Market Timing Brief™ for the 4-20-2018 Close: Markets Rolling Over? Gold Falling into Rising CPI? Rates Rising to the Sky?

A Market Timing Report based on the 4-20-2018 Close, published Saturday, April 21st, 2018…

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

1.  SP500 Index Market Timing: The US equity markets were trending up for 6 out of 8 days in the last run up.  Volatility was coming down gradually from well above 20 after peaking at 50.30 on 2-6-18.  The markets first major low off the all time high was on 2-09-18 three days later.  At the last high of the market on 4-18, volatility was rising rather than falling, which was a hint of things to come.  The market then fell Thursday and Friday, importantly, below the high of the previous prolonged consolidation (sideways move).  The top of that move was S*P*Y 266.77 and the close was at 266.61.  (I add the * signs here and on my social media feed to avoid bots finding the numbers.  May as well not make it easy for them!)

Earnings were not enough to keep the market above this key level, which is a negative.  On the positive side, professional investors at least are maximally Bearish at this point, which is one sign things are getting too negative.  I’ll get to individual investor sentiment later, which is NOT as Bearish.  Advisor sentiment LED individual sentiment on the way up, and I suspect it’s now leading on the way down.

The close below that level is negative, but not necessarily lethal, though my measures of buying strength did not show enough buying interest off the low on Friday to make the market a buy.  The S&P500 Index needs to recapture that level early on Monday to avoid further damage.

As I said on StockTwits/Twitter (links below) on Friday, the most Bearish intepretation is that the chart is the perfect picture of a market rolling over once again after a failed rally to just above the 50 day moving monkey average.  “Monkey,” because using it as a trading signal is not very useful.  It’s just a marker along the way and one has to assess market strength in any one moment to know whether a marker means something or not.  Notice how the market tested above this moving average twice before this for the two prior lower highs.  Some investors are pulled in as the market moves above the line and then the big boys and girls come in and “Sell, sell, sell!” as my friend Jim Cramer likes to say (not a drinking buddy no; just exchange comments from time to time).

The really big economic number coming out this next week (Fri. April 27th, 8:30 am ET) is GDP, the first estimate for Q1 2018.  Econoday says HERE that headline U.S. GDP (Seasonally Adjusted Annualized Rate of Growth) will be:

Real GDP – Q/Q change – SAAR Prior 2.9 % Consensus 2.0 % Consensus Range 1.3 % to 2.8 %

Two independent sources stated last week that they expect the headline GDP number to fall at the low end of that range, which could be taken negatively by the market.  You see, we know profits will remain strong throughout the year for the SP500 on a quarter by quarter basis vs. the same quarter of 2017, but we don’t know if revenues will continue at the prior growth level.  In fact, GDP is supposed to slip into the end of 2018 even according  to the Fed’s dot plots.

Remember, Trump/GOP Tax Reform has given companies an instant pass on earnings for the entire year.  That creates a much higher earnings bar for 2019  This means that immediate earnings are not as important going forward as are revenue growth and company profit projections into 2019. 

You had better be sure the companies you own shares of have more to say than “Profits are up for this year, but…as for 2019, it’s not going to be as hot or we see lower revenues in Q3 and Q4 of 2018 than we expected.”  Those stocks will tank.

Let me turn now to the potential drag of slowing growth around the world outside the U.S.  This will hurt U.S. multinationals.  This chart of France’s PMI is just one example showing how things are slowing already in Europe as shown HERE.  The same slowing is reported in China a major source of U.S. multinational sales growth.

The point of this?  U.S. GDP growth is slated to decline into the back half of 2018.  If interest rates rise much further AND oil prices continue to climb, profits will be hit from both the revenue side and the cost side, especially for companies with the most debt.

Trump and the GOP are successfully generating inflation, because they chose to engage in a late economic cycle stimulus.  When you push an economy already running at 4%ish unemployment, you create inflation.  As a fiscal conservative, I never liked the idea.  If they wanted to cut taxes, they should have cut spending along side the tax cuts!  I am very happy to be an independent as BOTH parties are now being led by big spenders!  Trump warned the electorate that he “loves debt.” And here it is…piling up in a massive National Debt that he intends to dump on our kids and grandkids!

The upshot of TrumpFlation is higher gas and other prices that will compete away dollars received in the form of higher wages in a tight labor market.  This will in turn drive down corporate profits, leading to a profit recession and as GDP slumps, possible stagflation or a return to deflation if the economy rolls over and the Fed is forced to lower rates to zero again.  The economy can stand mild inflation, but not high inflation, and global slowing is likely to dampen U.S. multinational profits and even create a profit recession.  Outright economic recession could follow that, but we’ll have to let time pass to see the trajectory of U.S. GDP.

All that said, what do I expect in the near term? (one or two quarters)

I expect somewhat higher inflation with corporate profit growth slowing (except for energy and commodity companies).   Profits will initially stay positive and that alone will help markets from falling to a brand new low.  This means that stocks could hold up OK and stay in a trading range between the 200 day moving average or the February low at the low end and the all time high at the high end.

On the Bullish side, I cannot rule out a complete re-topping of the market, short of any big negative events such as a Trump impeachment (unlikely in my view at this point despite the speculation; plenty of people could fall around him without Trump himself being impacted).  Investors will be looking for higher yields in both stocks and debt.  As inflation rises, bonds will take somewhat of a hit, and dividend bearing stocks will be pressured despite the attempts to chase returns.

Then as GDP growth and inflation slows into year end 2018, yields will ease and provide a better trading opportunity in bonds and Treasuries of longer term duration.  Stocks will could then slump further on decreased growth.

Summary: A range bound U.S. stock market for one to two quarters, then a fall to new lows as the U.S. economy slows on a lag to the rest of the world.  The risk is that the U.S. stock market starts to discount foreign slowing early.  This would hit multinationals hardest and then small and mid caps if/as such slowing continues.  On the plus side would be a GDP growth surprise from the tax cuts.   This is why we consider the fundamentals, but then follow the charts!  😉

The top of the range we were following was between 2672.08 and 2674.78.  Let’s follow the higher of the two as the “switch point.”

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

sp500-index-spx-market-timing-chart-2018-04-20-close

Rolling over to the prior low?

See what my exposure is at the social media links just below…

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 33,400+ people are joining in…

Follow Me on Twitter®.  Follow Me on StockTwits®.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +8.56% vs. -16.66% TWO weeks ago.  Sentiment did not become Bearish enough over the prior two weeks to say we hit a reasonable sentiment low.  Unlike advisor sentiment which is extremely Bearish by reports, individual sentiment was mildly BULLISH at last check.  This favors more immediate downside at least to the prior levels of support.  This is, however, only ONE factor I follow and these non-extremes have to be discounted vs. the true massive extremes such as the one I spotted in January before the big decline.

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
37.78% 33.00% 29.22%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing: Beginning March 2nd, small caps have been outperforming.  BUT they are now forming another lower high, which is not great.  The out-performance may be due to a feeling that international slowing is leading U.S. slowing, which will pinch U.S. multinational profits first.  However, small caps will not do well if inflation rises further than expected, as they tend to carry more debt.  That gives small caps a mixed risk picture vs. large.  If you intend to stick with a small cap position, continue to follow their leadership over large and rotate when that fails.

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

iwm-russell-2000-market-timing-chart-2018-04-20-close

Small caps still leading large…so far since the 1-26 top.

3. Gold Market Timing:  Still following the U.S. Dollar like a little puppy.  

The same trading advice applies as well: Preserve gold profits if you have them and ADD to your positions only if gold can break the obvious lid to the upside. 

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

gld-gold-etf-market-timing-chart-2018-04-20-close

Dollar up, gold down.

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX):  Rates are already much too high for the current economic conditions.  They went higher this week, so this adds further “cost input pressure” to stocks.  Higher rates and oil prices both lead to higher input costs.

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

tnx-10-year-treasury-note-market-timing-chart-2018-04-20-close

Challenge of 2014 high ahead?

 

In the last issue I reviewed “How to Beat This Market” HERE

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

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

MY SIGNAL SUMMARY for a Further U.S. Stock Market Rally with GDP Growth and Low Inflation:

Stock Signal YELLOW with a Bearish SP500 Index trend.  The S*P*Y must reclaim 266.77 (S*P*X 2674.78), which it could do Monday, to turn back to neutral.  I would see that reversal as somewhat Bullish actually if it sticks.  A quick test above means nothing.  Testing the prior low sooner rather then later could still be constructive, but buying there would require a reasonably tight stop!

Gold Signal  YELLOW with a Neutral Gold Trend.  Same as before: “You may as well wait to buy a breakout in gold as the distance to the top is not that great.  Preserve gold profits if you have them.”

Same Idea as Last Time: The failure to make a new high makes the trend “Neutral” for me rather than Bullish.  To Repeat: Remember GLD is being used as an indicator for the ECONOMY here.  A new recent LOW in GLD will turn the signal GREEN. 

Rate Signal  GREEN with a Bullish short term 10 Year Yield Trend.  Yes it changed since my last issue.  Resistance is just overhead at 3.036% though.  The market may signal being overbought when we get there.  We shall see.  

 To Repeat: “Remember this too is a signal for a “further stock market rally” as it’s being used here.  Remember “Bullish” for yields is Bearish for bonds and vice versa. 

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. 

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

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question…  Pay it forward too by sending the link to MarketTiming.Blog (that link will immediately connect them to this webpage) to a relative or friend.  Thanks for doing that.

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

Sun and Storm Investing™

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

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, go to my “Other Resources” page here:  Other Resources   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.  Check it out with a free trial at the link above.

Finally: Excuse and report all typos if you are so moved.  I do my best to pick up most of them, but can’t find them all.  Shoot me a comment (I don’t have to post the comment as I filter them, but I’ll be grateful to you!)

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

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

Market Timing Brief™ for the 4-06-2018 Close: Stock Market On the Edge. How to Beat the Market Now. Gold Since the SP500 Top – a Smaller Loss. Rates In Downtrend.

A Market Timing Report based on the 4-06-2018 Close, published Sunday, April 8th, 2018…

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

1.  SP500 Index Market Timing: What’s changed in a week?  Not much. We are dealing with the same old range that has held our attention for 10 market trading days now.  This is day trading heaven, if you catch the swings correctly.  It’s sort of like “swing trades” compressed into single days!

During the ups and downs of the last 2 months, I’ve been taking off exposure on some of the breaks and more recently on the bounces and putting on exposure at the lows.  But not at the Friday low.  I was not convinced by the VIX volatility index that the water was safe to re-enter.  At the same time, on a technical market timing basis, adding near the low Friday was a reasonable thing to do, provided you are willing to SELL that exposure if support fails.

I discussed last week that earnings could well save the S&P500 this coming week.  Earnings start in earnest on Friday with a couple of large companies reporting Weds. and Thurs. (detailed on social media; links below)  They had better save it, because you can see the alignment of support in the chart below at the lower yellow up trend line, which is very close to the 200 day moving average as well as to the recent lows of the wild consolidation we’ve been in for two trading weeks. That triple support had better hold.

As said, the 200 day moving average is just a guide and not a trading signal.  In fact, if you used it as a signal over the past two weeks, you’ve experienced whiplash.  I assess what the market is doing in other ways at a given level, rather than key off the level itself.

We are now at the decision point and the lines in the sand are easily seen.  The first transition is from a “correction” to a “Mini Bear” should the market fall from here.   A “Mini Bear Market” will occur by my definition if we close and continue below the ultimate support (Feb. intraday low is the final checkpoint).  A quick test below is not enough.  A “Mini Bear” will in turn only becomes a “Big  Bear” under the conditions that I laid out in detail HERE (Bear Types defined there too! See the blue text).

Trump Tariffs are not a market killer yet, just a market maimer.  The best Bulls can hope for (I am a market and political independent, not a Bull, Bear etc.) is very strong earnings and projections.  Watch the reaction to early earnings and especially Friday earnings carefully.  It could define an early pattern of what to expect with other companies and especially the market as a whole. 

I promised to tell you the best ways to WIN in this rough, volatile market, but I’ll save that for the end… Let’s review the SP500 Market Timing chart and then look at the small caps…

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

sp500-index-spx-market-timing-chart-2018-04-06-close

Recovery vs. Bigger Drop?

See what my exposure is at the social media links just below…

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 33,400+ people are joining in…

Follow Me on Twitter®.  Follow Me on StockTwits®.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -4.74% vs. -3.39% last week.  The change is almost insulting to the volatility in the market!  😉  This raises a note of caution about the probability of a strong rally from here, even if a bounce occurs.  The data is not decisive however, as it is not at an extreme of Bullishness either.  It’s mildly Bearish.

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
31.90% 31.47% 36.64%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing: Small caps are still outperforming SPY both from the 1-26 high and from the last high.  Comments from last week still apply HERE.  The Friday close was just off the low of the current consolidation range just as it was for SPY.  The market timing setups are about the same with IWM floating at a higher level vs. the Feb. low.

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

iwm-russell-2000-market-timing-chart-2018-04-06-close

Down Friday, but what will earnings bring?

3. Gold Market Timing:  The Gold ETF (click chart to enlarge the chart; GLD): is following the U.S. Dollar like a little puppy.  Gold is not following rates well now, and it makes sense that the dollar and rates are less correlated as well.  The market does NOT see rising rates as good for the U.S. dollar or the U.S. equity market, which it would be if the economy were going to be even stronger going forward.

Preserve gold profits if you have them and ADD to your positions only if gold can break the obvious lid.  Gold is holding up better than SPY during this correction, but is still down about 1.5% from the 1-26 SPY top.

gld-gold-etf-market-timing-chart-2018-04-06-close

As the U.S. Dollar goes, gold goes opposite!

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX):  Rates are still moving in the wrong direction.  They rose to resistance on Friday and fell.  This is why we are avoiding financials in general – until the situation changes.

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

tnx-10-year-treasury-note-market-timing-chart-2018-04-06-close

Rates rose to 2.795 and fell.

How Do You Beat the Market in this Volatile Period?

NOT BY:

  1. Holding the SP500 while it is going up and down, and lately mostly DOWN.
  2. Sector selection when all sectors are selling off.
  3. You may beat the SP500’s loss, but you won’t make a real return by holding either gold or the more recent “craze” among some pundits of commodities, when they are actually still falling with the SPX, just less.
  4. Holding bonds when rates will likely rise into the CPI rise over the next few quarters.
  5. Selling the lows!  (meaning DO NOT DO THAT!) We could be at a big turn up or down from here, so selling SP500 Index correlated stocks/ETF’s at this low could be as wrong as it could be right.  If you are overexposed to the market, you could still of course sell some on bounces. The point is, it’s late to sell the current decline without another breach of support (HERE!).  If the Bull market recovers from here, I’ll be adding exposure back.  But I am not taking off more exposure unless the market weakens further or on a weak/failed bounce. 

You do it (beat the S&P500 and counteract at least some of the losses in broad market exposure you continue to hold) by:

1. Holding more cash at highs and less cash at lows: that is what “Passive Shorting™” is about as described HERE.  (If you like that page, please “Like” that page using the Facebook Like button please.)  Buy low, sell high and repeat…

2. A corollary of #1: Preserving profits, especially on bounces, but on falls if you have to.  If you give up big profits so you can be “a good buy and holder,” you won’t beat the market!  Defend them at a reasonable level.

3. Selling FIRST all holdings (stocks and ETFs) you have that are failing vs. the SP500 Index on a relative basis vs. the 1-26 high or the lower recent high.  Otherwise, you’ll have no hope of beating the SP500.  Move some of that cash back into the SPX (or stronger stocks) on the lows and sell it at the highs.  If you have some reason for ignoring this advice for an individual stock, fine.  But be clear in your decision making process.

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

5. Speculate with a very small part  of your assets on the double or more baggers that will result from buyouts, such as biotech companies, but there may be others that you will discern from your own personal background in business.  Growth will be sought after by larger companies in a slowing world economy.

6. Do NOT sell stocks that remain stronger than the market (SPX) off the 1-26 high and/or off the most recent lower high.  Sell your SPY correlated exposure (after selling the worst!) before you sell your strongest positions! 

7. Don’t chase stocks or ETF’s when it’s actually “too late,” such as when the SPX is back testing a prior high.   Buy low, sell high.  Don’t chase high and try to sell higher or you’ll end up booking losses to protect capital or just ride further losses down.

8. If you have even more time, you can try shorting individual stocks/the market at the peaks, but for those of us who do not like betting in both directions at the same time, we’ll stick to Passive Shorting™ as the next best approach.  You can fall behind quickly when you have not only reduced your exposure, but are also partially short the market.  Alternatively follow someone who shorts stocks well and stick to their plan, not yours if you are not an advanced trader.  You may have to eat some large losses on the bounces if Trump comes out suddenly with a new idea on a Sunday night!  Take profits quickly when short for that reason.  Riding shorts for long periods is fraught with error.  Even the worst diseases heal in time.  So do companies.  Look at the miserable hedge fund performance around headline names for examples.   There are exceptions of course, but watch out for the traps.

Why don’t I short stocks in general?  I have the feeling of greater responsibility to be glued to the screen when I’m short something.  If you miss one news item, you can miss a 5% move.  I don’t like losing 5% of my money in anything in one day.  It happens, but I don’t set myself up for it.

9. Store some cash simply as plain old 100% liquid cash, so you can move it quickly to buy the lows, and some you may want to park in short term (1-12 mo) Treasuries.  Realize you may have to take a small loss if you want to sell some of these to buy stocks.  Don’t buy any bond that is NOT liquid!  Buy individual bonds, NOT bond funds, whenever possible as the funds could all sell off together if inflation goes the wrong way.  Fleeing investors can drive illiquid bonds down quickly as they did in 2008.  Otherwise use a “cash account” instead with a fixed rate of interest.

Of course, decide for yourself what you are comfortable with, but I for one will apply “Passive Shorting™” and don’t intend to watch the market give up 20% without taking further action and then move to the -50% level vs. the high without further action.  I share my exposure level on social media (links above), as mentioned.  Some of my regular readers are more aggressive in trading the swings than I am and will at times outperform my allocations.  If you find that works for you, great! 

Decide what you want your exposure to be to stocks, bonds, gold, etc.  Some day…maybe this year, but maybe 2-3 years from now, the “Big Bear” could happen.  We don’t know how low this move can take us yet. If you have no clue what your percent exposure is to various sectors and countries, you had better get organized with a spread sheet.  Otherwise you are flying blind.  Compare your results to the market regularly, even daily.  Otherwise plan to work your butt off for an extra ten years or so to make up for it!   I’m tough.  😉

We may be ready for a bounce and an exclamation of “that was it,” but regardless, prepare your plan.  If it is to do nothing and ride your investments up and down, fine.  At least do what you do consciously!

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

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

MY SIGNAL SUMMARY for a Further U.S. Stock Market Rally with GDP Growth and Low Inflation:

Stock Signal YELLOW with a Neutral SP500 Index trend.  The market will have to break further to change the signal.  Others are reporting “trend breaks.”  I do not agree, but I will admit to the possibility of a full 3rd wave down (covered last week), which would define a Bear Trend for me. 

Gold Signal  YELLOW with a Neutral Gold Trend.  You may as well wait to buy a breakout in gold as the distance to the top is not that great.  Preserve gold profits if you have them. 

Same Idea as Last Time: The failure to make a new high makes the trend “Neutral” for me rather than Bullish.  To Repeat: Remember GLD is being used as an indicator for the ECONOMY here.  A new recent LOW in GLD will turn the signal GREEN. 

Rate Signal YELLOW with a Bearish short term 10 Year Yield Trend.  Lower highs, lower lows make a Bear trend in general.  Negative (one factor) for the stock market rally.  Bonds are rallying.  I would change the signal to RED if/when 2.621% is broken in a real way. 

 To Repeat: “Remember this too is a signal for a “further stock market rally” as it’s being used here.  Remember “Bullish” for yields is Bearish for bonds and vice versa. 

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. 

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

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question…  Pay it forward too by sending the link to MarketTiming.Blog (that link will immediately connect them to this webpage) to a relative or friend.  Thanks for doing that.

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

Sun and Storm Investing™

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

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, go to my “Other Resources” page here:  Other Resources   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.  Check it out with a free trial at the link above.

Finally: Excuse and report all typos if you are so moved.  I do my best to pick up most of them, but can’t find them all.  Shoot me a comment (I don’t have to post the comment as I filter them, but I’ll be grateful to you!)

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

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

Market Timing Brief™ for the 3-29-2018 Close: Will the Hope of Strong U.S. Earnings Save the Market? Gold Trading Against the U.S. Dollar. Rates Slide from a Lower High.

A Market Timing Report based on the 3-29-2018 Close, published Sunday, April 1st, 2018…

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

1.  SP500 Index Market Timing:  Let’s first go through the technical progress of the market over the past 5 days: There has been NONE despite some investors feeling relief on Thursday – it’s simply moving in whipsaw mode – so far.  The only thing important is that which has NOT happened.

The market did not:

1. Break below the 200 day moving average.

2. Fall below the lower yellow up trend line.

3. Fall below the Feb. low.

The S&P500 Index simply bobbed up and down and the last bob was UP, so the next one, as I said HERE, could be down.

What’s still Bearish?

  1. Tech earnings growth acceleration may have peaked in Q1 with allowances already being made for the Trump tax cuts.  Tech earnings are still expected to grow, but the rate of change of growth could fall.
  2. SP500 needs to climb back above the March 2nd low.  If you try to buy exactly at the March 2nd low on the way up, the market could fake you out and fall after rising above it by a bit.  If you wait for a close and the market has already retraced almost 50% back to the lower highs on the chart, then the gain you may have could be equal to the loss, which is a lousy Reward: Risk Ratio, which generally you want to be 2:1 or better.  You may have to buy with a close stop in mind and sell when momentum runs out on the upside.
  3. CPI is supposed to resume its rise for a couple of quarters after this one, which could cause rates to rise, fears of the Federal Reserve hiking to rise, and the stock market to sell off again.

But the big Bullish factor per some and a growing narrative in mainstream media is much stronger earnings expectations with a record number of upward revisions during the quarter (when normally, the estimates FALL during a given quarter).  This is all detailed HERE (PDF pops up; provided by FactSet.com), and you really should at least read the top section to get a feel for the possibility of a Bullish Earnings Surprise.

Per FactSet: “The forward 12-month P/E ratio for the S&P 500 is 16.1. This P/E ratio is equal to the 5-year average (16.1), but
above the 10-year average (14.3).”  The market is not overvalued by these measures. 

Valuation is not the issue.  A deceleration of earnings will be the issue followed at some point by a GDP recession.  As I said last week, the latter is not in the cards in the next year or two unless global slowing gets quickly worse.  FactSet in the same PDF points out the SP500 is 69% US based, 31% ex-US in revenue exposure, but Tech for example has the greatest global exposure of any sector (40% US/60% Ex-US) to:

1. A possibly rising U.S. dollar as U.S. growth continues, while the rest of the world slows.  U.S. rates would remain higher drawing more interest in the dollar and U.S. dollar denominated investments.

2. Ex-U.S. global GDP slowing.

This makes me less interested in being overexposed to tech going forward until the rest of the world picks up.  This is also why small and midcap stocks could outperform large cap multinational companies in the SP500 Index.  The exposure of those indexes is not dramatically lower than the SP500, but it is lower (see link below).

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

sp500-index-spx-market-timing-chart-2018-03-29-close

Which way will it break? Will earnings bring the SP500 Index off the bottom?

See what my exposure is at the social media links just below…

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 33,400+ people are joining in…

Follow Me on Twitter®.  Follow Me on StockTwits®.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -3.39% vs. +4.74% last week.  Still not enough Bears to help define a bottom.  That does not mean the market cannot bounce, but it could eventually find a lower low or at least visit the Feb. low.  Bottom line: sentiment is not that useful, except to say “We have no great Sentiment Low yet.”

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
31.94% 32.73% 35.33%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing: Small caps are down about 5.08% from their 1-23 high close and large caps are down about 8.18% from their 1-26 high close.  Normally, all things being equal, small caps sell off harder than large.  The dollar does not seem to explain it all, which means tariffs could be more of the issue, as they hurt the multinationals, while sparing companies with U.S. based revenues.  This Data Set is not the best, because it does not tease out “the Americas” revenue, but it shows small caps do have less ex-U.S. exposure than large caps have. 

Small caps did fall more at the Feb. low than large, but during this current decline they are holding up better.  Because of the higher volatility of late, I am still not likely to add back small caps now, but I could not argue with doing it on a limited (using a short leash) basis.  As far as valuation goes, here are the data for large, mid and small caps per Thompson Reuters I/B/E/S HERE.

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

iwm-russell-2000-market-timing-chart-2018-03-29-close

Small caps holding up a bit better than large.

3. Gold Market Timing: Gold is trading off the dollar more than it is interest rates at the present time as shown in the chart.  Follow the dollar and you’ll likely have gold’s direction in the near term at least.

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

gld-gold-etf-market-timing-chart-2018-03-29-2-close

Gold and the dollar are inversely correlated.

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX):  Rates are headed in the wrong direction if you were expecting rising inflation due to a continued U.S. economic recovery.  This also hurts financials.  I discussed my targets for lows in this decline last week (see links to upper right).   Trading this is tricky because CPI is still supposed to resume its rise over the next two quarters at least.  If it does, rates could obviously perk up again and head toward the last high, even to 3% or higher.  If the rest of the world is in fact slowing and that continues, U.S. rates may end up being lower than we would otherwise expect.

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

tnx-10-year-treasury-note-market-timing-chart-2018-03-29-close

Rates falling still.

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

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

MY SIGNAL SUMMARY for a Further U.S. Stock Market Rally with GDP Growth and Low Inflation:

Stock Signal YELLOW with a Neutral SP500 Index trend.  The market will have to break further to change the signal.  Others are reporting “trend breaks.”  I do not agree, but I will admit to the possibility of a full 3rd wave down (covered last week), which would define a Bear Trend for me. 

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. 

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

Gold Signal  YELLOW with a Neutral Gold Trend

The failure to make a new high makes the trend “Neutral” for me rather than Bullish.  To Repeat: Remember GLD is being used as an indicator for the ECONOMY here.  A new recent LOW in GLD will turn the signal GREEN. 

Rate Signal YELLOW with a Neutral 10 Year Yield Trend. 

For now, this is a pullback in rates, not a trend change.  To Repeat from last week: “Remember this too is a signal for a “further stock market rally” as it’s being used here.  Remember “Bullish” for yields is Bearish for bonds and vice versa. 

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question…  Pay it forward too by sending the link to MarketTiming.Blog (that link will immediately connect them to this webpage) to a relative or friend.  Thanks for doing that.

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

Sun and Storm Investing™

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

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, go to my “Other Resources” page here:  Other Resources   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.  Check it out with a free trial at the link above.

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

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

Market Timing Brief™ for the 3-23-2018 Close: They’re Shooting the Stock Market Generals Now. How Low Will the Market Go? Gold Rallies as Rates Stay Tame.

A Market Timing Report based on the 3-23-2018 Close, published Sunday, March 25th, 2018…

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

1.  SP500 Index Market Timing:  The title of the post indicates that the market was “coming after” the leaders of the big 2017 to early 2018 rally on Friday, stocks such as Amazon (AMZN) and Nvidia (NVDA).  Weaker stocks generally fall first and then the generals are taken down on a relative valuation basis.

Besides that, some negative things happened technically in the SP500 Index this week. 

1. The double top held its ground (no breakout), and the market slid below the 50 day moving average.  Remember, we don’t trade off that moving average, but rather, we just note it and then examine the behavior of the market when it is reached, so in some senses it does not matter a lot.  But one thing it does tell me is how long the market will require to heal when it violates it to the downside.

2. The upward Bearish Wedge was broken to the downside.

3. The Upper line forming the long term up channel was again violated to the downside.

4. The March 2nd low was easily breached.

5. The 200 day moving average is being retested now along with the longer term channel bottom (lower yellow line).

It is possible Friday marked the near term low in the market – possible.  In fact, if Trump et. al. came out early Monday and said “The Chinese are willing to negotiate a new trade agreement to avoid a mutually destructive trade war,” the markets would bounce hard.  This means shorting the current level of the market is risky if you are not being stock-selective about it.

A Bear could easily say the obvious target for the market is a complete or penetrating retest of the Feb. 6th low of 2532.69, which is just 2.15% from Friday’s close.  Often markets fall to these obvious levels before bouncing, so my working assumption is that this is the next target for a bounce (with an overshoot of some magnitude).

Let’s look at the chart and then look at lower targets…

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

sp500-index-spx-market-timing-chart-2018-03-23-close

Testing near the prior major low…

If that level holds, this will have been a C wave of an A – B – C wave formation.  If not, the next target could be the Fibonacci target mentioned last week HERE Write down that number – again, all market levels including Fibonacci levels are just guides and only trigger trades if the market set-up is right at the time.  Remember that after a relatively rapid decline of the past two days there is often follow-through based on margin calls and reactive discussions of “Should we get out honey?” across the households of America. I expect to see Jim Cramer on the Today Show again soon.  He’s 0ften there calming people down when volatility spikes.

Is this the beginning of a Secular (long term with losses greater than 25% generally) Bear Market? 

First, let me coin some new terms here if you would… Let’s call a shorter, shallower Bear Market within a Bull Market  a “Mini Bear Market” and let’s call a really big decline of well over 25% associated with recession, which is a Secular Bear Market a “Big Bear Market.”  And we’ll call Secular Bull Markets “Big Bull Markets” and cyclical Bull markets within long term Big Bear Markets “Mini Bull Markets.” 

It’s unlikely this is a “Big Bear Market” in the making, as profits should continue to grow this year, albeit at a slower rate.  The inflationary Trump tax policies (spending and tax cuts based on massive government debt) will help extend the Bull market further than it would have lasted otherwise.  Short term, there could still be some slowing, but the tax policies could make the dip in GDP growth and profit deceleration less severe at the cost of future inflation and higher borrowing costs, in my view.

The slowing profit growth alone could compress PE’s, but is not enough in my view to end the secular Bull market.  We could see further damage however than the approximately 10.3% drop from the January 26th closing high.

If we see a series of closing lows below the February low, meaning not just a quick intraday test below for example, we will then in my view be in a Mini Bear Market, and we’ll likely head to a significantly lower test, perhaps to the Fibonacci level mentioned.  You can find a number of other levels of support in prior price action, but they have little meaning in my view.  Around 2100 would be a loss of the entire post-Brexit gains (Brexit was bad for the U.K. and a blip for the U.S.).   That would be my next target below my Fibonacci target (see link above; it’s in last week’s post).

Another important question is “How do you know a ‘Big Bear Market’ has begun?”  The only way to truly front run a “Big Bear Market” is to predict the path of the economy.  Bear markets are strongly associated with recession, so looking out for GDP growth to slow is paramount in detecting the biggest market turns.

The slowing in China, Europe, and India into 2018 could spread to the U.S., but the U.S. will probably be hit later than those markets on an economic basis.  The Federal Reserve itself sees faster growth this year than they previously expected, but then sees a gradual decline of GDP over several years as noted HERE.  However, they are not predicting a recession, out to 2020 at least.  Profit recessions can cause cyclical “Mini Bear” Markets with drops of up to 25% or so, but Secular “Big Bear” Markets occur in recessions and result in drops of well over 25% (even 50% or much worse – for ex. the tech crash beginning of March 2000 in which the NASDAQ Index lost 78% of its value vs. the top).

The Fed GDP median prediction is shown below (link above to data).  The Fed sees inflation rising to 2.1% by 2020 and being at their target of 2% longer term.  Unemployment they say (as the median of the group) will fall from 3.8% this year to 3.6% for the following two years and then rise to the longer term rate of 4.5%.   That low rate could start to push up inflation over the next couple of years.

2018

2.7

2019

2.4

2020

2.0

Longer Term

1.8

The above data says to me that PE ratios could compress in a Secular Bear Market, but there is no Secular Bear in the picture out a few years at least. 

THE PLAN? Until GDP slowing rears its ugly head in a bigger way, we will need to find places to BUY LOW, SELL HIGH.  The risk?  Some say U.S. GDP will be declining in the third quarter of 2018, but that data does not include the influence of the Trump GOP tax cuts.  That quarter starts July 1st. If companies start downgrading projections earlier than that, the market may front run the weakness.  If we “buy low,” we may be needing to “sell high” faster than we think.  No one can tell you what the impact of the tax cuts will be until they see what people actually do with the money.

What about technical analysis of markets?  Does it provide a way to predict a Big Bear market?  Other than saying the market is sustaining more damage than it had previously, not really, but it does tell you when you should consider lowering exposure, particularly if you need cash for your kids’ college education or other proximate expenses.

In my view, you should have already lowered your exposure a bit, even if the Bull market is not over.  Why?  Because markets around the world are breaking down in unison now.  They were rising together just weeks ago.  I am betting the SP500 Index will test the Feb. low and if it survives there and other technicals look OK, I will likely add back some exposure.   If not, I will very likely lower my exposure even further, again, depending on the market set-up at the time.  That is why you may want to stay plugged into the social media connections shown below…   Things move fast when markets fall.  They often fall faster than they rise due to the rush to the exits.  Remember however, that it’s OK to add exposure and then quickly exit if a given low does not hold. 

At this point, I would not personally lower my exposure except to protect profits here and there.  Waiting for the next break makes more sense, but I understand that if you need the money sooner rather than later, you may want to sell some right away.  I am just telling you what I’m doing real time on social media.  I won’t be selling Monday intraday unless we end up falling below the Feb. low and that would be a very tricky trade intraday, because it could represent a capitulation followed by an immediate bounce.  Remember to make your own decisions.  Sometimes I’ve been early with buys by a day or more, which can be costly over the short term.  In 2015, I bought the drop on August 20th and was two days early.  The Flash Crash of 2015 happened on August 24th two days after that buy.  Eventually I was up big on the buy of course, but in the short term, there is an opportunity for losses when you move too soon!

I will consider the SPX to be in a Bearish Trend only if the Feb. low is violated on a close.  There is a Bearish set-up for the long 3rd wave down mentioned, but that obviously requires a breach of the Feb. low. 

Look through your portfolio and sell the weak stuff, particularly on the bounces and rotate into stronger markets.  For example, as Germany was breaking down, I sold exposure there and moved it to U.S. stocks and ETFs.  I did the same for Japan and “old China.”

See how much I’ve lowered my exposure at the social media links just below…

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 33,400+ people are joining in…

Follow Me on Twitter®.  Follow Me on StockTwits®.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +4.74% vs. +15.51 last week.  We still have not reached a sufficiently Bearish reading, even a moderately Bearish one, to say this sell-off is at or nearing the end.

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
33.23% 38.28% 28.49%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing:  Notice that small caps are not falling as fast as large caps toward their 200 day moving average.  Again, we are using that moving average as a marker, not a trading signal, unless everything else fits when we arrive there.  Small caps are more insulated from the Trump Trade War, being conducted primarily against China, while protecting allies.  This is a fact, and the market is reacting to this fact.

I would not call the Small Cap trend Bearish quite yet as there is a higher low (on Mar. 2) despite the double top. 

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

iwm-russell-2000-market-timing-chart-2018-03-23-close

Off a failed breakout. Not falling as fast as SP500 Index.

3. Gold Market Timing: Rates did not blast off after the Fed meeting, so gold rose as expected.  The dollar was only slightly lower though, and since CPI Y/Y is expected to rise into Q3 and Q4 per Bloomberg estimates, rates could rise again after falling a bit during this global stock market sell-off.  For the time being, I think rates will stay below 3% in the U.S.  If rates don’t fall substantially however, gold may remain range-bound (131.15 being the top), so protect any trading profits.

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

gld-gold-etf-market-timing-chart-2018-03-23-close

Gold rises on tame rates and slightly weak dollar.

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX):  Rates did stay put as I predicted they would.  Rates higher than the last high would hurt stocks.  They would (AT THIS TIME), lead to deflation.  Global Economic cooling should keep rates range bound for a while at least until U.S. inflation turns over from a peak in the 3rd quarter (per Bloomberg data).  My lowest target is that green line in the chart and my first target is the “Deflationary Rate” I defined HERE (in the top SP500 section).

The Federal Reserve is raising rates into a slowing world economy with rates falling in the rest of the world except for China as the major example, where things will be worse as they are raising rates with ours, while their economy slows.  This is bad for growth, especially in the “Old China” economy.  That slowing could start to hit the new economy in China later, so we’ll be watching stops!  And then the Federal Reserve will be forced to drop rates again as our economy slows.

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

tnx-10-year-treasury-note-market-timing-chart-2018-03-23-close

Coming down…but likely stuck in a range for a couple of quarters.

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

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

MY SIGNAL SUMMARY for a Further U.S. Stock Market Rally with GDP Growth and Low Inflation:

Stock Signal YELLOW with a Neutral SP500 Index trend.

Much more detail in the text above.

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. 

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

Gold Signal  YELLOW with a Bullish Gold Trend

No changes from last week.  To Repeat: Remember GLD is being used as an indicator for the ECONOMY here.  A new recent LOW in GLD will turn the signal GREEN.  It’s a bit more complicated over the short term as rates above 3% are currently being taken as a negative by the markets.  Gradually rising rates can be fine for the economy, but not rates that rise too fast as important parts of the world economy slow. 

Rate Signal YELLOW with a Neutral 10 Year Yield Trend. 

To Repeat from last week: “Remember this too is a signal for a “further stock market rally” as it’s being used here.  Remember “Bullish” for yields is Bearish for bonds and vice versa. 

For the near term move, the bond setup is Bullish due to the wedge break.  Longer term, I expect rates to gradually rise as the recovery matures and the fiscal stimulus either wears off or forces the Fed to raise rates repeatedly due to inflation finally increasing.”

As said two weeks ago: “Remember that Goldilocks feelings (growth with relatively low rates) will vaporize if and when we return to a worldwide slowdown with deflationary fears.  Then rates would plunge, causing bonds to make big gains, gold to rally strongly, and stock markets to decline in a big way.  Remember that any rapid reset could hurt gold as well as liquidity is sought. “

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question…  Pay it forward too by sending the link to MarketTiming.Blog (that link will immediately connect them to this webpage) to a relative or friend.  Thanks for doing that.

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

Sun and Storm Investing™

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

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, go to my “Other Resources” page here:  Other Resources   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.  Check it out with a free trial at the link above.

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

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

Market Timing Brief™ for the 3-16-2018 Close (3-21-2018 Update for SP500 Index): The Fed Will Drive the Markets This Week. Small Cap Growth Failed a Breakout. Gold Holding Key Support as 10 Year Yield Hovers Below 3%.

A Market Timing Report based on the 3-16-2018 Close, published Sunday, March 18th, 2018…

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

1.  SP500 Index Market Timing: The President is still waging an undefined trade war with the rest of the world, and this has unsettled markets. 

This week there is something even more important to the markets and that is the first full Fed meeting accompanied by a televised news conference.  The new Federal Reserve Chair, Powell, must make the stance of the Fed clear to the markets.  A 0.25% hike in the Fed Funds rate is expected.  If he is more hawkish than previously believed, the markets will not like it.  The markets could react badly if he is too dovish too, as that would mean the Fed no longer has confidence in the trajectory of the economy as they previously envisioned it.  Although a negative reaction to increased dovishness is possible, my personal sense is that the markets will like a more dovish stance, as they already see the relative slowing of Europe and China.  The best case is that is is a bit more dovish than before, but not dismally dovish.

As far as the chart goes, there are two Bearish features that must be overcome for the Bulls to re-top this market.  1. A rising wedge, which is Bearish until the market cuts above the top magenta line and 2. The double top, which must be overcome to avoid turning down into a C wave down in an A – B – C wave pattern or even worse, into a 3rd Fibonacci wave or “Wave 3,” which is classically 1.618 (min.) times the Up 2nd wave.  That would mean a drop of 415 points from 2789.15, which would bring the market to 2374.  These numbers must be confirmed by examining the behavior of a market once it reaches them.

What would bring us there?  Perhaps slowing in the rest of the world detracting from U.S. multinational growth.  Furthermore, if the U.S. economy continues to strengthen ahead of the rest of the world, the dollar will strengthen and our goods will be less competitive.  Earnings come down in that situation as foreign money buys less in U.S. dollar terms.

There is also a Bullish view of the chart that says the yellow line marking the last two highs plus the lower magenta line represent an ascending triangle, which is normally seen as Bullish.  The combination of the wedge and double top bring this into question.  Better to follow the trade in the direction of the next swing!

UPDATE 3-21-2018: A further Bullish view that has developed over the past two days is that the current consolidation is at the 50% retracement level of the entire move down in Jan.-Feb., but more importantly, this low matches the 2-21/2-22-18 low (left shoulder), which forms an inverse head and shoulders on the chart, which could drive the market to a new all time high.  The Head is 3-2-2018 and we are now forming the second inverted shoulder.

What’s the best case scenario?  Trump tax cuts are borrowing future purchases into the present (companies can write off investments in one year), so U.S. growth could be stronger than the rest of the world for a while before demand starts falling fast as the impact of tax changes wears off.  But until that time, earnings could remain strong and even surprise analysts.  For this reason, the markets could have further to go, in spite of Fed worries that may arise this week.  Low corporate taxes could spur further growth and extend the economic cycle even further before the next secular slowdown.

When it comes, the next slowdown will be “big,” so we must watch the exits, even if, and as I expect, the markets continue to rise.   Jeremy Grantham was quoted as saying large-cap U.S. stocks will return NEGATIVE 4.6% per year over the next seven years without taking inflation into account.  Not good.  And the next downturn could last far longer than 7 years. No reason to “get out” now, but a reason to be very alert to changes in the economy.

You can check my investment stance in exposure terms at the social media links below…  And now, let’s look at small caps.

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 33,400+ people are joining in…

Follow Me on Twitter®.  Follow Me on StockTwits®.

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

sp500-index-spx-market-timing-chart-2018-03-16-close

Rising wedge and double top are Bearish unless the Bulls can rally above both.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +15.51 vs -1.98% last week.  Note the high “Neutrals” level, which is predictive of a higher market 6 months out (about 80% odds per AAII).  The spread level itself is not helpful as it’s only mildly to moderately Bullish.

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
36.84% 41.83% 21.33%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing:  Since the 2-27 high, IWO is leading IWM and IWN is last, while all three have beaten SPY.  Since the 3-13 high, IWN is beating IWM, which is stronger than IWO, with all three again beating SPY, but only since Friday.  IWO is below its prior high of 198.30 at a Friday close of 198.21, so barely below it.  There is an opportunity to make a new all time high if the Fed comments are taken well.  If not, down we go.  Achieving a new high close before the Fed meeting ends on Weds. would be impressive. 

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

iwm-russell-2000-market-timing-chart-2018-03-16-close

Small Caps off their prior high, but small cap growth is barely below the prior high.

3. Gold Market Timing: Rates down, dollar down, gold up.  Same old dance.  If the Fed reaction is rising rates this Weds., gold will fall below support.

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

gld-gold-etf-market-timing-chart-2018-03-16-close

Waiting for the Fed now.

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX):  I stick by this: Rates must move down from here for stocks and gold to continue upward.  CPI turned out to be flat Y/Y in this week’s report, so rates simply hovered near the prior 3% cap.  Any move above 3% would be taken badly by the markets in the near term.  Over the longer term, rates will move back above 3% due to Trump’s inflationary tax and tariff policies.

Avoiding a Big Third Wave Down:

So what must happen for the SP500 Index to move still higher rather than rolling over, resulting in another DOWN wave?   Same list as last week.  Read it HERE (near bottom in section #4).  Add to that list “The Fed must be neutral to incrementally more dovish.”

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

tnx-10-year-treasury-note-market-timing-chart-2018-03-16-close

Rates above 3% will choke the stock market.

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

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

MY SIGNAL SUMMARY for a Further U.S. Stock Market Rally with Low Inflation:

Stock Signal YELLOW with SP500 Index Neutral

Turned yellow from Green as it’s based on small caps that must make a new high to become Bullish again.  Follow IWO as a more sensitive indicator this week.

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. 

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

Gold Signal  YELLOW in a Bullish Gold Trend

Remember GLD is being used as an indicator for the ECONOMY here.  A new recent LOW in GLD will turn the signal GREEN.  It’s a bit more complicated over the short term as rates above 3% are currently being taken as a negative by the markets.  Gradually rising rates can be fine for the economy, but not rates that rise too fast as important parts of the world economy slow. 

Rate Signal YELLOW with a Bullish 10 Year Yield Trend.  Remember this too is a signal for a “further stock market rally” as it’s being used here.  Remember “Bullish” for yields is Bearish for bonds and vice versa. 

For the near term move, the bond setup is Bullish due to the wedge break.  Longer term, I expect rates to gradually rise as the recovery matures and the fiscal stimulus either wears off or forces the Fed to raise rates repeatedly due to inflation finally increasing. 

As said last week: “Remember that Goldilocks feelings (growth with relatively low rates) will vaporize if and when we return to a worldwide slowdown with deflationary fears.  Then rates would plunge, causing bonds to make big gains, gold to rally strongly, and stock markets to decline in a big way.  Remember that any rapid reset could hurt gold as well as liquidity is sought. “

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question…  Pay it forward too by sending the link to MarketTiming.Blog (that link will immediately connect them to this webpage) to a relative or friend.  Thanks for doing that.

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

Sun and Storm Investing™

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

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, go to my “Other Resources” page here:  Other Resources   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.  Check it out with a free trial at the link above.

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

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

Market Timing Brief™ for Bitcoin 3-12-2018: How Could This Bitcoin Bear Market End?

A Market Timing Report based published Monday, March 12th, 2018

I deliver focused comments on market timing once or twice a week.  These are supplemented with daily “Tweets/StockTwits” (see links below).  If you are not interested in bitcoin, see my latest post by scrolling down to the SP500 section HERE. Thank you.

Is Bitcoin Falling or Rising?  How Could This Bitcoin Bear Market End?

The overall trend could still be considered down as I’ll show you, despite a resolution of the previously charted downward wedge to the upside.  The break of that wedge to the upside was positive for sure.  That led to the short term bounce to a lower high from the Feb. low. What is needed to change the big trend is a daily chart higher high, and that new high must stick; it cannot be a failed market timing breakout as we saw back in early 2018.

The good news from a Fibonacci market timing perspective is that we’ve had wave 1 down, a double 2nd wave up, a 3rd wave down to the Feb. low, a double 4th wave, and now we could be completing a 5th wave down which would be most effective in supporting a new up trend if it hit that Feb. low again or even went a bit lower.  That would be a full retest with capitulation.  A reversal back above the Feb. low OR a bounce off that low would complete the latest Bitcoin Bear Market.

Added 3-29-2018: A fifth wave can extend LOWER than the Feb. low [6001 on Bittrex; that # varies by exchange].

A final “Bullish Way Out” is viewing the low preceding the second circle from the left as an inverted shoulder, the Feb. low as an “inverted head,” and the late Feb. low as an inverted right shoulder, the whole picture being called a reverse head and shoulders formation.  The last little dip was a retest of the inverted shoulders, and for now, bitcoin remains above that level.  As long as bitcoin advances from here and does not fail at those inverted shoulders (drop below them), this reverse head and shoulders formation could lead to a rally back to 17.500 or so.  That is the most Bullish scenario from here…

In the meantime, if we see such a rally, I would risk manage your bitcoin (and ALL cryptocurrencies) as I outlined previously HERE.

BTC-bitcoin-market-timing-chart-2018-03-12-1019am

Series of lower double tops, one after another.

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 33,300+ people are joining in…

Follow Me on Twitter®.  Follow Me on StockTwits®.

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.

If you want to know more about the charting system I use every day, go to my “Other Resources” page here:  Other Resources   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.  Check it out with a free trial at the link above.

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

Posted in Cryptocurrency, investment, trading | Tagged , , , | Leave a comment

Market Timing Brief™ for the 3-09-2018 Close: The Four Things Required for the SP500 Index to Move Higher. Small Cap Growth Liftoff. Gold Pausing at Feb. Low. Rates On the Line.

A Market Timing Report based on the 3-09-2018 Close, published Sunday, March 11th, 2018…

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

1.  SP500 Index Market Timing: I used market timing and deployed more cash near the low on 3-01 and 3-02, and a bit more on 3-06, and very little on 3-07 to add to a prior buy in a tech stock mentioned at the social media links below.  This Friday’s close gives us a very interesting set-up, because three of four markets are “On the Line,” including the SP500 Index, gold and interest rates, while IWM is stronger as I explain in detail below.  

A key part of the Bull set-up is this: TNX would ideally hold below 2.897% (on Friday I said 2.895%, but I’d allow the former), and definitely must hold 2.925% or we have a re-topping of the prior high in the 10 Year Treasury Yield and a risk of even higher rates.  That would be taken badly by the equity markets around the world, because, as I wrote HERE, the market has already decided that even the rates we have now are on the restrictive side.

I revealed the “tripwire” market timing number HERE (the rate above which the market became disturbed).  Would the economy die at the current rates?  No, but the reaction to the market when we made the climb to these levels was telling as I’ve explained.  I believe current U.S. rates may actually be a bit too restrictive relative to prior conditions considering the slowing of economic data particularly in Europe, but also in China and Japan.  HERE is a graph of Japanese GDP that appears to be rolling over from lower highs (click on the 5 year view).  The annual numbers look OK, but they are likely topping out now.  Sell high, buy low. That is what I coined as “Passive Shorting™” HERE.

I have closed out some foreign exposures aggressively, moving that exposure back to the strongest U.S. sectors.  You can see what I do every day at the links just below…

Want the Bullish technical view for SP500 Index market timing?  Note the magenta lines.  They form an up trend that could continue, and we are only at the middle of that up trend, not at the top yet.  The next decline could in fact occur at the upper magenta line, not at the current possible double top with the prior daily high.  I will admit, I could have included the “swoon low” in the lower magenta trend line, and had I done so, you’d see an upward wedge, which is Bearish.  For now, I’ll wait for a new high above the 2-27 high.

Keep reading, because in the last section I’ll reveal the exact sequence of events I want to see in the charts early in the week for the market to pivot UP rather than down from here.  Make no mistake (as GW would say), this is a key pivot point.

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 33,400+ people are joining in…

Follow Me on Twitter®.  Follow Me on StockTwits®.

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

sp500-index-spx-market-timing-chart-2018-03-09-close

Up or down from here? Small cap growth and tech say UP.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of  -1.98% vs. +13.87 last week.  We still have not reached the sentiment spread lows of the prior Flash Crashes (see previous issue).  I don’t think that is lethal, but it’s one point of caution when investors don’t turn Bearish enough on downturns.  I would not use this fact to bet against a re-topping of the SP500 Index however.

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
26.40% 45.21% 28.38%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing: Insulation from a possible US Tariff War, at least in direct terms, is clearly helping the small caps.  When I say “small caps,” let me be clear that although IWM (small caps; Russell 2000) did better than the SP500 Index off the top and off the 2-08 closing low, it was IWO (small growth) that won.  IWO also beat IWN (small value) off the 1-26 top.  IWO is also leading and closed at an ALL TIME HIGH on Friday (IWM is shown in the chart below and is weighed down by IWN stocks).

The remarkable thing is small growth (IWO) did not drop as far on a closing basis as did SPY in the big decline.  This is not the usual relationship of the two at bottoms. Usually small caps overshoot to the downside due to their lower floats and higher beta.  Even if you step back to the pre-election low and look at returns to today, small cap growth has given large cap tech (XLK) a run for it’s money.  Big tech won over small growth over that period, but small caps still nicely outperformed the S&P 500 Index (SPY). 

Bottom line?  Buy small growth when the economy is growing if you are going to put assets into the small cap space.  Buy pullbacks.  Don’t chase!

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

iwm-russell-2000-market-timing-chart-2018-03-09-close

Stick with small cap growth if you buy small caps. Buy pullbacks only.

3. Gold Market Timing: Rates, if contained and then falling as discussed, will mean down dollar and up gold.  If not, gold will do poorly. 

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

gld-gold-etf-market-timing-chart-2018-03-09-close

Rates must fall for gold to rally. The dollar in turn must weaken.

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX):  Rates must move down from here for stocks and gold to continue upward.  We get CPI and PPI data out next Tues. and Weds. respectively.  Those numbers could have a big impact on the current chart.  Nonfarm Unit Labor Costs rose a brisk 2.5% quarter over quarter, but for 2017 they were up only 0.4% after rising 1.1% in 2016 as noted HEREHigher wage pressure was the theme during the recent decline, so we’ll see if that translated into CPI measured inflation or not.  Heads up on Tuesday morning!

Avoiding a Big Third Wave Down:

So what must happen for the SP500 Index to move still higher rather than rolling over at a double lower top, resulting in a big third DOWN wave? 

  1. Rates must stay below my numbers (noted above) and then decline.  The first decline could be contained by the prior breakout of 2.621%.  That is also the base of the broken wedge.
  2. The U.S. dollar weakens a bit OR stays flat.  Assets moving into the U.S. for better treatment due to Trump tax reform at the corporate level and flight from weaker stock markets/economies could both help keep the U.S. dollar from falling dramatically.  There is a limit to how low the dollar can go now, as Europe is already slowing; hence, the Euro will likely fall and keep the dollar up.  If Europe slows too much it could drive the U.S dollar up too much and hurt U.S. multinational profits over the short to intermediate term.  The U.S. stock market (esp. large caps) is most vulnerable now to strength in the U.S. dollar, which could come rising US rates (not what I favor) OR from Eurozone/China/India slowing.  Money jumps from the the weakest to the strongest economies.  The latter would be good for the U.S stock markets unless worldwide slowing is so pronounced as to significantly impact U.S. corporate profits.  This hurts multinational large cap stocks the most.  
  3. The SP500 Index needs to rise above the 2789.15 high on 2-27-2018.
  4. Current market leadership must continue higher. That means XLK and IWO must make higher highs.

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

tnx-10-year-treasury-note-market-timing-chart-2018-03-09-close

Rates must fall now or stocks will likely turn lower.

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

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

MY SIGNAL SUMMARY for a Further U.S. Stock Market Rally with Low Inflation:

Stock Signal GREEN with SP500 Index Neutral

Wow, this held up for another week: Last week I said: “The SP500 Index must rise above 2789.15 to turn Bullish again.  Right now the pessimistic view is that we’ve formed a lower high on the chart above.”  The signal is GREEN because it’s based on small cap performance.  Small caps are back in an up trend already, and IWO is at an ALL TIME HIGH!  This set-up of both TECH and small cap growth at new highs is itself Bullish for the SP500 Index.  But the proof will come early in the week, perhaps after tame CPI data, if that occurs. 

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. 

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

Gold Signal  YELLOW in a Bullish Gold Trend

No big change from last week: Remember GLD is being used as an indicator for the ECONOMY here.  Gold coming off a major high is GREEN for the economy and the stock market.  The signal is NOT a gold signal here.  A great economy should mean higher rates, dollar up, and gold down except when inflation is not being headed off by the Fed.  Then gold can rise despite the stronger economy.  I suspect gold will start rising again and the signal will turn red as rates continue to FALL, and the dollar continues to fall or stay about flat in turn (read above for more).  The signal will be back to RED when GLD makes a new recent high.

Rate Signal YELLOW with a Bullish 10 Year Yield Trend.  Remember this too is a signal for a “further stock market rally” as it’s being used here.  The Bearish wedge break shown above is critical here and that’s where the “yellow” signal arises.  Rates are falling for the short term at least in my view.  Remember “Bullish” for yields is Bearish for bonds and vice versa. 

For the near term move, the bond setup is Bullish due to the wedge break.  Longer term, I expect rates to gradually rise as the recovery matures and the fiscal stimulus either wears off or forces the Fed to raise rates repeatedly due to inflation finally increasing.  “Bearish” for the 10 Year Yield would be a fall in the 10 Year Yield below the prior important highs of 2016 and 2017. 

Remember that Goldilocks feelings (growth with relatively low rates) will vaporize if and when we return to a worldwide slowdown with deflationary fears.  Then rates would plunge, causing bonds to make big gains, gold to rally strongly, and stock markets to decline in a big way.  Remember that any rapid reset could hurt gold as well as liquidity is sought.  

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question…  Pay it forward too by sending the link to MarketTiming.Blog (that link will immediately connect them to this webpage) to a relative or friend.  Thanks for doing that.

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

Sun and Storm Investing™

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

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, go to my “Other Resources” page here:  Other Resources   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.  Check it out with a free trial at the link above.

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

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