vaccinated are of course fully capable of keeping some level of pandemic going for many months, albeit at a lower and lower level as they become infected.

There should be trials of the vaccine among previously infected people to resolve the issue of natural immunity.  Investigators need to look at rates of reinfection, hospitalization and death in the naturally immune vs. infection plus one shot of mRNA vaccine vs. infection plus two shots of mRNA vaccine.  (I only recommend the mRNA vaccines as no DNA is involved, so no DNA enters the nuclei of any of the patient’s cells.  If you’ve had a JNJ vaccine I would not worry about it.  The potential risks are likely very small.)

It may well be that just one dose of an mRNA vaccine would be enough to give the previously infected a high level of protection. Dr. Fauci has commented that that is the case from early data.  Are they going to be required to have two shots when they may only need one?  It should be studied.

The following applies to the uninfected and unvaccinated.  I covered this in the last issue, but it bears repeating.  “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%, which is about equal to the group who are still resisting vaccination.  

Their resistance really won’t likely matter (it does matter spiritually, but not practically), however painful it is for their families to see a number of them hospitalized and/or die.  The Delta Variant is 2-3 times as infectious as the original version of the SARS-CoV-2 virus that causes COVID-19.  It will find the vaccine holdouts and naturally vaccinate them if they aren’t vaccinated.  That means the pandemic, barring a strain that is too resistant to the current vaccines, will burn itself out over time.

The emergence of a vaccine-evasive variant remains a risk to our economy, which is why we need to be exporting billions of doses of vaccine to the rest of the world.   Get vaccinated or get infected and suffer the consequences of being unvaccinated.  That’s the choice, unless you plan on being a hermit for the next 2-3 years.

COVID-19 still entails a finite risk to our economy.  It is disrupting supply chains around the globe and driving global inflation.  You can see it if you shop.  Multiple items normally stocked on supermarket shelves are entirely absent at this point as waves of infection have rolled over various regions of the country and shut down or slowed production.

This still holds: 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.  That is why I bought this last correction as documented on my social media feeds (see links just below).  

My last post mentioned the following seasonal patterns for the Dow.  The worst month of the year is September, which has once again been the case.

However, 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.

October, November, and December then are all in the top 5 months of the year, which is where we’ll be for the next 3 months.  That means we have seasonality on our side.

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

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…

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

The SP500 Index has tested below the lower channel line (magenta) in what amounts to a correction by my definitions, but the SP500 Index held the lower low set on Sept. 20th, at least as of the Oct. 1st close.  The close on 9-30-21 was minus 5.25% off the top, which just makes it into my “Correction” category of slips.  If you don’t know them, they are HERE ( on that page, scroll to “New Rules” in blue type)

Click the chart to see the details…

spx-sp500-index-sector-market-timing-2021-10-01-Close

Has it bottomed?

Now let’s review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -12.6%, which is not at an extreme of negativity.  This is the most negative it’s been since almost exactly one year ago on Sept. 30th, when it was at -16.8% declining from -21.1% the previous week.  Although there is room for it to go lower, it doesn’t have to do so.  There is also room for it to the upside.  Extremes of sentiment are the most helpful.  We are not at an extreme.

Bulls Neutrals Bears
28.13% 31.1% 40.7%
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 are trading in the middle of the range established starting with the February high.  It’s a weekly chart to make that point.  They’ve been consolidating (going sideways) since then, while testing investors patience.  Buying the low end of the trading range and selling the high end turned out to be the way to make money on them.

I expect GDP to strengthen more than expected as we unwind both the impact of COVID-19 as well as the shortages that the virus produced.  That gives us both inventory build and revenue growth, both adding to GDP growth.  A significant part of the existing inflation is COVID-19 related, so it may dissipate over time, while some may be stickier.

iwm-russell-2000-market-timing-chart-2021-10-01-close

Small caps are in a trading range. Trade the range and any break UP or DOWN.

What we have is economic (GDP) growth with inflation, which is an optimal time to own stocks as long as inflation does not become excessive.  It may currently seem excessive vs. what it has been of late, but it’s not extraordinarily high vs. history.

And the combination of growth and inflation accelerating is one of the wrong times to own an excess of gold (beyond “insurance gold” as I call it).

So let’s get to gold…

3. Gold Market Timing (click chart to enlarge; GLD):  I only had to change a few words of this – mainly, the dates!  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 2022 (changed from 2023) vs. the previous guess they would do that in 2023 (changed from 2024).  They will taper the balance sheet as soon as the next meeting.  Rate increases will be data dependent as well, and will depend not only on the economy, but also upon 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 to individuals.  But President Biden has plans to inject lots of money via infrastructure and social programs that are being negotiated.  Both bills will be passed, although the number for the social infrastructure Build Back Better package is under negotiation.  The bills must be passed by the Democrats, or they’ll lose credibility.

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

However, watch the Sept. 21st close of 166.04.  A GLD move above there, which is the close prior to the Fed FOMC statement on Sept. 22nd, would be positive.  Gold bounced on Sept. 30th and consolidated on Oct. 1st to close at 164.84.

gld-etf-market-timing-chart-2021-10-01-close

Weak in the face of a strengthening economy and rising interest rates.

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):  See caption.  You see the yellow line that stopped the recent rise in rates?  If it goes up through there, you’ll know what the market thinks about inflation being under control.   Higher rates would mean increasing inflation concerns.  

tnx-10-year-treasury-note-market-timing-chart-2021-10-01-close

Interest rates will rise. The only questions are how much and how fast.

What Downside Risks Are There?

1. This Changed: The Federal Reserve will start as early as the next meeting to taper the size of their balance sheet, but the Treasury and mortgage backed security buying is not going to be done for a while.  Then and likely only then, will they raise the Fed Funds rate.

2. Still on: The drag on reopening will lengthen the rally of the stock market.  A slower reopening abroad will help our multinationals show increasing sales over time, as will the economies and stock markets of the slower to recover countries.

3. Check: Sentiment has not peaked yet.  It will before this is over.  There is plenty of cash sitting and making nothing with increasing inflation.  Those investors are losing buying power as they sit in too much cash.

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

I remain at just over 100% of my usual maximum exposure for a Bull market for those reasons.  NOTE: I change my exposure when things change, led first and foremost by stock market signals.  Don’t be surprised if I drop my exposure from 100% to 80% or less, in one day at some point.  (I don’t share my raw exposure to stocks for a reason.  Your allocation should depend on your net worth, your age, and your need for cash in the next 4 years among other things. Find the number that suits you…)

I believe the Fed will lag behind on inflation, and the 10 Year Treasury will rise further, but how much higher and how fast remain questions…

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 small caps determine the stock signal in this section of the report. They are in a trading range and have been for months.   

Gold Signal GREEN for a further U.S. stock market rally.  The Gold Trend is  short term NEUTRAL 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.  Real yields on the U.S. 10 Year Note are now negative though they are rising…  Click on “Daily Treasury Real Yield Rates” HERE.  They were -1.08 in August and were -0.89 on 10-08-21.  They are becoming less negative, which is negative for gold that likes falling real yields…

Kept for Reference: “Gold can RISE with stocks when real rates are FALLING, and the dollar is falling.  The dollar has been stronger of late, due to the Fed’s planned pivot, but it may start to weaken again as fiscal spending continues.   

These are thing gold doesn’t like:  1. Rising real rates (bonds/Treasuries become a threat to gold which pays nothing; banks and other companies make more money with rising rates) and 2. Economic recovery with higher corporate earnings. Earnings drive stock prices higher. Stocks pay dividends that compete with bonds, and companies use cash to buy back stock, which drives up stock prices, while gold pays nothing.

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.  Real interest rates have been rising around the globe.  Bad for gold.  

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.  

Rate Signal: Bullish for a further U.S. stock market rally.  Rates are back to rising in the near term.  The 10 Year Yield trend  is short term Bullish, and intermediate term NEUTRAL to Bullish depending on the time frame considered. (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 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…

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 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