Market Timing Brief™ for the 10-11-2019 Close: “Market Rallies and Falls On the Big Little China Trade Deal. What’s the Upside? Also: How to Manage the Gold Trade as Interest Rates Fluctuate.”

A Market Timing Report based on the October 11, 2019 Close, published Saturday, October 12th, 2019…

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

I provide quite a bit of intraweek commentary, and if you don’t see it, you will miss out on quite a bit of context, so please click on the social media links below and have a read…  Thank you as always for being loyal readers and interacting on social media with your questions and comments! 

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

We are headed into earnings season in earnest in the coming weeks starting on Tuesday.  (Monday banks are closed; equity market is open, but no earnings releases appear to be scheduled.)  The data out so far is worse than what is expected for the SP500 Index as a whole, and we will need to wait for the flood of earnings that is now upon us.  This week alone, as you’ll see in the “Earnings Risk/Opportunity” section, analyst earnings estimates for Q3 dropped 22%.  That number will be refined over and over until we get the final result for Q3.

Earnings Season will entail individual risk to some companies, which will result in sudden bursts of volatility and downside for their stocks, while others will be volatile to the upside.  That is the usual, and the violence inflicted upon the companies trading at Price:Sales of 10-20 times or more will be particularly harsh.  You had better be sure those companies will hit their numbers, and not be caught holding them if at all possible.

In chart terms we are at about 57%ish from the base to the top of the channel defined by the two yellow trend lines in the chart below.  That’s not a great place to add.  Even with the so called “Partial Trade Deal” with China, we are only 0.61% above the close of the previous Friday.

Per the prior Bull argument, the Fed is coming to the rescue of the U.S. from global GDP slowing, but the China trade issue is one thing that is making it easier for the Federal Reserve to lower rates, so what if that goes away? Does the Fed have to cut rates as much?  Probably not, BUT the global economy was already slowing before the tariffs made it all worse, so the Fed will likely continue to cut at least one more time.

What is happening “Under the Hood” this week?

1. Even this week, utilities (XLU) continued to outperform every other sector since the Aug. 5th low on up.  That is even with a significant bump up in rates since Weds.  Only Tech (XLK) is barely below the returns for utilities, with a lower yield of course (1.26% vs. 2.92% for Utilities XLU Ref.).

2.  Still true from last week: “If you believe Utilities represent a signal, then the Fed is not done lowering rates and they may lower them more than expected.  This drives more and more money into utilities until they too are overvalued, and they too fall when the entire market falls as one great sinking ship.”

Use stops on your positions. Mental stops only or set intraday stop-limit orders (set the spread wide enough to allow your sell to go off; to do that, you’ll need to see trades go off in real time.  You won’t always get your fill , which is why you should also set an alert at the sell price to make sure your shares were sold!  In my experience, if you set the spread right on a stop-limit, your trade will go off over 95% of the time.  Check up on the stock/ETF each day if the price is close to your stop and reset the stop as needed.  Limit orders that are not close to the current market price are dangerous in the case of a Flash Crash.  And the other thing is your shares sit there for market makers to pick off if you enter stops into the market, and then they guide the market back up.

3. Second place?  That is taken by XLRE (Real Estate) and XLP (Cons. staples), which are running neck and neck. Nothing else is working noticeably better than the SP500 Index.

4. Warning: (from last week) XLP: If inflation accelerates over the coming couple of quarters, consumer staples will have problems as their input costs rise.  They only work in periods like December.  Falling rates will hurt XLF, while rising rates will help them in general.

Let’s turn to the state of the market, which has made a lower high vs. the top yellow line in the SP500 Index market timing chart below…

What would satisfy me that the Bulls are serious?

The Bull Market Health Score this week is Bulls 4.0/Bears 1.0 vs.  Bulls 2.0/Bears 3.0 last week. 

That supports my upside call for the SP500 Index of the top yellow line on the chart below at 3052ish (and rising slowly).

For each checklist item below, I give you the points scored as Bullish or Bearish. 

1. New high?  Bulls 0.5 point.  Answer: No.  But there is a bounce, so 0.5 pt scored by the Bulls.  Another issue is the weakness across the matrix (see below).

2. V*IX trend favorable?  Bulls 0.5  Answer: Neutral.  The VIX fell to 15.58 at the close Friday, with support at 15.51.  It needs to drop below there to move into a down trend.  However, the V*IX Game Score as I call it is Bulls 4/Bears 3 (7 point scale) as of the close Friday.  The midpoint is the “fulcrum” and the Bulls are one point over it  (details at base of report)

3. AD % Line in an Uptrend? (This is a proprietary stat; see base of report.): Bulls 1.0 point.  Answer: Yes.  The close was 16,686 vs. 16,649 last week.  A higher low was formed, so the up trend has resumed for this indicator.

4. Higher volume on Up Moves?  Lower volume on Down moves? Bulls 1.0 point.  Answer: Yes.  It was OK for large caps and much stronger for small caps, although the latter gave up a lot of ground, when the limited extent of the China deal was revealed, so part of that volume was “distribution” vs. real buying. 

5. Is the “U.S. Index Matrix Signal,” as I call it, positive?  Bulls 1.0 point.  Answer : Yes.  The small and mid caps did respond as they should have, with a bit less enthusiasm than expected.   

Let’s check in on the context around the price action of the market by looking at the current Market Risks… 

We have some new earnings data this week…

Earnings Risk/Opportunity: what is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 8-09-19 with a skip of two weeks until the 8-30-19 data resumes the weekly data sequence (details HERE)… The arrows “—>” indicate 3 weeks of of omitted data in order to compress the data.  

For Q2 2019, analysts are projecting earnings growth of 0.1%  —> -1.3% ->  —> -2.1%  —> -2.6% -> -2.6% -> -3.0% -> -1.9% -> -2.6%-> -1.0% -> -0.7% -> -0.4%  DONE

and revenue growth of 4.6%  —> 4.3%  —> 4.1%  —> 3.8% -> 3.8% -> 3.7% -> 3.8% ->4.0% ->4.1% -> 4.1% -> 4.0%  DONE

For Q3 2019, analysts are projecting earnings growth of 1.8%  —> 0.8%  —> 0.3%  —> -0.5% -> -0.5% -> -0.8% -> -1.4% ->-1.9% -> -2.2% -> -3.1% -> -3.5% -> -3.6% -> -3.7% -> -3.8% -> -3.7% -> -4.1% -> -4.6%

and revenue growth of 4.4%  —> 4.4%  —> 4.2% —> 3.8% -> 3.8% -> 3.3% -> 3.2% ->3.2% -> 3.1% -> 3.0% -> 3.1% -> 2.9% -> 2.8% -> 2.8% -> 2.8% -> 2.8% -> 2.7%

For Q4 2019, analysts are projecting earnings growth of 8.1% —> 7.5%  —> 7.2%  —> 6.3% -> 6.3% -> 6.0% -> 5.4% ->4.9% -> 4.5%  -> 3.9% -> 3.5% -> 3.4% -> 3.2% ->  3.0% -> 2.9% ->2.6% -> 2.3%

and revenue growth of 4.8%  —> 4.8%  —> 4.6%  —> 4.3% -> 4.3% -> 4.2% ->4.0%-> 4.0%-> 4.0% -> 4.0% -> 4.0% -> 3.8% -> 3.7% -> 3.6% -> 3.6% -> 3.6% -> 3.5%

For CY 2019, analysts are projecting earnings growth of  3.4%  —> 3.2%  —> 2.7% -> 2.6% -> 2.4% -> 2.3% -> 1.7% -> 1.9%  -> 1.5% -> 1.5% -> 1.4% -> 1.3% -> 1.3% -> 1.3% -> 1.2% -> 1.1%

and revenue growth of 4.7%  —> 4.7%  —> 4.5% -> 4.4% -> 4.3% -> 4.4% ->4.4% -> 4.4% -> 4.3% -> 4.4% -> 4.3% -> 4.2% -> 4.1% -> 4.1% -> 4.1% -> 4.1%

For Q1 2020, analysts are projecting earnings growth of 10.5% -> —> 9.8% -> 9.5% ->9.2% >9.0% -> 8.5% -> 8.2% -> 8.1% -> 7.9% -> 7.9% -> 7.8% -> 7.6% -> 7.3%

and revenue growth of 6.2%  —>5.8% -> 5.9% ->5.9% -> 5.7% -> 5.6% -> 5.7% -> 5.5% -> 5.5% -> 5.4% -> 5.4% -> 5.5% -> 5.3%

For Q2 2020, analysts are projecting earnings growth of 13.3%  —> 13.5% -> 12.0% ->12.6% -> 10.7 -> 9.9% -> 9.3% -> 9.2% -> 9.1% -> 9.0% -> 9.0% -> 8.7% -> 8.6%

and revenue growth of 6.8% -> —> 6.6% -> 6.7% ->6.6% -> 6.5% -> 6.4% -> 6.5% -> 6.4% -> 6.4% -> 6.3% -> 6.3% -> 6.3% -> 5.9%

For CY 2020, analysts are projecting earnings growth of 10.7% -> 10.6% -> 10.6% -> 10.6% -> 10.5% -> 10.6%

and revenue growth of 5.6% -> 5.6% -> 5.6% -> 5.6% -> 5.7% -> 5.6%

The series of projections for Q4 2019 has fallen from the first estimates from 8.1% down to 2.3% this week.  It could turn negative as Q3 is already projected to be, and Q3 earnings fell another notch down this week from -4.1% to -4.6%, a 22% drop as said.  That’s not the directional change you want to see at the very start of earnings.  Of course, the next couple of weeks will be a far greater test.

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

China Deal Risk: President Trump is going to make a partial deal, because he needs it politically, as he faces near certain impeachment. Conviction is another thing as I’ve covered in past issues.

Some of what will be agreed to supposedly:
1. Chinese buy 40-50 Billion in ag products.

2. U.S. does not raise tariffs on 250B in Chinese imports from 25% to 30%.  Not exactly a “concession.”

3. Unspecified provisions governing intellectual property.  We’ll see…

4. The opening of China’s financial services market.  Good for our big banks. They can get even bigger!

5. A ban on using currency as a trade weapon.  Not sure how that works when on one side there are increases in tariffs to match the currency weakening of the other side.

The Big Little China Trade Deal leaves out:

1. Lots of tariffs still in place on agriculture and non-ag goods.

2. Forced tech transfer, which the Chinese deny despite the facts.  Apparently, it’s #FakeNews to them.  😉

3. Chinese subsidies to industries competing with the U.S.

Per the Washington Post: This Trump said is expected to be “papered” over “the next four weeks.”  Trump and Chinese President Xi plan to meet in Chile at an Asian-Pacific leaders summit in mid-NovemberThat’s where they would likely sign a “Part One U.S. China Trade Deal.” 

The farmers, important to Trump’s re-election, say ““This agreement seemingly does nothing to address the crippling tariffs farmers currently face. The promise of additional ag purchases is welcome news but details on timeline, price, commodities and many other questions will have to be answered,” said Brian Kuehl, of Farmers For Free Trade.”

Fed Rate Cut Risk:  Now the probability is 75.4% the Fed cuts in October by 0.25% for the 3rd time as assessed by CME Group.  An additional 4th cut in Dec. has DROPPED in probability from 41.7% to 24.5% this week vs. last week. 

Remember, THREE cuts is a mid-cycle adjustment.  Four means they expect recession. 

What about January?  The odds of cut #4 or even #5 are 38.2% vs. 67% last week!  What this means is the perceived risk of recession has fallen now that there is going to be some sort of limited trade deal and that further tariffs could be put off indefinitely. 

What about March?  The odds are 44.7% vs. 75.1% last week for 4 or more cuts.  Only 10% vs 35.1% last week expect 5 or 6 cuts by then.  April?  48.5% vs. 79.7% last week expect there to have been 4 or more cuts.  A minority, now only 13.0% vs. 43.7% last week, expect the number of cuts to exceed four by April.

Lucky for the Bulls, the expectation that a “Recession Auguring” 4 cuts will be required from now to April has fallen below 50%.  I’d say that is a sign of increasing Bullishness on the economy. 

Even clearer on this today…  I’ll stick to this game plan and “Roller-coaster Map”:

“As my loyal readers know, if there’s a recession, think of up to MORE than December’s decline TIMES TWO, or a “Big Bear Market” as I call it. 

In sum, the market goes down further as Q3 Earnings hit the fan.  Things should improve into year end and at the start of 2020, so the market then rallies.  A final high is reached prior to the discounting of a recession, which brings on a ‘Big Bear Market.’  Got it?  😉  It’s a roller-coaster we’re now on. “

Punchline: As I’ve argued on sentiment terms alone (though we don’t use just one factor), we have not reached the highest high we’ll see prior to the next recession.

U.S. Iran War Risk: RISING: The Saudi’s shot missiles at an Iranian tanker.  The Iranians did not immediately react, fearing a war with Trump perhaps, but just a few hours ago it was reported that Iran intends to strike back.  We’ve sent more troops and weapons over in the meantime.  If they endanger U.S. troops, the country of Iran will be laid to waste.  That is not in anyone’s best interest.  It costs a trillion dollars or two and lot of our best men and women to do it.  Let’s pray that cooler heads prevail. 

2020 Election Risk: Things can turn from here, but Biden is now at risk due to his swampish behavior in associating himself with an official policy to route out corruption in Ukraine.  He should have recused himself, and his son should not have taken money from Ukraine for doing a job he lacked skills to do.  Still, it’s legal to be a swamp creature in our country, and Trump is yet another swamp animal.  He now has Fox News as his “State TV” station, having driven out Shepard Smith.  Only Chris Wallace is left and he has what is referred to as a “network show.”   It’s Swamp vs. Swamp!  See why I want a third party?  😉

Trump Impeachment Risk: CHANGED.  Censure/Admonishment of Trump seems an unlikely path now.  Trump will be impeached.  It’s all but certain now that the two suspicious guys connected to Ukraine with one way tickets were picked up at the airport.  They were working with Rudi Giuliani to get dirt from Ukraine on the Bidens and were also funneling campaign funds from Ukraine to Trump’s re-election campaign.  All illegal.  Rudi was working for Trump on the Bidens.  So put 2 and 2 together.

Impeachment odds are easily above 95%.  And Trump deserves it (or at least formal censure for it; if repeated, he should be kicked out).  What he did was dead wrong.  He had zero right to target his opponent, while claiming to eliminate corruption from Ukraine.  He was caught red handed and essentially on tape (on transcript), just like Richard Nixon was.  But Trump still may not be convicted. 

It will take connecting Trump to foreign campaign contributions to convict him.  The GOP would have to convict on that basis alone.  BUT if the evidence stops with the Ukraine transcript, he won’t be convicted, and he’ll use the “verdict” for his re-election campaign.  The Democrats are taking a risk.

Right now the market is saying “No Conviction of Trump.”  However, the market may go into fear for a while as the investigation goes on, as with Clinton.  

Deficit/Debt Threat: No important change.  I’ll leave this here as a monument to our monumental debt, which could threaten interest rates in the future.  When rates rise, there will be “heck to pay.”  The U.S. dollar remains at risk and having at least 5% gold exposure is a must in any portfolio.  Some say higher, but owning stocks is also a hedge that over time would work out for solid companies, even in the face of very high inflation (not in the case of bankruptcies of course!). 

Now take a look at the SP500 chart.  The green line is 2940.91, the
9-21-2018 High
preceding the decline ending December 24th.  The upper yellow line is the next target (now at about 3073 a brand new ATH, but rises slowly over time).

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

Market timing the SP500 Index (SPY, SPX). Partial trade deal bounce!

Market timing the Partial trade deal bounce!

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

“Intel-igent Market Timing Signal” (Intel; I*NTC; * there to throw off the crawlers!):  Neutral.  Same as last week, even after the “Mini Trade Deal” 3 day bounce. Intel is above the prior key level of 50.50 at a 52.09 close, but a move above 53.50 failed previously, so a higher high than that is required for it to turn Bullish.

Bank of America (BAC) Market Timing Signal: Neutral. It is in the middle of its range for 2019.  A new high is the way for the Bulls to change the picture.  Target?  31.17.  If the Fed is in fact lowering rates, it makes no sense to chase BAC.  When they stop, and the economy is accelerating, it will be a buy. 

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 34,144 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.

Join the Conversation in the StockTwits “MarketTiming” Room

Now let’s go on to review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -23.65% vs -18.07% last week.  Still no extreme low, but as I said last week, it was already low enough to support a bounce at -18.07%.

Bulls Neutrals Bears
20.31% 35.73% 43.96%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM):

Note the failure to hold a level above 2 of 3 of the August highs.  It could fail right here, but we’ll see.  Large caps are stronger still, and I’ll stick with them.  Specific small cap names are another thing.

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

Market timing the U.S Small Cap Index (IWM, RUT). Bounce above one of three August highs.

Bounce above one of three August highs.

 3. Gold Market Timing (GLD): 

I’ll stand by this for now:

“This is not yet the time to pivot out of gold trades in my view.  As long as the Federal Reserve is still lowering interest rates, gold/gold stocks will do well.  When inflation starts to rise again [and the Fed hikes rates] we MAY have to sell our trading positions in gold.”

The above actually depends on the Fed’s reaction time as inflation rises.  Gold should be safe as long as inflation is ticking up while the Fed is lowering rates or holding steady.   Right now “holding steady” may not be appreciated, unless inflation is rising, but if the China situation does materially improve, interest rates may start to climb and drag the Fed along, endangering the gold trade, if the Fed hikes too aggressively.  So yes, you should be on edge in regard to your gold trading position.  Your core gold position?  My decision has been to hold it as insurance.  Do what you feel is best for you.

Read last week’s post to catch up on the Gold Scenarios of stagflation (slowing GDP growth and rising inflation) and GDP growth with rising inflation, or “GrowFlation” as I’ve called it before (link to upper right).

I said two weeks ago: “The G*LD trend will be negative below 139.35.”  It tested to 137.80 and then bounced.  

Rate pressure on gold may not be done yet!  Buy the lows, rather than chase bounces and use stops on current profits.  As said, I keep a core GLD position at all times, but the trades will come and go.  When things change, we change…

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

Market timing the gold ETF (GLD). Gold on pause.

Gold on pause.

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

This week, rates rose for three days in a row into Friday, because the market believes a trade deal with China means higher GDP growth, higher inflation, and fewer Fed rate cuts.  The odds cited above from CME Group on Fed rate cuts tell the same story.

I’ll leave this from last week:IF TNX skids further than it has, particularly to a new all time low, that means the bond market expects a U.S. recession, and a U.S. stock market crash (even if it happened slowly in a cascading fashion) could occur, particularly if there were a rapid ‘Negative Rate Shock’ as defined at the base of this report.  It also would imply the bond market felt the Fed was doing too little, lowering rates too slowly, and was risking deflation.

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

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

Market timing the US 10 Year Treasury Yield (TNX, TYX, TLT, IEF). Yields jump on partial trade deal.

Yields jump on partial trade deal.

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 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 YELLOW for a further U.S. stock market rally with a BULLISH SP500 Index trend.  The stock signal is based on small caps, as they often lead the market down.  The bounce is not yet enough to change the Stock Signal.

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!)  These are the targets: 13.31, 14.04-14.08, 15.04, the “fulcrum” range = [15.94-15.95 to 16.09], 17.06, 17.27, and 17.89.  The bonus target, #8, I am no longer keeping in the main score tabulation.  The Bears have 4 of 7 targets at a VIX of 15.58 (Friday close). 

The ‘Bull Nirvana Target’ is 13.31.”  (That is target #7 for the Bulls.) 

Gold Signal YELLOW  for a further U.S. stock market rally with a NEUTRAL Gold Trend.   What gold does mostly as I’ve written HERE is follow real interest rates.

From before: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise, it means the market believes real rates will  fall, which in the current context means the global economy is slowing.  That will ultimately hurt U.S. stocks. 

Rate Signal NEUTRAL for a further stock market rally with a long term BEARISH and short term Bearish 10 Year Yield Trend.  (Remember: lower rates mean higher bond and Treasury prices)  There has not been enough of a rise of rates to threaten the trends over those two time periods.

I’ll add this reminder from 9-20-2019’s issue cited above: “Remember, FOUR Fed cuts will NOT be a “mid-cycle adjustment” and would be taken badly by the market ironically, considering the market’s addiction to lower rates.  ***A fourth cut means the Federal Reserve is seeing recession risk as significantly high.***”

Also for Reference: “Rates usually RISE slowly in a strong recovery and the stock market rally continues as they rise, as I’ve repeated multiple times on social media and here.  Empirically though, rates that are “lower” (than 3.11%) and are NOT rising rapidly have allowed the market to climb back above the prior all time high (ATH).”

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”    It closed at 54.70 vs. 52.81 last week vs. 55.91 the week before, and is barely coming off the low of  the range.  Still holds: If it rises above 58.82 and then 60.94, oil and oil stocks will be off to the races.  63.38 would be the next target.  Since May, the price of oil almost appears to have been managed to stay between 50 and 59/barrel.  I wonder why?  😉

Just a reminder: If TNX bounces too quickly and too high, this will give rise to Rate Shock III… As said before: “Watch the rate at which TNX climbs if the current trend reverses.  If it shoots up very fast, stocks will correct.”  In the Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.  That’s what I called ‘Rate Shock.'”  The period of rising rates in early October I called #RateShockII.

The risk lately has been “Negative Rate Shocks.”  (Not negative rates in the U.S. yet!  “Negative” refers to the direction of the shock.)  First we had “Negative Rate Shock I” in December 2018 (because rates FELL while the Fed raised the Fed Funds rate 0.25% in mid-December, in what was perceived as a policy error by critics),  “Negative Rate Shock II” in May, and “Negative Rate Shock III” in August, which is on pause and awaiting the next pivot.  The Stock Market Bulls had better hope that they don’t get more rate cuts past October. 

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question or report a typo… 

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

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

Sun and Storm Investing™

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

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, 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 © 2019 By Wall Street Sun and Storm Report, LLC All rights reserved.

Advertisements
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 10-04-2019 Close: “Investors Buy Before a U.S. China Deal is Done. The Risk Our Economic ‘Good Place’ Becomes a ‘Bad Place’ Is Rising. Gold Up a Bit as Rates Slide Back to Prior Low.”

A Market Timing Report based on the October 4, 2019 Close, published Saturday, October 5th, 2019…

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

I provide quite a bit of intraweek commentary, and if you don’t see it, you will miss out on quite a bit of context, so please click on the social media links below and have a read…  Thank you as always for being loyal readers and interacting on social media with your questions and comments! 

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

We are headed into earnings season with investors believing that everything companies are about to say is reasonably priced in.  Why else would they have rallied off the recent low?  I messaged on social media that my indicators had fallen enough to allow for a bounce, and sure enough, we got a bounce.  But there are nearby time periods where similar bounces failed, and this may be a redo of August for example.  There are a number of risks simultaneously facing the stock market. I will cover them one by one below…

In chart terms we are in mid-channel now, which is not the best place to add exposure.  You have about equal downside to upside.

Off the low, I did start buying an initial position in a real estate stock I’ve been tracking for a while.  I combine sound analysis with the technical view and start a position, when the entry looks good, and preferably when the overall market has hit some sort of bottom.

I believe in “Technofundamentals,” which is why “Technofundamentals.com” will take you to this blog.  Why just do an EKG on a heart patient like Bernie Sanders by the way, when you can also do an echo-cardiogram to determine whether his heart has been badly or just mildly damaged by his myocardial infarction (means part of his heart muscle died and at this point they have not said how much has died – it’s why a massive heart attack kills patients; no muscle to pump means no pump…)?  I’ll get back to the Bernie Sanders fallout in a bit.  But seriously why do loads of fundamental stock analysis and not examine the chart to see if investors are buying or selling???  And why don’t chart readers pay close attention to macro risks?  That’s precisely why I evaluate all current market risks here.  It’s because they matter!

What is happening “Under the Hood” this week?

1. The SP500 Index simply fell to and tested the prior trend line on the daily chart up from the August lows (that line is higher than the lower yellow trend line shown on the chart below…) That test succeeded.  There is often a slight overshoot as investors decide whether they’ll come in and buy or not.  They did come in.  The problem as you’ll read later, was their limited enthusiasm!  This bounce is not a healthy bounce.

2. Utilities continued to outperform every other sector since the Aug. 5th low on up.  Why?  Rates fell back to the prior lows!  It’s as simply as that.  IF rates do not make brand new lows, Utilities, REITs, and Treasuries will all suffer depending on the exact rate of acceleration/deceleration of inflation.  (A mild acceleration in inflation, while the economy is decelerating, is not bad for utilities etc. because investors are chasing any positive return they can find.)

If the Fed were to drop interest rates suddenly and by a lot, real yields would plummet, and all the above would work.  If the Fed starts raising rates ahead of inflation, they will do so because the economy is strengthening, and all of the above will be hurt.  Economic growth is the enemy of safe higher yielding investments like REITs and Utilities.  With gold, you have the roadmap of how to assess when it will work HERE.

3. There is a back and forth between those who believes long rates will rise, because the Fed is going to come to the rescue and lower rates much more, and those who don’t think that is needed.  If you believe Utilities represent a signal, then the Fed is not done lowering rates and they may lower them more than expected.  This drives more and more money into utilities until they too are overvalued, and they too fall when the entire market falls as one great sinking ship.  I covered that point last week.

4. Heath care (XLV) stocks bounced with the market, but are still lagging since the Aug. lows.  They are the easiest political target.  Prices of all health products whether appliances or drugs will FALL over the next few years as price controls are instituted.  It’s the only way the system can afford to provide healthcare to everyone.  And there is a common belief by the vast majority of Americans that doing so is the right thing.

5. XLE is the worst performer as oil is retrace testing the early Aug. low.  If inflation ticks up, it will be in part due to an oil rally, so watch the price of oil closely.

6. XLP: If inflation accelerates over the coming couple of quarters, consumer staples will have problems as their input costs rise.  They only work in periods like December.  There will now be a pivot out of this sector as soon as either growth or inflation accelerates.  Read the Ray Dalio section of Tony Robbins “Money: Master the Game” if you want to review his asset allocation model based on GDP  acceleration/deceleration and Inflation acceleration/deceleration, which comprise his “four season” model.  Others have copied his system as he founded the largest hedge fund on the planet, and that’s well worth imitating.  It’s worth a read.

Let’s turn to the state of the market, which has made a lower high vs. the top yellow line in the SP500 Index market timing chart below…

What would satisfy me that the Bulls are serious?

They are sort of serious this week, but the numbers are moving in the right direction.  The Bull Market Health Score this week is Bulls 2.0/Bears 3.0 vs. Bulls 0.5/Bears 4.5 last week.

For each checklist item below, I give you the points scored as Bullish or Bearish. 

1. New high?  Bulls 0.5 point.  Answer: No.  Last week: “The only ‘good news’ is that despite that lower close, the index has not broken the base of the prior 3 days.  Write down this number: 2957. 73.  If the SPX falls below there, it could do a quick test below and rise again, but it must…or else we’ll see the next leg down from the Sept. high.”

What we saw was a break of that level on Tuesday on a closing basis and then a swoop down on Wednesday, a flush on Thursday with a reversal back up.  Wednesday I pointed out that one of my “stretch indicators” had bottomed, and sure enough the market had as well.  It has predicted multiple lows this year.  But the same thing may happen now as seen in May.  There was a three day bounce and the market turned back down.  There are other holes in this bounce as you see below.

2. V*IX trend favorable?  Bulls 0.5  Answer: Neutral.  The VIX did fall from the same level as the last Aug. high, but the up trend is still intact on the daily chart.  The V*IX Game Score as I call it is barely Bulls 3/Bears 4 (7 point scale) as of the close Friday.  The midpoint is the “fulcrum.”  (details at base of report)

3. AD % Line in an Uptrend? (This is a proprietary stat; see base of report.): Bulls 0.5 point.  Answer: Neutral.  The indicator has bounced with the market, which is positive, but it did so in May as well and then collapsed to a new low.   The close was 16,649 vs. 16,683 last week, but the indicator is above its July highs.

4. Higher volume on Up Moves?  Lower volume on Down moves? Bears 1.0 point.  Answer: No.  The volume was poor for SPX and miserable for small and mid caps.   

5. Is the “U.S. Index Matrix Signal,” as I call it, positive?  Bulls 0.5 point.  Answer : Too early to tell, but off the lows. Both mid and small caps are off their lows, which is positive, but the volume on Friday was miserable.  A Bull could say the chart shows a bounce off the low end of the range that has been in force since the 6-03-2019 low.  It could be a decent trade, but the base in the small caps had better hold! 

Let’s check in on the context around the price action of the market by looking at the current Market Risks… 

We have some new earnings data this week…

Earnings Risk: what is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 8-09-19 with a skip of two weeks until the 8-30-19 data resumes the weekly data sequence (details HERE)… The arrows “—>” indicate 3 weeks of of omitted data in order to compress the data.  

For Q2 2019, analysts are projecting earnings growth of 0.1%  —> -1.3% ->  —> -2.1%  —> -2.6% -> -2.6% -> -3.0% -> -1.9% -> -2.6%-> -1.0% -> -0.7% -> -0.4%  DONE

and revenue growth of 4.6%  —> 4.3%  —> 4.1%  —> 3.8% -> 3.8% -> 3.7% -> 3.8% ->4.0% ->4.1% -> 4.1% -> 4.0%  DONE

For Q3 2019, analysts are projecting earnings growth of 1.8%  —> 0.8%  —> 0.3%  —> -0.5% -> -0.5% -> -0.8% -> -1.4% ->-1.9% -> -2.2% -> -3.1% -> -3.5% -> -3.6% -> -3.7% -> -3.8% -> -3.7% -> -4.1%

and revenue growth of 4.4%  —> 4.4%  —> 4.2% —> 3.8% -> 3.8% -> 3.3% -> 3.2% ->3.2% -> 3.1% -> 3.0% -> 3.1% -> 2.9% -> 2.8% -> 2.8% -> 2.8% -> 2.8%

For Q4 2019, analysts are projecting earnings growth of 8.1% —> 7.5%  —> 7.2%  —> 6.3% -> 6.3% -> 6.0% -> 5.4% ->4.9% -> 4.5%  -> 3.9% -> 3.5% -> 3.4% -> 3.2% ->  3.0% -> 2.9% ->2.6%

and revenue growth of 4.8%  —> 4.8%  —> 4.6%  —> 4.3% -> 4.3% -> 4.2% ->4.0%-> 4.0%-> 4.0% -> 4.0% -> 4.0% -> 3.8% -> 3.7% -> 3.6% -> 3.6% -> 3.6%

For CY 2019, analysts are projecting earnings growth of  3.4%  —> 3.2%  —> 2.7% -> 2.6% -> 2.4% -> 2.3% -> 1.7% -> 1.9%  -> 1.5% -> 1.5% -> 1.4% -> 1.3% -> 1.3% -> 1.3% -> 1.2%

and revenue growth of 4.7%  —> 4.7%  —> 4.5% -> 4.4% -> 4.3% -> 4.4% ->4.4% -> 4.4% -> 4.3% -> 4.4% -> 4.3% -> 4.2% -> 4.1% -> 4.1% -> 4.1%

For Q1 2020, analysts are projecting earnings growth of 10.5% -> —> 9.8% -> 9.5% ->9.2% >9.0% -> 8.5% -> 8.2% -> 8.1% -> 7.9% -> 7.9% -> 7.8% -> 7.6%

and revenue growth of 6.2%  —>5.8% -> 5.9% ->5.9% -> 5.7% -> 5.6% -> 5.7% -> 5.5% -> 5.5% -> 5.4% -> 5.4% -> 5.5%

For Q2 2020, analysts are projecting earnings growth of 13.3%  —> 13.5% -> 12.0% ->12.6% -> 10.7 -> 9.9% -> 9.3% -> 9.2% -> 9.1% -> 9.0% -> 9.0% -> 8.7%

and revenue growth of 6.8% -> —> 6.6% -> 6.7% ->6.6% -> 6.5% -> 6.4% -> 6.5% -> 6.4% -> 6.4% -> 6.3% -> 6.3% -> 6.3%

For CY 2020, analysts are projecting earnings growth of 10.7% -> 10.6% -> 10.6% -> 10.6% -> 10.5%

and revenue growth of 5.6% -> 5.6% -> 5.6% -> 5.6% -> 5.7%

The series of projections for Q4 2019 has fallen from the first estimates from 8.1% down to 2.6%.  It could turn negative as Q3 is already projected to be.  Q3 is now being reported.  Of companies with Q3 reports out, 19/21  have reported a surprise per FactSet.  Remember, they lower and then they surprise!  But in the end, what is important is whether earnings are accelerating or decelerating.  Same for revenues.

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

China Deal Risk: President Trump uttered no new threats this week, but keeps saying China is doing horribly etc.  He had better come up with a deal, because if not, the market could tank when he then imposes another 5% to a large subset of tariffs on China.  We need China to grow.  We also need them to respect our intellectual property.  If Trump faces impeachment with a collapsing stock market on “no China deal,” he is more at risk of impeachment.  He’ll make a deal if he can, unless he’s going to “shoot the moon” and tank his own presidency to escape it and build towers all over Russia (which he was considering during the 2016 campaign).  October 15th is the 5% tariff raise deadline Trump imposed on China.

Fed Rate Cut Risk:  Now the probability is 76.4% the Fed cuts in October by 0.25% for the 3rd time as assessed by CME Group. An additional 4th cut in Dec. is at only 41.7% now.  Remember, THREE cuts is a mid-cycle adjustment.  Four means they expect recession. 

What about January?  The odds of cut #4 or even #5 are 67% now.  This means the odds are even higher this week that we are going into a recession.  Is it guaranteed?  Of course not.  It’s just one data point, but be clear that 4 or 5 or more rate cuts in total are NOT a mid-cycle adjustment in an ongoing economic expansion.  It means there is considerable GDP slowing happening.  

What about March?  The odds are 75.1% for 4 or more cuts with some even expecting SIX cuts by then.  Only 35.1% expect 5 or 6 cuts by then.  Last week “44.4% expect a 4th cut by March 202o.”  April?  79.7% expect there to have been 4 or more cuts.  Last week “50.3% by April 2020 (45.2% last week).”  A minority, 43.7%, expect the number of cuts to exceed four by April.

Last week:

“Let’s hope that 4 rate cut probability drops below 50% soon, or it means investors are EXPECTING A RECESSION vs. a further recovery!”

I’ll stick to this game plan and “Roller-coaster Map”:

“As my loyal readers know, if there’s a recession, think up to MORE than December’s decline times two, or a Big Bear Market as I call it. 

In sum, the market goes down further as Q3 Earnings hit the fan.  Things should improve into year end and at the start of 2020, so the market then rallies.  A final high is reached prior to the discounting of a recession, which brings on a ‘Big Bear Market.’  Got it?  😉  It’s a roller-coaster we’re now on. “

U.S. Iran War Risk: Consensus is that Iran was responsible for the attack on Saudi oil interests.  Quiet for now, because Trump hates wars, and Iran was trying to force the U.S. to negotiate with them and end sanctions.  He is saying it’s the Saudi’s decision to react, but it’s not.  It’s ours.  We are the only ones that can save the Saudi kingdom.  If Iran attacks our troops in Saudi Arabia, a major war would begin. And Iran would lose, and we would lose great American soldiers.  Let’s pray for peace!  I think peace is actually more likely, because the alternative is so grim for both sides.  Trump would lose the 2020 Election if he starts another Middle East war based on protecting Saudi oil interests!  That thought is totally Anti-Trump.  That should be crystal clear to all. 

2020 Election Risk: True still: “Trump is purposely attacking Biden as he sees him as his top rival.  He wants to frame the election as “Capitalism vs. Socialism” as it appears Warren is now the #2 pick of the Democrats in the past two polls.” 

Bernie’s health issue is a big problem for his campaign.  I wrote about the history of illness on the campaign trail last week.  They used to hide it.  JFK was one of our sickliest presidents as he had Addison’s Disease among other problems.  Yet the public was not privy to the fact that he nearly died multiple times.  Now we’re aware of almost everything, or so we think.  If Bernie weakens further, he could drop out and cede a lot of his support to Warren, who then would be far ahead of Biden.

Trump Impeachment Risk: Trump may or may not be impeached.  It doesn’t matter (although the market may go into fear for a while over it as with Clinton).  If there is no new evidence, the market says they don’t have enough to kick him out of office. That’s all that will matter unfortunately or fortunately despite the ups and downs the process may create over the next few months.

As I said last week:

I think they have to at least “admonish” him as they did President James Buchanan as described HERECensure could make him un-electable, so they will try to avoid it, but they will censure him if the evidence is bad enough.  If the Democrats cannot get a conviction, they’ll settle for “admonishment” or formal censure.  Of course, that is a matter for negotiation and the Democrats could end up with “nothing” if they don’t agree to censure or less prior to a Senate trial, and then, if vindicated by the Senate, Trump will be able to say he was vindicated by the Senate, which we all know has it’s limitations due to partisanship.  Still, he could use it in his campaign, especially with his base of voters.”

Deficit/Debt Threat: No important change.  I’ll leave this here as a monument to our monumental debt, which could threaten interest rates in the future.  When rates rise, there will be “heck to pay.” 

Now take a look at the SP500 chart.  The green line is 2940.91, the
9-21-2018 High
preceding the decline ending December 24th.  The upper yellow line is the next target (now at about 3073 a brand new ATH, but rises slowly over time).

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

Market timing the SP500 Index (SPY, SPX). A bounce in a rally or just a counter-trend move?

A bounce in a big rally or just a counter-trend move?

 

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

“Intel-igent Market Timing Signal” (Intel; I*NTC; * there to throw off the crawlers!):  Neutral.  Intel is above the prior key level of 50.50 at a 50.92 close, but a move above 53.50 failed previously, so a higher high than that is required.

Bank of America (BAC) Market Timing Signal: Neutral. Off the low, but if the Fed is going to keep cutting rates, best to stay away.  Other than the dividend, it’s made no progress since the end of 2017. 

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 34,144 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.

Join the Conversation in the StockTwits “MarketTiming” Room

Now let’s go on to review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -18.07 vs -3.89% last week.  It reached a level low enough to be supportive of a bounce. But the -18 number is not an extreme.  That means a bottom has not been confirmed.

Bulls Neutrals Bears
21.37% 39.19% 39.44%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM):

Bouncing from the low of the recent range.  If earnings season is bumpy, they could suffer further declines.  I’d say from here it could be a trade, but no more until growth in GDP accelerates again.  Then buy them.

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

Market timing the U.S Small Cap Index (IWM, RUT). Small caps bounce off low of recent range.

Small caps bounce off low of recent range.

 

 3. Gold Market Timing (GLD): 

I’ll stand by this for now:

“This is not yet the time to pivot out of gold trades in my view.  As long as the Federal Reserve is still lowering interest rates, gold/gold stocks will do well.  When inflation starts to rise again, we [MAY] have to sell our trading positions in gold.”

The above actually depends on the Fed’s reaction time as inflation rises, as I’ll get too soon.

I said last week: “The G*LD trend will be negative below 139.35.”  It tested to 137.80 and then bounced.  There is a debate in the market concerning the direction of inflation from here.  The bond market seems assured of even lower rates.  The rally in rates into mid-September has been crushed.  If inflation accelerates a bit (data supports a mild rise over the next few months vs. the prior year), and the Fed is still lowering rates, gold will do very well.  They lower rates due to GDP slowing, remember.  If that causes inflation to accelerate we have ta-da, stagflation, which gold likes. If the Fed stimulates some growth, gold will not like that, as stocks beat gold in the setting of rising GDP growth and rising inflation.

When the Fed starts raising rates again, gold will take an even bigger hit IF they get out ahead of inflation from GDP growth.  But that is for the future.  The worst condition for gold is strong GDP acceleration, because of the competition.  Stagflation?  Gold loves it.  When the Fed lets inflation run wild, as in the late 70’s, gold flies. 

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

Market timing the gold ETF (GLD). Gold has retrace tested a breakout and now must move up in a definitive way.

Gold has retrace tested a breakout and now must move up in a definitive way.

 

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

From last week: “We got to 1.903% last week and have been sliding down the 50 day mav since.   It’s unusual to see any investment slide down a mav like that and not fall further, so my money is on lower rates and higher gold/gold stocks.”  

That’s what happened.  Rates slid and gold bounced. 

Now what TNX does is key.  IF TNX skids further than it has, particularly to a new all time low, that means the bond market expects a U.S. recession, and a U.S. stock market crash (even if it happened slowly in a cascading fashion) could occur, particularly if there was a rapid “Negative Rate Shock” as defined at the base of this report.  It also would imply the bond market felt the Fed was doing too little, lowering rates too slowly, and was risking deflation.  Powell’s “Good Place” as he calls our economy’s state may transform in time to a “Bad Place.”  “Good” is not “Excellent”!

Answer?  Sometimes Trump is right.  The Federal Reserve per the sick game they play is “behind.”  I say that because they seek to control the economy rather than allow the economy to ebb and flow.  Excesses are built up due to their tinkering.  Lower rates will hurt the U.S. dollar, and drive up U.S. inflation for consumers.  Is that good or is it bad when your money is worth less and less?  It’s an ongoing debate, yes…

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

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

Market timing the US 10 Year Treasury Yield (TNX, TYX, TLT, IEF). A brand new lower low would imply higher recession risk.

A brand new lower low would imply higher recession risk.

 

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 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 YELLOW for a further U.S. stock market rally with a NEUTRAL SP500 Index trend.  More progress is needed before flipping the trend signal to Bullish for the SP500 Index.  The stock signal is based on small caps, as they often lead the market down.  They are bouncing, but only within a range.

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!)  These are the targets: 13.31, 14.04-14.08, 15.04, the “fulcrum” range = [15.94-15.95 to 16.09], 17.06, 17.27, and 17.89.  The bonus target, #8, I am no longer keeping in the main score tabulation.  The Bears have 3 (barely) of 7 targets at a VIX of 17.04 (Friday close). 

The ‘Bull Nirvana Target’ is 13.31.”  (That is target #7 for the Bulls.) 

Gold Signal YELLOW  for a further U.S. stock market rally with a NEUTRAL Gold Trend.   What gold does mostly as I’ve written HERE is follow real interest rates. 

From before: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise, it means the market believes real rates will  fall, which in the current context means the global economy is slowing.  That will ultimately hurt U.S. stocks. 

Rate Signal RED for a further stock market rally with a long term BEARISH and short term Bearish 10 Year Yield Trend.  (Remember: lower rates mean higher bond and Treasury prices)  We are back testing the prior low on the daily chart.  Not good if you expect a strong economy to emerge anytime soon. (See above comments.)

I’ll add this reminder from 9-20-2019’s issue cited above: “Remember, FOUR Fed cuts will NOT be a “mid-cycle adjustment” and would be taken badly by the market ironically, considering the market’s addiction to lower rates.  ***A fourth cut means the Federal Reserve is seeing recession risk as significantly high.***”

Also for Reference: “Rates usually RISE slowly in a strong recovery and the stock market rally continues as they rise, as I’ve repeated multiple times on social media and here.  Empirically though, rates that are “lower” (than 3.11%) and are NOT rising rapidly have allowed the market to climb back above the prior all time high (ATH).”

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”    It closed at 52.81 vs. 55.91 last week, and is coming off the low of  the range.  Still holds: If it rises above 58.82 and then 60.94, oil and oil stocks will be off to the races.  63.38 would be the next target.

Just a reminder: If TNX bounces too quickly and too high, this will give rise to Rate Shock III… As said before: “Watch the rate at which TNX climbs if the current trend reverses.  If it shoots up very fast, stocks will correct.”  In the Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.  That’s what I called ‘Rate Shock.'”  The period of rising rates in early October I called #RateShockII.

The risk lately has been “Negative Rate Shocks.”  (Not negative rates in the U.S. yet!  “Negative” refers to the direction of the shock.)  First we had “Negative Rate Shock I” in December 2018 (because rates FELL while the Fed raised the Fed Funds rate 0.25% in mid-December, in what was perceived as a policy error by critics),  “Negative Rate Shock II” in May, and “Negative Rate Shock III” in August, which is on pause and awaiting the next pivot.  Note that rates are again FALLING.

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question or report a typo… 

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

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

Sun and Storm Investing™

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

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, 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 © 2019 By Wall Street Sun and Storm Report, LLC All rights reserved.

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

Market Timing Brief™ for the 9-27-2019 Close: “Stock Market Leaning Down. Why Over Half of Investors Now Expect a Recession. Gold and Treasuries On Sale.”

A Market Timing Report based on the September 27, 2019 Close, published Saturday, September 28th, 2019…

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

I provide quite a bit of intraweek commentary, and if you don’t see it, you will miss out on quite a bit of context, so please click on the social media links below and have a read…  Thank you as always for being loyal readers and interacting on social media with your questions and comments! 

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

Last weekend I “called a top” for the U.S. stock market.  When that sort of call does not work, you should know, you simply buy higher, but what you do NOT do is buy the top.  There are truly bad places to add to your positions.  When a stock or an ETF is rallying, buy the first important breakout perhaps (but NOT with all of the money you intend for the position), and then add on the pullbacks, not on the further pops to the upside.  If there is really big volume with an up-move, you may decide to break that last rule, but in general, if you break it, you are handing some of your gains over to the “other guy/gal.”

My read on the markets this week is that the selling has only started, and we’re looking at a decline similar to or bigger than that we saw in May, which was a 7.63% fall from the top.  Targets are not helpful as pre-planned places to buy.  They are check points to see how the market is behaving overall at the time the stock/ETF reaches those points.  That’s why buying every move above a certain moving average like the 50 day or 200 day mav is not wise.  Often markets can rise above those in a “test,” only to continue falling.  No technical system is foolproof.  There is also a degree of art combined with science/data analysis in assessing market behavior.

Now some warn that machines could replace us, so it’s good to focus on..

WHAT THE MACHINES CANNOT HIDE!

Machine learning/artificial intelligence could eliminate some technical analytic methods from usefulness over time, but three things they cannot and will not ever be able to hide from you or me without also hiding it from the machines:

1. Prices of stocks/ETFs and indicators based on those prices indicating their relative performance to both themselves and other stocks/ETFs.

2. The number of shares being bought/sold and indicators based on that information.

3. The time over which that happens, giving rise to indicators like volatility.

Since what I do focuses on what the machines can never hide or even fully anticipate, my process can never be eliminated by a machine.  Prices at certain share numbers over time have to happen BEFORE the machines or I can get the data.  The machines COULD act faster, but as soon as they move in size, what they are doing will be reflected in the three parameters noted above.  That means they cannot hide from me or from you.  And if they beat us by a few seconds or even minutes, we can still capture the majority of gains in a new trend.  It’s enough to allow us to do very well.

What is happening “Under the Hood” this week?

1. Since last Monday, utilities rose even further as the market fell.  I said last week: “Only Utilities (XLU) are now outperforming the SP500 Index vs. the August 5th low (this does not take dividends into account, but utilities have some of the higher dividend yields).”  There is a catch if you are thinking about entering utilities at this point.

IF the market sells off more dramatically from here, NO SECTOR wins.  There are only relative winners, but ZERO absolute winners.  Also realize inflation is now ticking up slightly, so the dividends become less valuable as that happens.  Overall, deflationary forces around the world are high, so there could be room for more upside.  But watch your profits.  Decide at what level you’ll be out.  Read my complete note in last week’s issue (link to upper right).

2. Heath care (XLV) stocks accelerated their move to the downside.  The health care sector has been doing the worst off the August 5th low.   Again, read my complete notes from last week.

3. Though moving down at the same rate as SPX (vs. health care which is under-performing the market), the Energy Stocks (XLE) are continuing their decline after President Trump failed to respond to what is assumed to be Iran’s attack on the Saudi oil facilities.   Why?  Because Americans were overwhelmingly opposed, even in the conservative polls I saw, to U.S. involvement in saving the Saudi oil interests.  We sent them some military help, but there won’t be a U.S. led war against Iran any time soon.  Iran would not survive it, but it would cost the U.S. another $2 Trillion.  We dumped trillions into Afghanistan and Iraq that we could have spend on our infrastructure as China has done.  Trump is right about some things, one being that the second Iraq War was a waste.  Our men and women in uniform were killed and maimed, and the region remains a mess.

Trump has reiterated his election promise to stick to that which effects the U.S. and ignore troubles abroad wherever possible.  I would agree we don’t need American soldiers dying to save Saudi oil, but an Iranian takeover of Saudi Arabia, enriching the Iranians IS a strategic threat, because they sponsor terrorism. That is why the first Gulf War, Operation Desert Shield, was essential; we kept Kuwaiti oil out of the hands of Iraqi President Saddam Hussein.  The second Iraq war was fabricated by V.P. Dick Cheney who essentially forced our intelligence community to come up with flimsy evidence of weapons of mass destruction.  The war was then started on the basis of that evidence, which is why Sec. of State Colin Powell eventually resigned. He was duped by Cheney and was used to make the case to the world that we needed a second Iraq war.  Cheney should have been jailed for what he did.

Why do I go over this?  Because we should not repeat these horrific errors (meaning the 2nd war in Iraq as well as staying in Afghanistan forever!) we cannot afford the loss and/or crippling of our soldiers OR the extreme waste of our tax dollars), and because we need to understand Trump’s outlook to know what could happen in terms of market risks. 

4. Holding up somewhat better than the SPX but less so than utilities includes from top to bottom: XLRE (Real Estate) and XLP (Consumer Staples like KO etc.), XLI (industrials), XLK (Tech), and XLF (financials) and XLY (Consumer Discretionary; stuff you don’t need mostly but want; AMZN is a big part of that even though it’s also a tech stock via AWS).   ALL of these are off their highs.  Utilities is the only sector that has made a new all time high in the past week.

5. Gold and gold stocks have been in a pullback in sync with the rise and fall of the 10 Year Treasury Yield (TNX).  Read my article “When Does Gold Shine and When Does it Decline,” if you don’t know what drives gold.  You can search on that title to find it.

Let’s turn to the state of the market, which has made a lower high vs. the top yellow line in the SP500 Index market timing chart below…

What would satisfy me that the Bulls are serious?

They are not very serious this week!  The Bull Market Health Score this week = Bulls 0.5/Bears 4.5.  Last week we were at Bulls 1.5/Bears 3.5.  At the end of July before the pullback, we were at Bulls 2.5/Bears 2.5. 

For each checklist item below, I give you the points scored as Bullish or Bearish. 

1. New high?  Bears 1.0 point.  Answer: No.  There is a lower high in place for now as said above.  I gave the Bulls a half a point on Friday when I looked at this, but they did not deserve it after a new recent closing low was achieved.  The only “good news” is that despite that lower close, the index has not broken the base of the prior 3 days.  Write down this number: 2957. 73.  If the SPX falls below there, it could do a quick test below and rise again, but it must…or else we’ll see the next leg down from the Sept. high.

2. V*IX trend favorable?  Bears 1.0  Answer: No.  At the Friday close, the V*IX (* added to throw off the crawlers – welcome to the Matrix ;)) was 17.22 vs. 15.32 last week.  The V*IX Game Score as I call it is Bulls 2/Bears 5 as of the close Friday.  I have reverted back to a 7 point VIX Game Score.  The midpoint is now the “fulcrum.”

3. AD % Line in an Uptrend? (This is a proprietary stat; see base of report.): Bulls 0.5 point.  Answer: Neutral.  The indicator is in a downtrend, but still above the prior breakout above the 7-31-19 high.  The close was 16,683 this week vs. 16,700 last week.

4. Higher volume on Up Moves?  Lower volume on Down moves? Bears 1.0 point.  Answer: No.  The opposite was the case.  

5. Is the “U.S. Index Matrix Signal,” as I call it, positive?  Bears 1.0 point.  Answer : No. Both mid and small caps are down off a lower high, which itself is negative.  Mid caps are running aside large, which is better than small caps, which are now testing their 200 day mav. The small caps are the leaders on sell offs, so the Bears earned this point fair and square. 

Let’s check in on the context around the price action of the market by looking at the current Market Risks… 

We have some new earnings data this week…

Earnings Risk: what is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 8-09-19 with a skip of two weeks until the 8-30-19 data resumes the weekly data sequence (details HERE)… The arrows “—>” indicate 3 weeks of of omitted data in order to compress the data.  

For Q2 2019, analysts are projecting earnings growth of 0.1%  —> -1.3% ->  —> -2.1%  —> -2.6% -> -2.6% -> -3.0% -> -1.9% -> -2.6%-> -1.0% -> -0.7% -> -0.4%  DONE

and revenue growth of 4.6%  —> 4.3%  —> 4.1%  —> 3.8% -> 3.8% -> 3.7% -> 3.8% ->4.0% ->4.1% -> 4.1% -> 4.0%  DONE

For Q3 2019, analysts are projecting earnings growth of 1.8%  —> 0.8%  —> 0.3%  —> -0.5% -> -0.5% -> -0.8% -> -1.4% ->-1.9% -> -2.2% -> -3.1% -> -3.5% -> -3.6% -> -3.7% -> -3.8% -> -3.7%

and revenue growth of 4.4%  —> 4.4%  —> 4.2% —> 3.8% -> 3.8% -> 3.3% -> 3.2% ->3.2% -> 3.1% -> 3.0% -> 3.1% -> 2.9% -> 2.8% -> 2.8% -> 2.8%

For Q4 2019, analysts are projecting earnings growth of 8.1% —> 7.5%  —> 7.2%  —> 6.3% -> 6.3% -> 6.0% -> 5.4% ->4.9% -> 4.5%  -> 3.9% -> 3.5% -> 3.4% -> 3.2% ->  3.0% -> 2.9%

and revenue growth of 4.8%  —> 4.8%  —> 4.6%  —> 4.3% -> 4.3% -> 4.2% ->4.0%-> 4.0%-> 4.0% -> 4.0% -> 4.0% -> 3.8% -> 3.7% -> 3.6% -> 3.6%

For CY 2019, analysts are projecting earnings growth of  3.4%  —> 3.2%  —> 2.7% -> 2.6% -> 2.4% -> 2.3% -> 1.7% -> 1.9%  -> 1.5% -> 1.5% -> 1.4% -> 1.3% -> 1.3% -> 1.3%

and revenue growth of 4.7%  —> 4.7%  —> 4.5% -> 4.4% -> 4.3% -> 4.4% ->4.4% -> 4.4% -> 4.3% -> 4.4% -> 4.3% -> 4.2% -> 4.1% -> 4.1%

For Q1 2020, analysts are projecting earnings growth of 10.5% -> 10.7% -> 10.3 -> 9.9% -> 9.8% -> 9.5% ->9.2% >9.0% -> 8.5% -> 8.2% -> 8.1% -> 7.9% -> 7.9% -> 7.8%

and revenue growth of 6.2% -> 6.1% -> 6.0% -> 5.8% -> 5.8% -> 5.9% ->5.9% -> 5.7% -> 5.6% -> 5.7% -> 5.5% -> 5.5% -> 5.4% -> 5.4%

For Q2 2020, analysts are projecting earnings growth of 13.3% -> 13.3% -> 12.9% -> 13.2% -> 13.5% -> 12.0% ->12.6% ->  10.7 ->  9.9% -> 9.3% -> 9.2% -> 9.1% -> 9.0% -> 9.0%

and revenue growth of 6.8% -> 6.8% -> 6.6% -> 6.6% -> 6.6% -> 6.7% ->6.6% -> 6.5% -> 6.4% -> 6.5% -> 6.4% -> 6.4% -> 6.3% -> 6.3%

For CY 2020, analysts are projecting earnings growth of 10.7% -> 10.6% -> 10.6% -> 10.6%

and revenue growth of 5.6% -> 5.6% -> 5.6% -> 5.6%

You can see that earnings projections for Q3 2019 came down a bit more, and so did earnings in Q1 and Q2 2020. 

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

China Deal Risk: President Trump’s Admin. said it was considering restricting the investment in China by Americans due to their lack of compliance with our reporting requirements.  That’s yet one other thing I support, but adding it just before the negotiations start could be problematic.  I would guess they consider it a way to create maximum pressure on the Chinese prior to the meeting.  Trump nearly pushed them over the edge with his threats to ratchet up tariffs yet again, which has led to these negotiations that supposedly must succeed by Oct. 15th, or he’ll impose them on China.  Trump needs a deal to shift public opinion of him during his impeachment, which is going to happen it seems.  (Impeachment does NOT mean conviction by the Senate though – see below.)

Fed Rate Cut Risk:  They are cutting one more time before the end of the year.  That’s it.  The market is not overwhelmed with pleasure as they wanted more. Now there is a 45% probability of a rate cut in October with the rest at “no cut.”  Per the CME, all but 31% expect a cut at the mid-December Federal Reserve meeting.  Only 36.8% expect another by January, and 44.4% expect a 4th cut by March 202o.  That goes to 50.3% by April 2020 (45.2% last week), so the majority expect the Fed to continue with at least one more rate cut by April of 2020 after a 0.25% cut in December or four cuts in total.  This is the first time I’ve seen that stat over 50%. 

Here is the problem with that final statistic!  Four cuts would mean the Federal Reserve thinks we’re headed into a recession.  This is debatable of course, but the general idea of a mid-cycle adjustment is that it’s just a few cuts (three max) to extend a recovery and no more.  More means trouble!

Let’s hope that 4 rate cut probability drops below 50% soon, or it means investors are EXPECTING A RECESSION vs. a further recovery!

As my loyal readers know, if there’s a recession, think up to MORE than December’s decline times two, or a Big Bear Market as I call it.  Wall Street does not tell you these things.  They want you to be happy to keep your money all under management or their fees go down.  “Just ride it out!” they say.  And then, being down 50%, you have to make 100% to get back to even.  You can see my exposure level on social media at the links above.  I’m currently positioned for a Mini Bear Market with the exception of the gold hedge.  Recession could still be a ways off time-wise, but we need to be on the lookout for further signs of it.  In the meantime, I believe the market will first make another all time high, before it starts to discount a recession.  (read prior issues to catch up on this thinking…)

In sum, we go down further as Q3 Earnings hit the fan.  Things should improve into year end and at the start of 2020, so the market then ralliesA final high is reached prior to the discounting of a recession, which brings on a “Big Bear Market.”  Got it?  😉  It’s a roller-coaster we’re now on. 

U.S. Iran War Risk: Consensus is that Iran was responsible for the attack on Saudi oil interests.  I’ve discussed the lack of reaction to it above.  Retaliation is problematic, as it could draw fire from Iran on U.S. troops in the area and start a big war, which Trump is adverse to, as said.

2020 Election Risk: Trump is purposely attacking Biden as he sees him as his top rival.  He wants to frame the election as “Capitalism vs. Socialism” as it appears Warren is now the #2 pick of the Democrats.  Biden vs. Trump is more like Coke vs. Pepsi.  Both are American colas.  Wall Street has said it’s “OK with Biden, but not with Warren” this week as Warren gained strength.  Warren and Sanders are off the charts liberal.  Sanders is the worst of the top three.  Buttigieg and Harris are very distant 4th and 5th picks, respectively, and falling.

The GOP is running this election campaign as I predicted.  This is another Nixon vs. McGovern (“wacko left wing nut”) race to Trump and the GOP.  With her current tax and investment policies, Warren has put herself in a corner.  I don’t think most Americans believe our wealthiest should have billions taken from them after they paid taxes on the money.  This is a country built by people who believe in creating wealth from the delivery of great products and services.  If some one is great at achieving wealth, they should share profits in my view, but taking capital away from the successful means money is not there for them to invest in other businesses as Bezos has repeatedly done.

Again, I do agree companies should be more generous with their employees via profit sharing exactly as my father did.  It would have been his birthday today, so cheers to my father’s generosity for his workers’ sake!  He could have stuffed his pockets, but he decided to share the profits instead. 

Trump Impeachment Risk: Read my analysis in the July 26th issue HERE.  I said previously: “They need new material to impeach Trump.  What they have is not sufficient or it would have been pursued already.”

I was exactly right.  Speaker Pelosi is moving forward mainly on the Ukraine Transcript issue wherein it was revealed that Trump acted like a mob boss, withholding military aide to Ukraine, while asking for the favor of investigating his political opponent Biden.  I would agree that Biden should have “recused himself” in dealing with a prosecutor who was considering investigating/prosecuting a firm Biden’s son Hunter had an interest in, but Biden was representing an Obama administration view that the prosecutor was corrupt and he was not investigating anything and needed to be removed.  They won’t likely prove anything new if they investigate Biden, so they can have at it, but what Trump did was:

1. Use a threat to get help in his political campaign from a foreign government.

2. Attempt to cover it up by hiding the facts in a locked down computer server which is supposed to hold highly classified documents.  That itself is a minor issue vs. #1.

3. Set himself up for possible extortion by Ukraine, once they realized what he had asked was not proper.  That could have had unintended consequences like their demanding a doubling of military aide.  This is a major issue, Trump does not understand or he would not have done what he did.

Trump has been acting as he did in his business.  Like a mob boss as I said immediately after reading the Ukraine Transcript (read the transcript yourself as every good citizen should HERE).  I’ve reported this on social media before, but here are the details.  Trump was a “legal business crook” who legally extorted business people so he could pay them 60 cents on the dollar.  This included someone I know, so I have direct knowledge of Trump’s corruption.  This businessperson lost a large sum to the “Trump Organization.”  What’s the scheme?  They pay a small fraction up front and then when the bill is due, they say, “We’ll give you 60 cents on the dollar we agreed to pay you if you sign this non-disclosure agreement on this settlement. Otherwise, take us to court!”  That’s what makes it all legal.  The offended party could have taken him to court, but they know law suits can run into the 100s of thousands particularly when the other side drags its feet.  How would you feel if you were cheated even with a contract in place, and then you could not talk about it, because you signed a non-disclosure agreement?

Bottom Line?  Trump will likely be successfully impeached by the Democrats and a few Republicans in the House.  The Senate could end up convicting him, but not likely on the current publicly known evidence or could do nothing, but now I believe that is unlikely.  I think they have to at least “admonish” him as they did President James Buchanan as described HERECensure could make him un-electable, so they will try to avoid it, but they will censure him if the evidence is bad enough.  If the Democrats cannot get a conviction, they’ll settle for “admonishment” or formal censure.  Of course, that is a matter for negotiation and the Democrats could end up with “nothing” if they don’t agree to censure or less prior to a Senate trial, and then, if vindicated by the Senate, Trump will be able to say he was vindicated by the Senate, which we all know has it’s limitations due to partisanship.  Still, he could use it in his campaign, especially with his base of voters.

Deficit/Debt Threat: No important change.  I’ll leave this here as a monument to our monumental debt, which could threaten interest rates in the future.  The only reason we are off the hook for now is because the rest of the world is in worse shape.  When rates rise, there will be “heck to pay.” 

Now take a look at the SP500 chart.  The green line is 2940.91, the
9-21-2018 High
preceding the decline ending December 24th.  The upper yellow line is the next target (now at about 3049, but rises slowly over time).

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

Market timing the SP500 Index (SPY, SPX). Coming off a lower high.

Coming off a lower high.

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Negative, although above the recent consolidation support.  Failed at the July high and now testing the breakout above 50.50 at a 50.78 close on Friday.

Bank of America (BAC) Market Timing Signal: Neutral, but mixed picture. There is a higher low (negative), but when TNX was down a bit Friday, BAC went up 0.76% with the SPY -0.54%.  31.17 is the Bull goalpost. Close was 29.35.  XLF and BAC look like better shorts than longs as long as the Federal Reserve is going to continue lowering rates.  When that changes, my outlook will change. 

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 34,144 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.

Join the Conversation in the StockTwits “MarketTiming” Room

Now let’s go on to review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -3.89% vs. +7.52%.  Last week I said: “The spread we’ve reached is OK for a lower high if that is confirmed early in the week.”  In fact the market turned down on Tuesday.  There is plenty of both upside and downside in sentiment this week.

Bulls Neutrals Bears
29.37% 37.37% 33.26%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM):

Three weeks ago:A breakout in small and mid caps next week would confirm the move in large caps. ”  Last week “It did not happen.  Stay away from small caps still.  They need a breakout above those lower highs.”  Small caps look negative and are leading the market down. 

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

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

Leading the market down.

 3. Gold Market Timing (GLD): 

I’ll stand by this for now:

“This is not yet the time to pivot out of gold trades in my view.  As long as the Federal Reserve is still lowering interest rates, gold/gold stocks will do well.  When inflation starts to rise again, we’ll have to sell our trading positions in gold.”

Gold has broken the recent up trend and is setting up a head and shoulders formation, which it cannot break the base of…or else.  Realize it did this (broke down) in early 2019 and still managed to recover to extend the rally, so down even below the arbitrary 20 day moving average is not “out.”  The last down trend was from Feb. to April, so it lasted quite a while.  The stock market peaked in early May.  On May 23rd, gold resumed its rally.  The G*LD trend will be negative below 139.35. 

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

Market timing the gold ETF (GLD). Pulled back but not done in my view.

Pulled back but not done in my view. Until proven otherwise.

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

I said last week: 

“The simplest view of the chart tells you that the 9-2017 low of 2.034% could be the next upside target, before global slowing brings U.S. rates back down.  As said, we have to watch the incoming data, because that is not a given!”

We got to 1.903% last week and have been sliding down the 50 day mav since.   It’s unusual to see any investment slide down a mav like that and not fall further, so my money is on lower rates and higher gold/gold stocks.  By that, I mean my actual money!  I am diversified of course, but I have a decent sized gold/gold stock trading position as well as a core position I have not had to touch since the early 2000’s, when I doubled my gold position.  I sold my entire principle in 2011 as I’ve said before.  The rest of my core holdings are “gravy.”  

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

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

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

Yields already falling again.

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

Do not use these signals as a trading plan.  They are rough guidelines.  I currently share my 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 RED for a further U.S. stock market rally with a NEUTRAL SP500 Index trend.  The stock signal is based on small caps, as they often lead the market down.  They are doing so now!  The SPX needs a new high to turn back to Bullish, at least above the recent consolidation over the past 3 days.  It remains above the prior breakout, so it’s Neutral vs. Bearish.

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!)  These are the targets: 13.31, 14.04-14.08, 15.04, the “fulcrum” range = [15.94-15.95 to 16.09], 17.06, 17.27, and 17.89.  The bonus target, #8, I am no longer keeping in the main score tabulation.  The Bears have 2 of 7 targets at a VIX of 17.222 (Friday close). 

The ‘Bull Nirvana Target’ is 13.31.”  (That is target #7 for the Bulls.) 

Gold Signal YELLOW  for a further U.S. stock market rally with a NEUTRAL Gold Trend.   What gold does mostly as I’ve written HERE is follow real interest rates. 

From before: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise, it means the market believes real rates will  fall, which in the current context means the global economy is slowing.  That will ultimately hurt U.S. stocks. 

Rate Signal RED for a further stock market rally with a long term BEARISH and short term Bearish 10 Year Yield Trend.  (Remember: lower rates mean higher bond and Treasury prices)

I’ll add this reminder from 9-20-2019’s issue cited above: “Remember, FOUR Fed cuts will NOT be a “mid-cycle adjustment” and would be taken badly by the market ironically, considering the market’s addiction to lower rates.  ***A fourth cut means the Federal Reserve is seeing recession risk as significantly high.***”

Also for Reference: “Rates usually RISE slowly in a strong recovery and the stock market rally continues as they rise, as I’ve repeated multiple times on social media and here.  Empirically though, rates that are “lower” (than 3.11%) and are NOT rising rapidly have allowed the market to climb back above the prior all time high (ATH).”

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”    It closed at 55.91 vs. 58.09 last week, and is trending down in the recent trading range that began in May.  Still holds: If it rises above 58.82 and then 60.94, oil and oil stocks will be off to the races.  63.38 would be the next target.  Oil spiked for one day  on Sept. 16th after the attack on the Saudi oil interests to 63.38, which was precisely the next target!  Then it fell the next day to 59.34.

Just a reminder: If TNX bounces too quickly and too high, this will give rise to Rate Shock III… As said before: “Watch the rate at which TNX climbs if the current trend reverses.  If it shoots up very fast, stocks will correct.”  In the Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.  That’s what I called ‘Rate Shock.'”  The period of rising rates in early October I called #RateShockII.

The risk lately has been “Negative Rate Shocks.”  (Not negative rates in the U.S. yet!  “Negative” refers to the direction of the shock.)  First we had “Negative Rate Shock I” in December 2018 (because rates FELL while the Fed raised the Fed Funds rate 0.25% in mid-December, in what was perceived as a policy error by critics),  “Negative Rate Shock II” in May, and “Negative Rate Shock III” in August, which is on pause and awaiting the next pivot.  Note that rates are again FALLING.

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question or report a typo… 

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

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

Sun and Storm Investing™

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

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, 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 © 2019 By Wall Street Sun and Storm Report, LLC All rights reserved.

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

Market Timing Brief™ for the 9-20-2019 Close: “Why the Top Could Be In for U.S. Stocks (for now). Why Gold Could Rally with Treasuries.”

A Market Timing Report based on the September 20, 2019 Close, published Saturday, September 21st, 2019…

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

I provide quite a bit of intraweek commentary, and if you don’t see it, you will miss out on quite a bit of context, so please click on the social media links below and have a read…  Thank you as always for being loyal readers and interacting on social media with your questions and comments! 

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

My indicators are mostly aligned this week in proclaiming the recent highs the top of the current move off the August 5th low.  But there are some interesting things going on under the hood.

1. Only Utilities (XLU) are now outperforming the SP500 Index vs. the August 5th low (this does not take dividends into account, but utilities have some of the higher dividend yields).  With the Fed due to lower rates at least once more, they could rally further.  Add to that earnings weakness for Q3 arriving in mid-October, and you could have a few more weeks of relative outperformance by utilities.

2. Heath care (XLV) has been doing the worst off the August 5th low.  Reading the tea leaves around the 2020 Election contest is hard, and when Wall Street finds confusion, it tends to avoid a sector.  Of course, right on cue, XLV bounced at the end of the week.  In the end, drug and device companies could suffer a slightly worse fate than the current state or one far worse if they mess this up.

Drug/device companies can negotiate and must end up providing better overall prices (they must; both parties agree on this at least in theory minus Moscow Mitch McConnell who stands in the way of drug price regulations with some pals in the Senate who are in the pockets of the drug/device companies) as well as support their profits by serving a larger population of patients.

In the end, drug/device companies will take some sort of hit though as our pricing is so much higher than prices offered abroad by these same companies.  Medicare for All would be a disaster for hospitals, because they depend on NON-Medicare pricing to actually pay for everything.  Bernie Sanders’ plan throws the hospitals a few billion dollars to help them not go bankrupt.  Medicare for All would be electroshock therapy for the healthcare system, and you do realize how much fun that is?  Reform won’t happen as “Medicare for All.”  It must happen incrementally.  Biden has the right model in terms of the broad strokes.

Taxes on the “rich” will go back to the Obama rates with another boost on those who make over 1 Million per year perhaps with closed loopholes to jack up their tax rates.  For example, they may place a limit on the amount of capital gains that can be taxed at the lowest rates.  Realize this could cause turbulence in the stock market, when the ultra-wealthy sell before the next Dem President arrives, whether that is in 2020 or 2024.

3. Everything else including XLK (Tech sector of SPX) is barely above the market in the case of XLK or very close to SPX in performance. 

4. Gold and gold stocks have been in a pullback timed exactly with the rate bump that started guess when?  Sept. 5th. What’s with the 5th?  😉  That is when the SP500 Index broke out above a critical level after spending August in stock purgatory in a consolidation range.  That is the signal we were looking for to void the “immediate Wave 3 Down” scenario for the SP500 Index.  Rates up, stocks up, gold and gold stocks down has been the recent dance, because interest rates had simply fallen too far, too fast.  In fact, TLT fell below where I sold it on 8-6 (at 139.13 and 139.21 before it peaked), and is now just above there at 141.89.  I’ve added back part of that exposure.

Gold and gold stocks are beginning to recover in my view, just as the SP500 Index is making a slightly lower high than the all time high of 3027.98.  You can see in the GLD chart below that it is sliding up the trend line.  There was no breach of any consequence.  We are staying with the trend until it changes!  (Read the issue two weeks back ; see upper right for link on an investing “gem” I shared with loyal readers)

This week’s requirements for a strong stock market moving to new highs…

A. “Earnings growth resuming in Q4 2019 into 2020.”  I had this here last week, but let’s look at the 2015-2016 slowing in earnings as a comparison.  There was a Q4 2015 to Q2 2016 earnings slowing in the SP500 Index.  There was an initial SPX pullback that spanned 8-20-15 to 9-29-15.  The first negative earnings were reported in Mid-January 2016 and the last negative earnings were out by Mid-July 2016.

The FIRST 2015 market drop preceded the 2016 market low by about 4 1/2 to 6 months (from 2nd vs. the 1st 2015 breakdown in the market to the final 2016 low).  The first drop also preceded the first quarter of reports of lousy earnings by just under 5 months.  The 2-2016 LOW in the market preceded the last report of bad earnings of a three report series of bad earnings by just over 5 months. 

At least in this case, the belief that the market front runs trouble by around 6 months was true, and it front runs the emergence of a recovery by about the same period of time.  A month or two off in timing can mean a lot however, so be careful of applying this blindly! 

The December crash started on Dec. 4th.   That was 4 1/2 months prior to the first quarter of reported negative earnings growth (in Q1 2019) of the current series that FactSet says will last 3 quarters from Q1 thru Q3 2019.  The recent MAJOR low in the SP500 Index was on June 3rd.  The last pullback bottoming on Aug. 5th was a bit larger in percentage terms, but was higher than the June low.  June 3rd is about 4 1/2 months AHEAD of the beginning of the last reports of negative earnings growth for this three quarter period of slowing, which begins in Mid-October. 

What does all this mean from a Bullish point of view?  The current earnings recession of 3 consecutive quarters of negative growth was paid for with two relatively shallow pullbacks of 7.63% in May and 6.80% in August.  Are those pullbacks enough?  Perhaps not, but a feather in the Bulls’ cap is the fact that the August lows were higher than the June low, and as said, the June low preceded the presumed end of bad earnings by the same amount of time as for the 2016 low.  Ergo, the June 3rd low, could have been the last low of this cycle of bad earnings. 

Now having said that, this puts the Bulls on the spot.  There could still be some messes along the way through this earnings season, and earnings CANNOT be revised toward negative for upcoming quarters based on China problems etc.  Secondly, the Bulls must take the market to a new all time high (ATH) very soon or we’ll have yet another pullback.  The Bulls could pull off yet another higher low somewhere above the last of the three August lows.  That could be the next point to add, but as I say, we’ll see if it is when we get there.  I sold some of my QQQ exposure on Friday, because I suspect a pullback based on my exam of “Market Health” as covered below…

B. “Interest rates rising or at least stabilizing.  Yes, and no.  The 10 Year Treasury Yield rose to around the 50 day moving average, which was my target.  Last time it did not even get to the 50 day before failing, but this time it had fallen so hard and so fast that a bigger bounce was to be expected.  With the Fed still lowering rates, Treasuries may now be catching yet another wind higher.  (Rates down, Treasuries/Bonds up). That is why I added back some TLT exposure last week.  I was waiting for the Federal Reserve reaction to work itself out.   

Last week: Will the U.S. Federal Reserve lower interest rates more quickly than suggested by their latest “mid-cycle adjustment” language?  Don’t count on it with the higher inflation numbers, and that’s where the debate comes in.  I am predicting a 0.25% cut this week.”

So where did the Fed’s decision to lower rates by 0.25% as I predicted leave us?  The CME group reports only a 42.8% probability of a 3rd cut by October (though up from 34%), 62.9% by December (vs. 54.9% last week), and a probability of 4 cuts by April meeting of 45.2% (vs. 42.1% last week).  There is a very minute minority that expects a 0.25% cut every single quarter on average out through the April meeting.  In sum, the expectations are for 3 cuts in 2019 and a coin flip on a 4th cut by the April 2020 meeting.  That sounds about right with 2 dissenters wanting NO cut last week and one, Gov. Bullard, always the big dove, wanting a 0.50% cut.

The probabilities above say there are still a lot of investors “offsides” for the October Federal Reserve meeting.  A decision to cut or NOT cut could equally rile the Treasury market.  If they cut or even talk more about an October cut, TLT will rally.  If they don’t cut, TLT’s bounce could be temporarily limited.

For now, the Federal Reserve believes that these cuts are just a “mid-cycle adjustment,” which is a thought that revolted the markets after the last meeting.  This time he said they could use QE again as well.  The market liked that, but then did not follow through.

The recent Repo market disruptions were based on the lack of liquidity in the banking system, and it is being debated whether it means anything in terms of credit market risk (When the banks went to repossess the securities they had lent to the Fed in exchange for cash, that seized up the markets – the Fed had to inject billions of dollars of liquidity into the market all at once, because even the Fed Funds rate was driven up above target, and repo rates went off the wall).  Unless they siphon off these billions, it sure smells like more QE despite Clarida’s statement to the contrary.  He says they’ve done the same thing in the past and not called it “QE.”  It does say the Fed will act urgently as needed to keep credit markets from seizing up.  

MY CONCLUSION FROM LAST WEEK UPDATED for the Fed Meeting:

“The majority of investors believe the Fed will cut ONE MORE TIME and that is it!   This sequence of expected cuts is still what Powell called a ‘mid-cycle adjustment’ to rates, despite the rising pessimism about 2020.”

Now since we are still near that upper yellow trend line on the SP500 Index chart, let’s check my “Bull Market Health Score”…

What would satisfy me that the Bulls are serious?

Let’s check the list once again… The Bull Market Health Score this week = Bulls 1.5/Bears 3.5.  Last week we were at Bulls 4/Bears 1.  At the end of July before the pullback, we were at Bulls 2.5/Bears 2.5.  The setup now is worse than in July.

For each checklist item below, I give you the points scored as Bullish or Bearish. 

1. New high?  Bears 0.5 point.  Answer: Neutral at best.  The lower high is also a negative if the market continues to turn down.  The Bulls need to get the SPX up to that yellow line (see chart below) and void the lower high quickly.

2. V*IX trend favorable?  Bulls 0.5 point.  Answer: Neutral.  At the Friday close, the V*IX (* added to throw off the crawlers – welcome to the Matrix ;)) was 15.32 vs. 13.74 last week.  The V*IX Game Score as I call it is Bulls 4/Bears 4 as of the close Friday, but the Bulls do have the “fulcrum target” (see base of report).  What I don’t like is the reversal of the last breakdown in V*IX on the daily.  That’s a negative and implies the V*IX is strengthening.  It needs to close back below 14.91 to reverse that impression.

3. AD % Line in an Uptrend? (This is a proprietary stat; see base of report.): Bulls 0.5 point.  Answer: Neutral.  The close was 16,717 vs. 16,749 last week.  We need a new high to give the Bulls the full point.

4. Volume on Up Moves?  Bears 1.0 point.  Answer: Volume was up on the down move Friday.  It was options expiration, but reviewing the prior options expirations makes this a flimsy excuse. The market did not like hearing the China Trade Talks were being mucked up again. 

5. Is the “U.S. Index Matrix Signal,” as I call it, positive?  Bears 1.0 point.  Answer : No.  The Bulls goosed the small and mid caps to their respective lower tops, and then they gave up. There were FOUR negative days in a row.  Very negative for the overall market. 

Let’s check in on the context around the price action of the market by looking at the current Market Risks… 

We have some new earnings data this week…

Earnings Risk: what is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 8-09-19 with a skip of two weeks until the 8-30-19 data resumes the weekly data sequence (details HERE)… The arrows “—>” indicate 3 weeks of of omitted data in order to compress the data.  

For Q2 2019, analysts are projecting earnings growth of 0.1%  —> -1.3% ->  —> -2.1%  —> -2.6% -> -2.6% -> -3.0% -> -1.9% -> -2.6%-> -1.0% -> -0.7% -> -0.4%  DONE

and revenue growth of 4.6%  —> 4.3%  —> 4.1%  —> 3.8% -> 3.8% -> 3.7% -> 3.8% ->4.0% ->4.1% -> 4.1% -> 4.0%  DONE

For Q3 2019, analysts are projecting earnings growth of 1.8%  —> 0.8%  —> 0.3%  —> -0.5% -> -0.5% -> -0.8% -> -1.4% ->-1.9% -> -2.2% -> -3.1% -> -3.5% -> -3.6% -> -3.7% -> -3.8%

and revenue growth of 4.4%  —> 4.4%  —> 4.2% —> 3.8% -> 3.8% -> 3.3% -> 3.2% ->3.2% -> 3.1% -> 3.0% -> 3.1% -> 2.9% -> 2.8% -> 2.8%

For Q4 2019, analysts are projecting earnings growth of 8.1% —> 7.5%  —> 7.2%  —> 6.3% -> 6.3% -> 6.0% -> 5.4% ->4.9% -> 4.5%  -> 3.9% -> 3.5% -> 3.4% -> 3.2% ->  3.0%

and revenue growth of 4.8%  —> 4.8%  —> 4.6%  —> 4.3% -> 4.3% -> 4.2% ->4.0%-> 4.0%-> 4.0% -> 4.0% -> 4.0% -> 3.8% -> 3.7% -> 3.6%

For CY 2019, analysts are projecting earnings growth of  3.4%  —> 3.2%  —> 2.7% -> 2.6% -> 2.4% -> 2.3% -> 1.7% -> 1.9%  -> 1.5% -> 1.5% -> 1.4% -> 1.3% -> 1.3%

and revenue growth of 4.7%  —> 4.7%  —> 4.5% -> 4.4% -> 4.3% -> 4.4% ->4.4% -> 4.4% -> 4.3% -> 4.4% -> 4.3% -> 4.2% -> 4.1%

For Q1 2020, analysts are projecting earnings growth of 10.5% -> 10.7% -> 10.3 -> 9.9% -> 9.8% -> 9.5% ->9.2% >9.0% -> 8.5% -> 8.2% -> 8.1% -> 7.9% -> 7.9%

and revenue growth of 6.2% -> 6.1% -> 6.0% -> 5.8% -> 5.8% -> 5.9% ->5.9% -> 5.7% -> 5.6% -> 5.7% -> 5.5% -> 5.5% -> 5.4%

For Q2 2020, analysts are projecting earnings growth of 13.3% -> 13.3% -> 12.9% -> 13.2% -> 13.5% -> 12.0% ->12.6% ->  10.7 ->  9.9% -> 9.3% -> 9.2% -> 9.1% -> 9.0%

and revenue growth of 6.8% -> 6.8% -> 6.6% -> 6.6% -> 6.6% -> 6.7% ->6.6% -> 6.5% -> 6.4% -> 6.5% -> 6.4% -> 6.4% -> 6.3%

For CY 2020, analysts are projecting earnings growth of 10.7% -> 10.6% -> 10.6%

and revenue growth of 5.6% -> 5.6% -> 5.6%

You can see that earnings projections for Q3 2019 came down a bit more, and so did earnings in Q2 2020.  Q1 2020 estimates did not change for earnings, but revenues dropped a bit.

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

China Deal Risk: The Chinese negotiators left early to return home and snubbed U.S. farmers by canceling a visit. That was like flipping Trump the “old bird.”   Those farmers are his base.  It actually helps Trump when they do that sort of stupid thing.  It just makes the farmers angry at the Chinese.  Negative near term outlook.

Fed Rate Cut Risk:  Discussed above.

U.S. Iran War Risk: UPDATE 9-16-19: Iran has been implicated in the attack on Saudi Oil facilities.  A military response is inevitable.  This will no go unanswered, because it cannot go unanswered.  That would give license to such attacks and the global disruption from this is far too great to not respond.  (Then I went on to say that a frontal attack would end the country of Iran as we know it.)

UPDATE FOR THIS ISSUE: Trump does not want a war.  He’s being obvious about that.  Still, he just deployed US troops to Saudi Arabia to protect their assets.  They cannot do it on their own.  But they SHOULD be doing this on their own.  They are a country lacking creativity (they do virtually nothing but pump oil and invest the profits in other countries) that has sent terrorists to our shores while selling us alternatively overpriced and under-priced oil.  I have nothing against the Saudi people, but the current leadership is engaged in war in Yemen against the Houthis rebels that seeks also to repel Iranian and UAE influences from destabilizing the current government, which has resulted in a widespread “100 Year Famine” in Yemen, and the leadership kills dissenters such as Jamal Khashoggi, whom they chopped up inside their embassy in Istanbul, Turkey.

I long ago predicted that if they did not evolve, they would be eating sand in the future, when oil was replaced as an energy source.  Of course, their pain has come even earlier than oil’s demise, because of our ingenious (and sometimes devious when they pollute the water table!) fracking technology.  That’s why they tried to drive the price down until it became too painful for the Saudis themselves.  And now their butts are on the line and Trump can get some sort of quid-pro-quo from them like low oil prices prior to the 2020 Election.  Good for consumers and good for Trump (whether you like him or not ;)).  I’m sure there is real estate being considered for a Trump Tower to go up in Saudi Arabia, and when the deal is done, Trump will have his pockets stuffed with cash.  One quarter joking there.  Same for Moscow of course, although Putin is not exactly pleased with the sanctions Trump was forced to impose.  The U.S. Senate FAILED to veto continuing aid to Saudi Arabia and now they have to support them or destabilize the oil supply of the world. 

If Iran attacks U.S interests deployed to Saudi Arabia, there will be an all out war.  I cannot believe the Iranians are that insane.  I believe they knew Trump would not respond immediately to their latest attack, but a frontal attack on U.S. troops would not be tolerated for one millisecond.  Iran would be destroyed and we will be out another $2 Trillion if that happens.  Pray for peace!  Trump needs to negotiate a new agreement with Iran on nuclear weapons, or he will be blamed for starting a war with Iran.  And he’ll lose in 2020 if war happens.  That is how well the Iranians are now positioned.  They have him in a corner.  But they had better not push him too far, or they will be “ended.”

2020 Election Risk: Discussed last week.  It’s still Biden vs. Trump, but Warren is a threat.  Bernie unlike Warren did not get much of a bump from the debate.   Warren is a “positive Sanders,” (even though it sounds as though she’s about to break down and cry as she speaks, she also gets very excited about the “free stuff”) so she’ll likely pick up even more points from him.  If he really wanted his agenda done, he’d quit and let her take the shot, but then there is ego.

Trump Impeachment Risk: Read my analysis in the July 26th issue HERE. They need new material to impeach Trump.  What they have is not sufficient or it would have been pursued already. 

Deficit/Debt Threat: No important change.  I’ll leave this here as a monument to our monumental debt, which could threaten interest rates in the future.  The only reason we are off the hook for now is because the rest of the world is in worse shape.  When rates rise, there will be “heck to pay.” 

Now take a look at the SP500 chart.  The green line is 2940.91, the
9-21-2018 High
preceding the decline ending December 24th.  The upper yellow line is the next target (now at about 3049, but rises slightly daily as it’s an up trend line).

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

Market timing the SP500 Index (SPY, SPX). Topped out?

Topped out?

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Negative.  Failed at the July high and has been down 6 days in a row and on high volume Friday.

Bank of America (BAC) Market Timing Signal: Negative.  Looks like a lower high is being formed.  Need a brand new high to void that.  31.17 is the lower top target.

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 34,144 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.

Join the Conversation in the StockTwits “MarketTiming” Room

Now let’s go on to review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +7.52% vs. +1.88% last week .  The limitation is that sentiment that is not at extremes is less predictive.  But what was the sentiment spread on Dec. 5th just after the Dec. 3rd high?  7.5%.  That was the peak of the spread achieved after the Nov. 23rd low.    The spread we’ve reached is OK for a lower high if that is confirmed early in the week. 

Some good news?  This is not what a top looks like.  Sentiment goes “off the charts” at major highs.  The good news is that there is room for much more upside in sentiment.

Bulls Neutrals Bears
35.34% 36.84% 27.82%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM):

Two weeks ago:A breakout in small and mid caps next week would confirm the move in large caps. ” 

It did not happen.  Stay away from small caps still.  They need a breakout above those lower highs. 

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

Market timing the U.S Small Cap Index (IWM, RUT). Failing. Falling off a lower top.

Failing. Falling off a lower top.

 3. Gold Market Timing (GLD): 

I’ll stand by this:

“This is not yet the time to pivot out of gold trades in my view.  As long as the Federal Reserve is still lowering interest rates, gold/gold stocks will do well.  When inflation starts to rise again, we’ll have to sell our trading positions in gold.”

See above for much more on gold.

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

Market timing the gold ETF (GLD). Gold on the mend.

Gold on the mend.

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

I said last week:

“The simplest view of the chart tells you that the 9-2017 low of 2.034% could be the next upside target, before global slowing brings U.S. rates back down.  As said, we have to watch the incoming data, because that is not a given!”

We got to 1.903% last week and slid a bit.  The Treasury/Bond market is now leading the Fed.   If the “October Cut Doves” gain momentum, TNX will continue its fall.  The Fed is not being clearly dovish despite the QE comment by Powell this past week.  That 2.0%ish level mentioned last week could still come into play, but gold is looking good for more upside, so I’m not investing in that notion.  I also added back the small amount of TLT exposure I had sold just before the Fed meeting.  I have not added back the munis I took off.

Remember, FOUR Fed cuts will NOT be a “midcycle adjustment” and would be taken badly by the market ironically, considering the market’s addiction to lower rates.  ***A fourth cut means the Federal Reserve is seeing recession risk as significantly high.***

Recessions above all else, create what I call “Big Bear Markets.”  Therefore, a fourth rate cut will raise stock market risk dramatically.  (December 2018 was a Mini Bear Market; see my New Rules HERE. Scroll to “New Rules” in blue.)

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

U.S. 10 Year Treasury Note Yield (click chart to enlarge; TNX, IEF, TYX, TLT, TBF): NOTE: The 1.429% low is the lowest low shown below the bottom yellow line.  That red pointer should be a bit farther to the right.  It is now a Treasury Bull target.

Market timing the US 10 Year Treasury Yield (TNX, TYX, TLT, IEF). Rates could fall from here.

Rates could fall. Maximum upside is to around 2%.

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 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 NEUTRAL SP500 Index trend.  The stock signal is based on small caps, as they often lead the market down.  The SPX needs a new high to turn back to Bullish, at least above the recent consolidation.

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!)  These are the targets: 13.31, 14.04-14.08, 15.04, the “fulcrum” range = [15.94-15.95 to 16.09], 17.06, 17.27, and 17.89.  The bonus target #8 is [12.-17-12.37].  The Bears have 4 of 8 targets at a VIX of 15.32 (Friday close).  I consider the “fulcrum” the key decision point that turns the market from Bearish to Bullish, when the VIX falls below that entire fulcrum range.

The ‘Bull Nirvana Target’ is our V*IX # of 2018: 13.31.”  (That is target #7 for the Bulls.) 

Gold Signal RED  for a further U.S. stock market rally with a BULLISH Gold Trend.   What gold does mostly as I’ve written HERE is follow real interest rates. 

From before: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise, it means the market believes real rates will  fall, which in the current context means the global economy is slowing.  That will ultimately hurt U.S. stocks. 

Rate Signal YELLOW for a further stock market rally with a long term BEARISH and short term NEUTRAL 10 Year Yield Trend.  (Remember: lower rates mean higher bond and Treasury prices)  The short term trend says this could “be all the rates Bulls are going to get.”  Up to about 2% as a possibility, but not one I’m betting on.  The long term trend is obviously Bearish.

For Reference: “Rates usually RISE slowly in a strong recovery and the stock market rally continues as they rise, as I’ve repeated multiple times on social media and here.  Empirically though, rates that are “lower” (than 3.11%) and are NOT rising rapidly have allowed the market to climb back above the prior all time high (ATH).”

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”    It closed at 58.09 despite the Iran War risk spike vs. 54.85 last week.  It held the June low and has since formed higher lows in Aug. and Sept.  Still holds: If it rises above 58.82 and then 60.94, oil and oil stocks will be off to the races.  63.38 would be the next target. XLE was repelled by the 200 day mav.

Just a reminder: If TNX bounces too quickly and too high, this will give rise to Rate Shock III… As said before: “Watch the rate at which TNX climbs if the current trend reverses.  If it shoots up very fast, stocks will correct.”  In the Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.  That’s what I called ‘Rate Shock.'”  The period of rising rates in early October I called #RateShockII.

The risk lately has been “Negative Rate Shocks.”  (Not negative rates in the U.S. yet!  “Negative” refers to the direction of the shock.)  First we had “Negative Rate Shock I” in December 2018 (because rates FELL while the Fed raised the Fed Funds rate 0.25% in mid-December, in what was perceived as a policy error by critics),  “Negative Rate Shock II” in May, and “Negative Rate Shock III” in August, which is on pause and awaiting the next pivot.

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question or report a typo… 

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

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

Sun and Storm Investing™

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

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, 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 © 2019 By Wall Street Sun and Storm Report, LLC All rights reserved.

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

Market Timing Brief™ for the 9-13-2019 Close: “Close Enough! Large Cap Stocks Retop. Inflation Data and Ever Impending Trade Peace Send Rates Up Sharply in Reversal with Gold Testing Its Recent Trend.”

A Market Timing Report based on the September 13, 2019 Close, published Saturday, September 14th, 2019…

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

I provide quite a bit of intraweek commentary, and if you don’t see it, you will miss out on quite a bit of context, so please click on the social media links below and have a read…  Thank you as always for being loyal readers and interacting on social media with your questions and comments! 

NOTE: ALL CHARTS REPRESENT THE 9-13-2019 FRIDAY CLOSE.  

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

Last week I detailed four requirements for a strong stock market moving to new highs, and we need to review them now…

A. “Earnings growth resuming in Q4 2019 into 2020.”  This is expected, but we first have to make it through negative Q3 earnings without enough negative revisions to drag on those future earnings.

B. “Interest rates rising or at least stabilizing.  We can give this one a temporary check mark!  At the moment, it seems there will only be two more rate cuts by April 2020 per investors for a total of 3 cuts despite this bounce in rates.

How many times the Fed will cut is still being debated in the minds of investors!  How do I know this?  Because the CME Group data says that the October cut will move to December or January, but a fourth cut has become more probable in 2020!  The Fed would not continue to cut rates if things were improving steadily in the economy, so the data shows the interest rate cut Bulls are still looking for more downside.  That means this move up in interest rates could be a false one with still more gains ahead for both Treasuries and gold/gold stocks. 

Will the U.S. Federal Reserve lower interest rates more quickly than suggested by their latest “mid-cycle adjustment” language?  Don’t count on it with the higher inflation numbers, and that’s where the debate comes in.  I am predicting a 0.25% cut this week.

CME Group says a  0.25% cut on Sept. 18th has a 79.6% probability. vs a 91.2% probability last week, and the rest of the probability distribution says the Fed will not cut at all.  That would be Cut #2 to be clear.  There is a 34% probability vs. last week a 59.6% probability they will cut again in October, and now a 54.9% probability vs. a 35.2% probability last week of a Cut #3 or more by December. Essentially that moves the expected October cut to December. (If you look at the data, remember that Cut #1 was done at the July meeting.)

By January there is a 68.3% vs. a 60.4% probability last week that rates reflect three cuts in total for the sequence of cuts.  How about 4 cuts?  March?  38.6% prob. vs. 33.8% prob. last week of 4 cuts.  April?  42.1%% vs. 19.2% probability last week of 4 cuts.

CONCLUSION: The majority of investors believe the Fed will cut TWO MORE TIMES and that is it!   This sequence of expected cuts is still what Powell called a “mid-cycle adjustment” to rates, despite the rising pessimism about 2020.  Investors may be disappointed by the number of eventual cuts if inflation numbers continue to warm. 

The good news is that we’re not yet to the ultimate stock market top in my view. 

When we are recovering, as I’ve shared here before, RATES RISE, they do not fall.  Rates rose sharply, at least from their previous low level.  A move UP of 11.2 basis points on Friday is a BIG move for one day.  The previous day they went up 5.8 basis points, which is also a strong move.

Is that sort of move a big thing?  Well, if you look at the data since the October 2018 top at 3.248%, there were only a few data points with rises of that magnitude:

1. 1-04-19 10.5 bp when rates moved off a low and stocks were moving into a strong rally.   The rate gains held up for a few months before rates stepped down once again.

2. 7-05-19 9.5 bp when SP500 Index was only about 1% below the eventual high.  The yield was coming off another temporary low that held rates up for another 18 trading days before they collapsed to the next low.

3. 9-05-19 10.6 bp on the day the yield came off its low and the SP500 Index broke to new highs.

When was the most recent big DROP in the 10 Year Yield?  On 8-01-19, there was a 12.7 bp when Trump had just stirred up things with China with new tariff threats and the SP500 Index broke immediate support the same day.

You’ll notice there are several correlations/relationships here.

1. A strong yield move up is being read as a POSITIVE for the stock market.  Rates rise when an economy improves after rates are lowered by the Fed when things are soft.  That is the dance.  I realize my loyal readers know that, but it’s good to bring the key concepts into focus for the discussion.

2. But in one case (#2), the impact of higher interest rates was short lived.  The market topped 16 trading days later and did not make it that much higher before falling.

3. The rapid up move is correlated with not only a very long move down in rates since Oct. 2018, but also with a recent collapse in rates based on a China Trade talk failure.  Market participants DO care about trade in a significant way at least on a trading basis.  They see the future of the economy differently with the trade war resolved vs. a long drawn out fight, which it obviously dislikes.  Uncertainty is poison to any stock market.

4. I’ll save my fourth point for the 10 Year Treasury Yield Chart below.  Be sure to read it!

C. U.S. China Trade War resolution.  President Trump said this week he’d consider an “interim deal” with China, and said they’d being buying a lot of agricultural goods (to make his Midwest voters a lot happier, as they’ve been suffering), and China said it would even lower some tariffs on U.S. products selectively.  Trump held off the 30% tariff raise from 25% for an additional two weeks to allow time for talks in the second week of October following China’s celebration in the 1st week of October.

D. President Trump’s re-election or (adding this week) Former VP Joe Biden’s Election.  Biden did better during this last debate and even fended off an ageist attack on him by Castro.  As long as Biden does not move up corporate tax rates dramatically in his stated tax plan (I have not seen a statement on corporate rates from his campaign), I predict the markets will not react in fear to a Biden presidency.

The worst case for the markets is having anyone close in perspective to Sanders or Warren in the White House.  The earnings of the SP500 Index would drop precipitously on their higher corporate tax rates, and that would make U.S. firms less competitive on a global basis (I think the tax rate of these companies should be adjusted based on the percentage of goods they produce in the U.S.).  At the present time, no one else in the field besides those two is even a close threat to Joe Biden.  Notice that in THREE DEBATES, there has been zero discussion of tax policy other than tangential threats to tax the ultra rich?  What is with this need to demonize the rich?  You’d think they want to be elected by any means possible.  😉

Yes, there are inequities in the system, and I believe strongly with profit sharing with loyal employees, but they don’t need to lump every successful person in with CEOs who make 50-100 Million a year as Co-CEO Mark Hurd of Oracle does (His salary was mentioned when he took a leave of absence due to a health issue – unspecified, although investors may actually want to know what the risk is to his health).

E. Impeachment dies in the House:  I’m adding this back, because the House took steps toward furthering their investigations this week.  Still, there is very little talk about it.  Do not underestimate the impact on the markets if this perks up, so it’s something we need to watch closely. 

Now since we are approaching that upper yellow trend line on the SP500 Index chart, let’s check my “Bull Market Health Score”…

What would satisfy me that the Bulls are serious?

Let’s check the list once again… The Bull Market Health Score this week = Bulls 4/Bears 1.  Last week we were at Bulls 4/Bears 1, so the market is still healthy with the exception volume behind the large cap move.  At the end of July before the pullback, we were at Bulls 2.5/Bears 2.5.

For each checklist item below, I give you the points scored as Bullish or Bearish. 

1. New high?  Bulls 1.0 point.  Answer: No, but progress was made to retake the all time high.  The high this week was SPX 3020.74, close of 3007.39 and SPY 302.46, a close of 301.09.

Last week: The Bulls got to SPX of 2985.86 and closed the week at 2978.71 . SPY got to 298.83 and closed at 298.05.

Where to next?  The upper channel line in yellow on the chart below would be the next target ABOVE the prior ATH.  One of my indicators shows there is room for a very “giddy” new high as we saw back in Jan. 2018, but you know what happened after that.  Sentiment does support a new high as you’ll read below.  Stay with the trend.  I have a surprising take on small caps you’ll read later.

2. VIX trend favorable?  Bulls 1.0.  Answer: Yes.  At the Friday close, the VIX was 13.74 vs. the prior week’s close at 15.00.  I reported last Saturday that the “VIX Fever” had broken with the close below prior support (15.51) AND below my “fulcrum target” (see base of report for VIX Game #s).  The VIX Game Score as I call it is Bulls 6/Bears 2 as of the close Friday.

3. AD % Line in an Uptrend? (This is a proprietary stat; see base of report.): Bulls 1.0 point.  Answer: Yes.  The close was 16,749 a new ATH.  The breakout above 16.632, the 7-31-19 high has been eclipsed for 5 trading days.

4. Volume on Up Moves?  Bears 1.0 point.  Answer: No.  Volume for the large caps did not go up on the breakout day, which was Wednesday.  There is a caveat here though.  The volume WAS SEEN in the small caps as the chart in section 2 shows!  Since this market health score refers largely to large cap stocks with a secondary role played in #5 by small and mid caps, I won’t split this point between the Bulls and Bears.

5. Is the “U.S. Index Matrix Signal,” as I call it, positive?  Bulls 1.0 point.  Answer : Yes, and although they (both small and mid caps) have reached “chart resistance” as of Friday, the volume behind this move suggests the Bulls could push further upward. 

Let’s check in on the context around the price action of the market by looking at the current Market Risks… 

We have some new earnings data this week…

Earnings Risk: what is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 8-09-19 with a skip of two weeks until the 9-06-19 data resumes the weekly data sequence (details HERE)… The arrows “—>” indicate 3 weeks of of omitted data in order to compress the data.  

For Q2 2019, analysts are projecting earnings growth of 0.1%  —> -1.3% ->  —> -2.1%  —> -2.6% -> -2.6% -> -3.0% -> -1.9% -> -2.6%-> -1.0% -> -0.7% -> -0.4%  DONE

and revenue growth of 4.6%  —> 4.3%  —> 4.1%  —> 3.8% -> 3.8% -> 3.7% -> 3.8% ->4.0% ->4.1% -> 4.1% -> 4.0%  DONE

For Q3 2019, analysts are projecting earnings growth of 1.8%  —> 0.8%  —> 0.3%  —> -0.5% -> -0.5% -> -0.8% -> -1.4% ->-1.9% -> -2.2% -> -3.1% -> -3.5% -> -3.6% -> -3.7%

and revenue growth of 4.4%  —> 4.4%  —> 4.2% —> 3.8% -> 3.8% -> 3.3% -> 3.2% ->3.2% -> 3.1% -> 3.0% -> 3.1% -> 2.9% -> 2.8%

For Q4 2019, analysts are projecting earnings growth of 8.1% —> 7.5%  —> 7.2%  —> 6.3% -> 6.3% -> 6.0% -> 5.4% ->4.9% -> 4.5%  -> 3.9% -> 3.5% -> 3.4% -> 3.2%

and revenue growth of 4.8%  —> 4.8%  —> 4.6%  —> 4.3% -> 4.3% -> 4.2% -> 4.0% ->4.0%-> 4.5%-> 4.0% -> 4.0% -> 4.0% -> 3.8% -> 3.7%

For CY 2019, analysts are projecting earnings growth of  3.4%  —> 3.2%  —> 2.7% -> 2.6% -> 2.4% -> 2.3% -> 1.7% -> 1.9%  -> 1.5% -> 1.5% -> 1.4% -> 1.3%

and revenue growth of 4.7%  —> 4.7%  —> 4.5% -> 4.4% -> 4.3% -> 4.4% ->4.4% -> 4.4% -> 4.3% -> 4.4% -> 4.3% -> 4.2%

For Q1 2020, analysts are projecting earnings growth of 10.5% -> 10.7% -> 10.3 -> 9.9% -> 9.8% -> 9.5% ->9.2% >9.0% -> 8.5% -> 8.2% -> 8.1% -> 7.9%

and revenue growth of 6.2% -> 6.1% -> 6.0% -> 5.8% -> 5.8% -> 5.9% ->5.9% -> 5.7% -> 5.6% -> 5.7% -> 5.5% -> 5.5%

For Q2 2020, analysts are projecting earnings growth of 13.3% -> 13.3% -> 12.9% -> 13.2% -> 13.5% -> 12.0% ->12.6% ->  10.7 ->  9.9% -> 9.3% -> 9.2% -> 9.1%

and revenue growth of 6.8% -> 6.8% -> 6.6% -> 6.6% -> 6.6% -> 6.7% ->6.6% -> 6.5% -> 6.4% -> 6.5% -> 6.4% -> 6.4%

For CY 2020, analysts are projecting earnings growth of 10.7% -> 10.6%

and revenue growth of 5.6% -> 5.6%

You can see that earnings projections for Q3 2019 came down a bit more, and so did earnings into 2020, although the comparisons are going to be easier vs. the prior year in 2020. 

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

China Deal Risk: Has improved as discussed.

Fed Rate Cut Risk:  Discussed above.

U.S. Iran War Risk: UPDATE 9-16-19: Iran has been implicated in the attack on Saudi Oil facilities.  A military response is inevitable.  This will no go unanswered, because it cannot go unanswered.  That would give license to such attacks and the global disruption from this is far too great to not respond.  That is the way of the world in its current state of consciousness and its available options. The response will start and could end with air strikes, but should Iran send troops into Saudi Arabia, it will become the next Middle East War, because the Saudis would require American troops to face off Iran.  A “clean war” would quickly become messy.

No change from: “Simmering at a low boil, and not over.  Iran is reportedly already breaking the 2015 agreement on enrichment of uranium.  Trump claims they want to negotiate.”

2020 Election Risk: Discussed above. 

Trump Impeachment Risk: Discussed above.  Read my analysis in the July 26th issue HERE.

Deficit/Debt Threat: No important change.  I’ll leave this here as a monument to our monumental debt, which could threaten interest rates in the future.  The only reason we are off the hook for now is because the rest of the world is in worse shape.  When rates rise, there will be “heck to pay.” 

Now take a look at the SP500 chart.  The green line is 2940.91, the
9-21-2018 High
preceding the decline from Sept. to December 24th. The upper yellow line is the next target (now at about 3044, but rises slightly daily as it’s an up trend line).

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

Market timing the SP500 Index (SPY, SPX). Near the top.

Almost at the prior all time high (ATH).

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Positive.  July high is the next target for the Bulls to take out. 

Bank of America (BAC) Market Timing Signal: Neutral, and no, interest rates did not head lower this past week, which helps the banks greatly.  31.17 is the top of the current range that has been in place for months. 

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 34,144 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.

Join the Conversation in the StockTwits “MarketTiming” Room

Now let’s go on to review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +1.88% vs. -10.87% last week . 

The fact that investor sentiment is still tentative  with the SP500 Index breaking to the top of the trading range is BULLISH.  Spreads of 20-30 are substantialy Bullish, and the sentiment in Jan. 2018 of a spread > 40% was off the wall Bullish)

Bulls Neutrals Bears
33.13% 35.63% 31.25%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM):

Last week:A breakout in small and mid caps next week would confirm the move in large caps. ” 

Small caps did in fact not just come along with large caps this week – they outperformed them on HIGH VOLUME.  The real challenge is the combination of three major highs all around that first high of 159.50.  Above there?  It’s a clear signal of more gains for the entire market, just as the prior breakout above those August lower highs was.  Watch what I do this week on social media if/when we get that signal. 

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

Market timing the U.S Small Cap Index (IWM, RUT). Back testing near the prior high.

A breakout would mean a lot here!

 3. Gold Market Timing (GLD): 

Last week: “Be awake next week for the PPI( Weds.) and CPI (Thurs.) inflation data.  Retail sales are on Friday.

I said: “This is not yet the time to pivot out of gold trades in my view.  As long as the Federal Reserve is still lowering interest rates, gold/gold stocks will do well.  When inflation starts to rise again, we’ll have to sell our trading positions in gold.”

Right on cue, gold fell as rates rose sharply as the inflation data was on the warm side as I detailed on social media HERE and in the “markettiming room” HERE We’ve been holding these positions knowing a rate-based counter-trend move could occur.  If you traded out of at least part of your gold position near the prior highs when rates were super stretched, good for you.  But as I shared in detail last week, if you are not willing to jump back in for what could be the “next leg up in gold,” then you should not sell unless that’s the only way you can preserve a decent profit.

What’s the caveat for gold in a rising rate environment if that is what we’re moving to (unproven if that 2.06% level holds)?  The Fed is trying to maintain the expansion, so if it moves too slowly, real rates don’t expand and in fact the Fed falls behind perhaps, pushing gold higher as real rates move lower.  You can watch real Treasury rates HERE. The 10 Year Treasury last had a slightly negative real rate on Sept. 4th (-0.04%).  With the pop this week, it’s back to 0.23%, not great but better.

Look at the number of failed rallies in GLD on the first chart below (a weekly chart).  This is the SIXTH significant rally for gold since the June 2013 low.  That means this rally could fail as well.  The one that won’t fail could be 1 year or 5 years away, when the entire monetary/debt system suffers a crisis after years of these ridiculous negative rates whose purpose is to prevent natural, cyclical downturns in the economies of the world.  All the Central Banks are playing the same game, just to varying degrees, with the U.S. trailing Europe and Japan on “negative rates.”

This is why we must TRADE our trading position in gold and not seek to “Buy and Hold” it.  ( I do have a core gold “fiat currency insurance position.”)  We know what the endpoint will be for these “Frankenstein monetary experiments.”  We just have no way of knowing when investors will give up on western fiat currencies.  Why do you think Russia is selling U.S. dollars and building up its gold holdings?  China has also been a strong buyer of gold.  Do you think China may someday threaten the U.S. dollar as the reserve currency as they build their ability to innovate?  What if the world started buying yuan instead of dollars?

This is why we have to continue to bring immigrant talent into the U.S. and support our educational and research systems, which have driven the world’s best innovations for decades.  China is now pressing to lead on 5G as I discussed last week.  A win for them there would be a strong signal to the U.S. tech industry.  As I said last week, Apple is a YEAR BEHIND Huawei on 5G phones.

Finally, to be a global tech leader, China will need both access to more capital and access to U.S. technology, which it won’t get as an adversary.  And it would not deserve it.  What is our edge?  Freedom is our edge.  Captive spirits are less willing to step out and take risks, so until REAL freedom arrives in China, the U.S. will have a huge advantage.  I just hope our leaders don’t blow it on the education and research fronts!

Despite the caveat that this could become a failed gold rally, the rally has not yet failed in a meaningful way (the close was not decisively below trend – not yet anyway, and the breakout above the prior major highs shown below is still intact).  The trend is still up for gold for now.   The downside risk is to the breakout level, which is below the current trend as shown on the first chart.  137.55 is the highest of those tops.  The positive view is that GLD is still above the five previous failed rally attempts.  When that changes, gold will go back to a trading sell.   Remember that holding a core gold position like GLD in your portfolio is a form of currency insurance against the decline of the U.S. dollar, which over time, the Fed and Treasury ensure goes down.  That’s the only way they can repay our massive debt.

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

NOTE: CHART represents the 9-13-19 CLOSE!

Market timing the gold ETF (GLD). Gold in pullback, but close to trend.

Gold in pullback, but still above key breakout levels.

CHART represents the 9-13-19 CLOSE!

Market timing the gold ETF (GLD). GLD is barely below the up trend line.

GLD is barely below the up trend line.

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

The narrative around the rate rise was covered above.   But I promised to share the most important point on positioning, which is the verification of the prior major lows by the recent low and lunge upward:

Point #4. As shown in the first TNX chart below for the 10 Year Treasury Yield, the low created by this surge in rates is a higher low above the 2012 1.394% low as well as the 1.336% low of 07-2016.  That means the range was defended and the entire upside of the range is now in play.  A breach of that lowest low would indicate a dive toward zero/negative rates was in the cards, even for the U.S.   For now, the rate Bulls (those expecting interest rates to rise further) are in control until proven otherwise.  The global economy says “No” to that notion.  U.S. inflation data and slow but positive GDP growth say “Yes” to still higher rates.  

Don’t underestimate this signal.  Note that the rate rise was the greatest since the rise immediately after the 2016 Election based on the perception that Trump’s policies would stimulate economic growth, which requires higher interest rates (see 2nd chart below).  It also drew in foreign investment in the U.S. stock market no doubt as well.  This comparison tells you that the rate rise is not necessarily “bad” for stocks.

In fact, the data this week may say that the U.S. is not going to be subject to the economic drag from the rest of the world.  Of course, it’s not immune to that influence, but we COULD lead the world back out of a slowdown vs. having the rest of the world lead us into recession.  There is that possibility if we can get through Q3 earnings starting in mid-October or so without too much downward revision in the revenue and earnings numbers. 

Alternatively, the numbers suggest the Fed is moving into a period of being “cornered” between slow GDP growth and higher inflation as I discussed this week (see second link under the Gold section above).  That’s what is called “stagflation,” which was a big problem throughout the 1970’s through the start of Reagan’s first term.  It led to very high interest rates under Fed Chair Volcker, which amounted to shock therapy for inflation expectations. 

The simplest view of the chart tells you that the 9-2017 low of 2.034% could be the next upside target, before global slowing brings U.S. rates back down.  As said, we have to watch the incoming data, because that is not a given!

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

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

NOTE: Chart represents the 9-13-19 CLOSE!

Market timing the US 10 Year Treasury Yield (TNX, TYX, TLT, IEF). The prior lows HELD.

The prior major lows held. This looks like a major reversal UP.

 NOTE: Chart represents the 9-13-19 CLOSE!

Largest weekly rise in rates since the 2016 election!

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 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 Bullish SP500 Index trend.  The stock signal is based on small caps, as they often lead the market down.  The small cap trend is neutral, leaning Bullish until the current trading range is breached to the upside (discussed above).

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!)  These are the targets: 13.31, 14.04-14.08, 15.04, the “fulcrum” range = [15.94-15.95 to 16.09], 17.06, 17.27, and 17.89.  The bonus target #8 is [12.-17-12.37].  The Bears have 6 of 8 targets at a VIX of 13.74 (Friday close).   I consider the “fulcrum” the key decision point that turns the market from Bearish to Bullish, when the VIX falls below that entire fulcrum range.

The ‘Bull Nirvana Target’ is our V*IX # of 2018: 13.31.”  (That is target #7 for the Bulls.) 

Gold Signal RED  for a further U.S. stock market rally with a BULLISH Gold Trend.   What gold does mostly as I’ve written HERE is follow real interest rates. 

From before: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise, it means the market believes real rates will  fall, which in the current context means the global economy is slowing.  That will ultimately hurt U.S. stocks. 

Rate Signal YELLOW for a further stock market rally with a long term BEARISH and short term BULLISH 10 Year Yield Trend.  (Remember: lower rates mean higher bond and Treasury prices)

For Reference: “Rates usually RISE slowly in a strong recovery and the stock market rally continues as they rise, as I’ve repeated multiple times on social media and here.  Empirically though, rates that are “lower” (than 3.11%) and are NOT rising rapidly have allowed the market to climb back above the prior all time high (ATH).”

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”    It closed at 54.85 vs. 55.10 last week but is starting to look more neutral in trend than Bearish.  It held the June low and has since formed higher lows in Aug. and Sept.  If it rises above 58.82 and then 60.94, oil and oil stocks will be off to the races.  The bounce in XLE has been strong off the prior low, but it’s only to the prior relative levels attained on failed rallies.

Just a reminder (not a current problem, because rates are “too low” now on a relative basis, but the rate of rise has been fast enough to be concerned should it continue): If TNX bounces too quickly and too high, this will give rise to Rate Shock III… As said before: “Watch the rate at which TNX climbs if the current trend reverses.  If it shoots up very fast, stocks will correct.”  In the Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.  That’s what I called ‘Rate Shock.'”  The period of rising rates in early October I called #RateShockII.

The risk lately has been “Negative Rate Shocks.”  (Not negative rates in the U.S. yet!  “Negative” refers to the direction of the shock.)  First we had “Negative Rate Shock I” in December 2018 (because rates FELL while the Fed raised the Fed Funds rate 0.25% in mid-December, in what was perceived as a policy error by critics),  “Negative Rate Shock II” in May, and “Negative Rate Shock III” in August, which is on pause and awaiting the next pivot.

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question or report a typo… 

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

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

Sun and Storm Investing™

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

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, 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 © 2019 By Wall Street Sun and Storm Report, LLC All rights reserved.

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

Market Timing Brief™ for the 9-06-2019 Close: “Will the Bulls Leap Over the Coming Q3 Earnings Slump? A Not So Dovish Powell Causes Gold to Ease With Rates Still Near Recent Low.”

A Market Timing Report based on the September 6, 2019 Close, published Saturday, September 7th, 2019…

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

I provide quite a bit of intraweek commentary, and if you don’t see it, you will miss out on quite a bit of context, so please click on the social media links below and have a read…  Thank you as always for being loyal readers and interacting on social media with your questions and comments! 

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

My title this week is inspired by the thought that the Bulls are discounting the resolution of every possible risk ahead, well in advance of their resolution.  That can work at times, and it can fail miserably at times.  If you thought in 2008 that the Fed was on the case, and the market would turn around after the first major part of the decline, you front ran the second huge drop in the market that took stocks to a 55% discount from the prior ATH (all time high).

The market ascending to significant new highs requires:

1. Earnings growth resuming in Q4 2019 into 2020, with avoidance of a near term recession, not just in the U.S., but globally, for the most robust sort of rally.  Don’t count on Europe or Japan helping much.  Even China, which is still growing, has slowed in GDP growth rate.  This does not mean a recession could not occur after the market rises another 10-20% above the prior ATH.  This is something many have discussed this week.  The fact is an inversion of the yield curve where the 2 year yield rises above 10 year yield (and it DID so so for several days), precedes recession by 6 months to a couple of years (discussed in a prior issue HERE) and in that period the market tends to rise quite a bit, NOT fall.  The big players know this.  They also know the public is NOT yet euphoric (see sentiment below).

2. Interest rates rising or at least stabilizing.  When we are recovering, as I’ve shared here before, RATES RISE, they do not fall.  Banks and insurance companies are in deep trouble when the yield spread is too low, which is why the world has done unthinkable things like going to deeply negative interest rates to drive money out of their currency.  Switzerland’s 10 year bond is -0.919%!  Each year you give up about 1% of your money for the privilege of holding Swiss bonds.  Of course, few do this, other than Central Banks who have some sort of requirement to do so.

Realize these negative rates don’t force banks to make bad loans to businesses they believe are going to fail and leave them holding the bag, but what this does is force money into riskier areas of the market.  It keeps asset prices from falling as far as they otherwise would.

3. U.S. China Trade War resolution.  If it’s a marginal win, that would still help in the short to intermediate term, and a bigger U.S. win could help U.S. GDP growth in a much bigger way.  It definitely would resolve the lack of confidence businesses have about investing in their future that Federal Reserve Chair Powell spoke of in Zurich on Friday.  See my messages about that HERE.  And then scroll back a bit from the main message stream to read the rest.

4. President Trump’s re-election.  Without that, the entire tax rate structure (lower corporate rates are most critical for the stock market) will be reversed IF the Democrats take the Senate back.  If Biden becomes President, which I will address below, he may only opt for a partial increase in the corporate tax rate (…as I advised him!  25% is my number, vs. the current 21%), but that would immediately impact corporate earnings.

We’d need all four of those, minus impeachment of course, which does not seem to be on the front burner.  When did you last hear about it?  Exactly!

Let’s first check my “Bull Market Health Score”…

What would satisfy me that the Bulls are serious?

Let’s check the list once again… The Bull Market Health Score this week = Bulls 4/Bears 1.  Last week we were at Bulls 0/Bears 5, so there’s been good progress.  At the end of July before the pullback, we were at Bulls 2.5/Bears 2.5.

For each checklist item below, I give you the points scored as Bullish or Bearish. 

1. New high?  Bulls 1.0 point.  Answer: Yes, not an all time high, but a higher high as I said three weeks ago, which means the Bulls get this point. 

“Bulls must retake S*PX 2943.31 and S*PY 294.15 to be convincing that the current correction is over at least in getting us back to a test of the prior ATH (all time high).  (*’s added to throw off the ‘web crawlers’; it’s not my goal to become part of the ‘consensus.'”

The Bulls got to 2985.86 this week and closed the week at 2978.71 . SPY got to 298.83 and closed at 298.05. 

Where to next?  The market was stretched on Friday, but it can now rise to the prior all time high (ATH) and perhaps as high as the upper yellow trend line on the chart below.  That is for the large cap quality stocks.  Although the weakest stocks gained strength this week as mentioned on social media, the “high flyer club” was not expanded nearly as much.

High beta growth stocks (stocks that move much more than the market in percentage terms, up and down) have not been working of late, likely because they have been priced to perfection and any miss, even slight, during economic slowing can cause them to plummet.  There is good news for the SP500 Index Bulls though in the strength of the “lower quality” group of stocks this week, meaning lower quality in behavior.  That improves the breath and sustainability of the advance.

2. VIX trend favorable?  Bulls 1.0.  Answer: Yes.  At the Friday close, the VIX was 15.00 vs.  the prior week’s close at 18.98.  The VIX Game Score as I call it is Bulls 5/Bears 3 as of the close Friday (Game Numbers can be found at the base of this report).  The Bulls also broke a key support level on Friday at 15.51.

3. AD % Line in an Uptrend? (This is a proprietary stat; see base of report.): Bulls 1.0 point.  Answer: Yes.  The close was 16,634, which was a marginal new high above the prior high of late July of 16,632 this past Friday.  That’s pretty close to the prior high, so you could argue I should not give the Bulls the full point, but this was achieved in breadth without a new market high, which I why I’m giving it to the Bulls.

4. Volume on Up Moves?  Bulls 1.0 point.  Answer: Yes.  Volume did go up slightly on Thursday when the market broke out of the prior trading range of the three prior lower highs shown on the chart.  

5. Is the “U.S. Index Matrix Signal,” as I call it, positive?  Bears 1.0 point.  Answer : No.  The small caps are still below the series of lower August highs.  Even the midcaps are below the Aug. 8th high and just below the 50 day moving average (mav).

I said last week: “The Bulls have to come up with a better bounce soon, or we’ll descend into Wave 3 Down, the ‘Big Red Wave.'”  The rise above the series of lower highs voids Wave 3 Down for now.  A quick reversal back below the August tops would bring it back into play however. 

What are the “upside opportunities” as I call them?  Let’s ask what could cause or substantially contribute to a sustained rally (a rise of more than 2-3 days)?

1. The U.S. Federal Reserve lowers interest rates more quickly than suggested by their latest “mid-cycle adjustment” language. 

The next Fed meeting is Sept. 17-18, and it’s clear from Powell’s stance in Zurich this week that the Fed won’t act between meetings.  Still, the market has 10 days of play before their next statement and news conference.  They appear to have used the Wall Street Journal as their vehicle to warn that they may not move down rates by 0.50% at the meeting.  They may stick to a 0.25% cut.  In fact, a 50 basis point cut would surprise the markets – and propel Treasuries and gold to new highs in my view.  A 0.25% cut would still support them both in moving higher.

CME Group says a  0.25% cut in on Sept. 18th, as of Friday, has a 91.2% probability of occurring, and the rest of the probability distribution says the Fed will not cut at all.  There is a 58.5% probability they will cut again in October, but only a 32.8% probability of a 3rd cut in December.  By January there is a 60.4% probability that rates reflect three cuts.  March?  33.8% prob. of 4 cuts.  April?  19.2% prob. of 4 cuts, so the odds of continuing rate cuts beyond 3 cuts is NOT in the market at the moment. 

The jobs report Friday showed 130,000 jobs were created last month, which was weaker than expected.  Still, the market doesn’t mind “slow growth” at this point, because it lengthens the recovery period.  If unemployment starts to rise, that’s another thing, and it’s not a good sign.  That’s something we need to follow.

2. The U.S. Treasury Intervenes to Weaken the U.S. Dollar: There has been no further talk about this after some discussion two weeks ago.

3. China, Europe, and Japan provide FISCAL STIMULUS to their economies.  I detailed two weeks ago (link to upper right) that China and Japan are doing some things that could help.  I’ve heard some analysis saying that China’s efforts are not going to be nearly enough to move the needle.

4. Trump’s U.S. China Trade War Ends: Two weeks ago I said:

…”the threats are getting bigger and bigger at this point.  Perhaps that alone will force a faster solution.  Trump, after the Friday market close, now says he’ll see President #Xi and raise him 5%!  HERE are the details (Sept. 1st tariffs are going from 10 to 15% and the 25% will go to 30% on Oct. 1st.).”

That turned out to be correct.  Both sides have had it with the escalation process and cannot survive much more pain.  The agreement will not be perfect, but they’ll come to one.  Otherwise Trump won’t be re-elected.  Voters don’t care why they’re not doing well; they blame the blamable, and Trump will have a target on his back if he carries the Trade War into the election.  He won’t win.

5. Timing is everything.  This is my headline this week, because with the new somewhat higher high, the market is saying “I don’t care” about a number of things.  Three weeks ago I said the Bull view could be:

“‘Things will be better on a comparative basis in Q4 2019 and Q1 2020, so buy stocks now.’  Just the comparative improvement in earnings and revenues, IF the world does not in fact slip into a recession, would help the stock markets globally.  This is not only true in the U.S., but also is the case in Europe and China.  The issue is whether further weakness for Q3 results will drive stocks down more before they recover.”

Let’s check in on the context around the price action of the market by looking at the current Market Risks… 

We have some new earnings data this week…

Earnings Risk: what is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 8-09-19 with a skip of two weeks until the 9-06-19 data (details HERE)… The arrows “—>” indicate 3 weeks of of omitted data in order to compress the data.  

For Q2 2019, analysts are projecting earnings growth of 0.1%  —> -1.3% ->  —> -2.1%  —> -2.6% -> -2.6% -> -3.0% -> -1.9% -> -2.6%-> -1.0% -> -0.7% -> -0.4%  DONE

and revenue growth of 4.6%  —> 4.3%  —> 4.1%  —> 3.8% -> 3.8% -> 3.7% -> 3.8% ->4.0% ->4.1% -> 4.1% -> 4.0%  DONE

For Q3 2019, analysts are projecting earnings growth of 1.8%  —> 0.8%  —> 0.3%  —> -0.5% -> -0.5% -> -0.8% -> -1.4% ->-1.9% -> -2.2% -> -3.1% -> -3.5% -> -3.6%

and revenue growth of 4.4%  —> 4.4%  —> 4.2% —> 3.8% -> 3.8% -> 3.3% -> 3.2% ->3.2% -> 3.1% -> 3.0% -> 3.1% -> 2.9%

For Q4 2019, analysts are projecting earnings growth of 8.1% —> 7.5%  —> 7.2%  —> 6.3% -> 6.3% -> 6.0% -> 5.4% ->4.9% -> 4.5%  -> 3.9% -> 3.5% -> 3.4%

and revenue growth of 4.8%  —> 4.8%  —> 4.6%  —> 4.3% -> 4.3% -> 4.2% -> 4.0% ->4.0%-> 4.5%-> 4.0% -> 4.0% -> 4.0% -> 3.8%

For CY 2019, analysts are projecting earnings growth of  3.4%  —> 3.2%  —> 2.7% -> 2.6% -> 2.4% -> 2.3% -> 1.7% -> 1.9%  -> 1.5% -> 1.5% -> 1.4%

and revenue growth of 4.7%  —> 4.7%  —> 4.5% -> 4.4% -> 4.3% -> 4.4% ->4.4% -> 4.4% -> 4.3% -> 4.4% -> 4.3%

For Q1 2020, analysts are projecting earnings growth of 10.5% -> 10.7% -> 10.3 -> 9.9% -> 9.8% -> 9.5% ->9.2% >9.0% -> 8.5% -> 8.2% -> 8.1%

and revenue growth of 6.2% -> 6.1% -> 6.0% -> 5.8% -> 5.8% -> 5.9% ->5.9% -> 5.7% -> 5.6% -> 5.7% -> 5.5%

For Q2 2020, analysts are projecting earnings growth of 13.3% -> 13.3% -> 12.9% -> 13.2% -> 13.5% -> 12.0% ->12.6% ->  10.7 ->  9.9% -> 9.3% -> 9.2%

and revenue growth of 6.8% -> 6.8% -> 6.6% -> 6.6% -> 6.6% -> 6.7% ->6.6% -> 6.5% -> 6.4% -> 6.5% -> 6.4%

For CY 2020, analysts are projecting earnings growth of 10.7%

and revenue growth of 5.6%

You can see that earnings projections for Q3 2019 are coming down and so are earnings out to 2020, although the comparisons are going to be easier vs. the prior year in 2020. 

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

China Deal Risk: Has improved as discussed.

U.S. Iran War Risk: Simmering at a low boil, and not over.  Iran is reportedly already breaking the 2015 agreement on enrichment of uranium.  Trump claims they want to negotiate.

Trump Impeachment Risk: Ongoing, but so quiet, it would appear without fresh “red meat,” this effort will fade away.  Read my analysis in the July 26th issue HERE.

2020 Election Risk: No important change.  Probably the biggest risk to the markets and most Americans are oblivious to this from the markets’ point of view.  I’ll stand by this from before:  “The market will likely pull back at least 10-15% going into the election if the outcome is even unclear, meaning President Trump is NOT ahead by a wide margin (a likelihood, but not a certainty, depending on whether the Dems go for a “McGovern” candidate, as in Nixon-McGovern in 1972, a Democrat disaster.”

From RealClearPolitics numbers:  If you add Warren’s plus Sanders’ percentages of the vote, you get 4.4% more than Biden, which means the former two candidates are going to defeat their own platform in the primaries.  Biden wins from the splintering of the vote by the two leading far left liberals.

If all the rest of the candidates drop out though, both Warren and Sanders could gain enough votes to beat Biden, but that assumes one half of the remaining votes go to each of them and Biden gets few additional votes, which is not likely.  But their chances will improve significantly nevertheless.

Conclusion: Joe Biden needs to fight hard for the nomination, and he cannot lose steam in the debates through unforced errors.

Deficit/Debt Threat: No important change.  I’ll leave this here as a monument to our monumental debt, which could threaten interest rates in the future.  The only reason we are off the hook for now is because the rest of the world is in worse shape.  When rates rise, there will be “heck to pay.” 

Fed Rate Cut Risk:  I discussed this above.  Not doing enough, fast enough is the fear the stock market has. 

Now take a look at the SP500 chart.  The green line is 2940.91, the
9-21-2018 High
, preceding the decline from Sept. to December 24th.

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

Market timing the SP500 Index (SPY, SPX). Rising above the prior range.

Rising above the prior range.

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Positive.  Broke out on 9-04.  Approaching the lower July high however.  Still a big gap back to the April high.

Bank of America (BAC) Market Timing Signal: Neutral but off the prior low.  Still, it fell back from the 50 day mav.  Interest rates are still headed lower most likely, so it won’t be the place to invest (it or XLF, financials).

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 34,144 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.

Join the Conversation in the StockTwits “MarketTiming” Room

Now let’s go on to review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -10.87% vs. -16.08% last week . 

Last week: “Sentiment [the spread] has to break to the single digits to tell us a new rally could be starting.”  It got to a 10.9% spread, which was apparently enough.

The fact that investor sentiment is still BEARISH with the SP500 Index breaking to new highs above the recent trading range is BULLISH.  What we don’t want to see, as said above, is a reversal down with a spike in Bearishness.  That would confirm a high probability of a Wave 3 down, which is the “Big Red Wave.”  For now, it’s been averted.

Bulls Neutrals Bears
28.64% 31.85% 39.51%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM):

Small caps did not come along with the SP500 Index as you can see.  They are still below those lower highs.  A breakout in small and mid caps next week would confirm the move in large caps. 

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

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

Small caps still lagging.

 3. Gold Market Timing (GLD): 

I said on 7-26-18: “Still a Bull.  Add on dips.”   I said, “A China Trade War resolution could hurt gold somewhat by lowering uncertainty, but as long as the global economy is still shaky and weakening along with interest rates, gold will do well.”  This could change in a couple of quarters, so we need to remain alert.

I believe the gold/gold stock reaction Friday was related to the idea that the Fed is reluctant under Powell to lower rates meaningfully.  He’s been led BY the market, so he’ll eventually be forced to lower rates more aggressively, and gold will rise further in my view.

And this brings us to an INVESTING GEM, worth gold… This is “obvious” to most traders, and is often said, but investors do not ACT upon the truth that “To make the most money on great ideas, you need to stay with the trend to the end.”  I’ve learned this more than once, and you may have learned this one or more times the hard way.  If you allow a couple of days of volatility take you out of a position, it’s then hard to get back in.  Then the stock or index or commodity just keeps going and going.  You say you’ll buy the next pullback, but it doesn’t show up until the darn thing is 10% higher.  Now it’s “too expensive.”  Then it goes up another 20%.  And you are finished at that point in buying a pullback, because it’s really, really expensive, and then it goes up another 20%.  You “get it,” but what do you actually DO?

This is a corollary that is probably as important:  You will not have that many GREAT investment ideas over time.  (Buffett said as much about great companies, but it applies to all investment ideas.)  When you have them, you need to give them time to play out.  You need to be in the trend to allow great investment ideas to pay you off. 

If you bought Apple when it came out with the first iPhone, and then a bit of volatility threw you out, you missed out on a HUGE run that may not even be over, because guess what?  There is a 5G upgrade cycle coming.  All existing iPhones will be replaced over a period of a few years.  I’m not saying it’s a buy here or not, but I am saying it could be and to make money on what you think may happen, you will have to ride out the China slowing Apple is experiencing to get to the 5G upgrade cycle.

If you got out of gold when it went down with stocks in 2008, you missed another double in price to the current date and even greater gains to the 2011 high.  I’ll tell you why you should stick with the gold trend in the gold section below, but it’s a great example of NOT GETTING OUT TOO EARLY. 

If you do get out early?  Simple.  Get back in, hopefully on the next pullback, but perhaps even on the breakout to new highs.  Investing in stages in an idea is always preferable to slamming a big block of money in at once, but that does not mean to add too slowly when you see a trend emerge.  That’s how I made great gains when gold was at about $380 per ounce.  I doubled my position in 2003, and since then, gold is up 299%.  I could have added in quick steps though as the market rose, and I would have done nearly as well.  When it dropped to around 1370, I sold my entire principle and rode the gravy.  I added back exposure as a trading position during the current rally.   Jim Cramer just talked about this “investing in stages” strategy just last week vs. “putting it all on at once.”

Warnings I’ll keep here: “The eventual inflection point in inflation (UP) and U.S. economic growth (UP) is what we need to pay attention to.  Any sense that the Fed will end its series of interest rate cuts could trigger a gold sell-off.”

Be awake next week for the PPI( Weds.) and CPI (Thurs.) inflation data.  Retail sales are on Friday.

This is not yet the time  to pivot out of gold trades in my view.  As long as the Federal Reserve is still lowering interest rates, gold/gold stocks will do well.  When inflation starts to rise again, we’ll have to sell our trading positions in gold.

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

Market timing the gold ETF (GLD). Gold slipping a bit, but still in an uptrend.

Gold slipping a bit, but still in an uptrend.

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

There was a big jump in the 10 Year Yield of 10.6 basis points (0.106%) on Sept. 5th when a greater likelihood of a China trade deal emerged (again!).

When the data is right in front of him, Federal Reserve Chair Powell would sound better if he said “There is slowing, but we’re still going to lower rates slowly” if that’s his plan rather than say “The US economy is in a good place,” which were his words on Friday in Zurich (that I reported over social media, tuning into Fox Business, while oddly CNBC did not cover the event live).

Powell should know that U.S. manufacturing is NOT in a good place.  It is contracting despite Trump’s platform that said we were going to make more goods in America.  In the trade war, companies have simply moved their production from China to Vietnam and Thailand among other places.  They have not come back to the U.S. in large numbers.

Lowering rates will help stimulate stock prices at least!  And Treasury/Bond prices.  And gold prices.  More asset bubbles on the way is the picture before us, which means we must remain invested in these trends till the end of the party.  Keep one hand on the party room door, but be patient!  And put that “investing gem” to good use. 

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

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

Market timing the US 10 Year Treasury Yield (TNX, TYX, TLT, IEF). Rates will continue to fall as long as the Fed is easing.

Rates will continue to fall as long as the Fed is easing.

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 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 RED for a further U.S. stock market rally with a Bullish SP500 Index trend.  The stock signal is based on small caps, as they often lead the market down.  The small cap trend is neutral, leaning Bearish until the current trading range is breached to the upside.

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!)  These are the targets: 13.31, 14.04-14.08, 15.04, the “fulcrum” range = [15.94-15.95 to 16.09], 17.06, 17.27, and 17.89.  The bonus target #8 is [12.-17-12.37].  The Bears have 5 of 8 targets at a VIX of 15.00 (Friday close).   I consider the “fulcrum” the key decision point that turns the market from Bearish to Bullish, when the VIX falls below that entire fulcrum range.

The ‘Bull Nirvana Target’ is our V*IX # of 2018: 13.31.”  (That is target #7 for the Bulls.) 

Gold Signal RED  for a further U.S. stock market rally with a BULLISH Gold Trend.   What gold does mostly as I’ve written HERE is follow real interest rates. 

From before: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise, it means the market believes real rates will  fall, which in the current context means the global economy is slowing.  That will ultimately hurt U.S. stocks. 

Rate Signal RED for a further stock market rally with a BEARISH 10 Year Yield Trend.  (Remember: lower rates mean higher bond and Treasury prices)

For Reference: “Rates usually RISE slowly in a strong recovery and the stock market rally continues as they rise, as I’ve repeated multiple times on social media and here. Empirically though, rates that are “lower” (than 3.11%) and are NOT rising rapidly have allowed the market to climb back above the prior all time high (ATH).”

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”    It closed at 55.10 this week vs. 54.17 last week but in a Bearish descending triangle falling toward the June and August lows.

Just a reminder (not a current problem, because rates are “too low” now on a relative basis): If TNX bounces too quickly and too high, this will give rise to Rate Shock III… As said before: “Watch the rate at which TNX climbs if the current trend reverses.  If it shoots up very fast, stocks will correct.”  In the Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.  That’s what I called ‘Rate Shock.'”  The period of rising rates in early October I called #RateShockII.

The risk lately has been “Negative Rate Shocks.”  (Not negative rates in the U.S. yet!  “Negative” refers to the direction of the shock.)  First we had “Negative Rate Shock I” in December 2018 (because rates FELL while the Fed raised the Fed Funds rate 0.25% in mid-December, in what was perceived as a policy error by critics),  “Negative Rate Shock II” in May, and “Negative Rate Shock III” in August, which is on pause and awaiting the next pivot.

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question or report a typo… 

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

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

Sun and Storm Investing™

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

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, 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 © 2019 By Wall Street Sun and Storm Report, LLC All rights reserved.

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

Market Timing Brief™ for the 8-30-2019 Close: “Triple Top and Down We Go, Or Will the Bulls Find New Strength? Gold Eases But Not By Much as Interest Rates Barely Rise.”

A Market Timing Report based on the August 30, 2019 Close, published Saturday, August 31th, 2019…

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

I provide quite a bit of intraweek commentary, and if you don’t see it, you will miss out on quite a bit of context, so please click on the social media links below and have a read…  Thank you as always for being loyal readers and interacting on social media with your questions and comments! 

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

Let’s first check my “Bull Market Health Score”…

What would satisfy me that the Bulls are serious?

Let’s check the list once again… The Bull Market Health Score this week = Bulls 0/Bears 5.  Last week we were at Bulls 0/Bears 5, so there’s been no progress.  At the end of July we were at Bulls 2.5/Bears 2.5.

For each checklist item below, I give you the points scored as Bullish or Bearish. 

1. New high?  Bears 1.0 point.  Answer: No.  Two weeks ago I said:

“Bulls must retake S*PX 2943.31 and S*PY 294.15 to be convincing that the current correction is over at least in getting us back to a test of the prior ATH (all time high).  (*’s added to throw off the ‘web crawlers’; it’s not my goal to become part of the ‘consensus.'”

The Bulls got to 2940.43 this week and closed at 2926.46.  Close but no cigar as they say.  SPY got to 294.24 and closed at 292.45.  The number above remain the hurdles.  The test this past week proves my numbers are right.  They have been “anointed by the market” so to speak.

2. VIX below the “Bull Nirvana Number” AND my bonus number?  Bears 1.0 point.  Answer: No.  At the Friday close, the VIX was 18.98 vs. the prior week’s close at 19.87.  The VIX Game Score as I call it is Bulls 0/Bears 8 as of the close Friday (Game Numbers can be found at the base of this report).  Fear is still high.

Look at the potential for more VIX (fear) upside: The chart I shared on the VIX Volatility Index is HERE.

3. AD % Line in an Uptrend? (This is a proprietary stat; see base of report.): Bears 1.0 point.  Answer: No.  It almost reached the prior high of late July of 16,632 this past Friday, but topped out at 16,605 and closed at 16,555.  Nevertheless, the close was higher than that of the last three weeks.

The Bulls could pivot up on better news, but they’ll need something more than Trump jawboning on the ever elusive China deal.  Why do I say that?  Because the “talk about trade talks” has not won the market a high above the past two lower highs…and now we have 3 of those highs lined up.  The Bulls can point to the marginal good news in the chart, which shows the last low was higher than the prior two lows.  It’s a rough ascending triangle, which tends to resolve more often to the upside.

4. Volume on Up Moves?  Bears 1 point.  Answer: No.  Volume did go up slightly on Friday, which was an end of month trading day, but  the SP500 Index closed off its high and was up only 0.06%, so most of that small volume bump was distribution at the top of the recent range.  The most impressive volume has been DOWNSIDE volume on the down days in late July and early August. 

5. The “U.S. Index Matrix Signal” (as I call it) Positive?  Bears 1.0 point.  Answer : No.  The small caps fortunately recovered from a test below the May low, which only occurred for one day on the close of 8-27-19.   They have still lagged the large caps tremendously ever since June of 2018!

I said two weeks ago:

“The bounce that began on Friday could simply form a double 2 wave UP, meaning two bounce waves that reach the same level and lead to a larger 3rd wave down, which I call “The Big Red Wave.”  That level of correction would take us down to 2694 or -11.0% from the all time high (ATH).  Alternatively, the lower upward sloping SPX channel line (yellow in chart below) may hold.  That level is rising over time as it’s an uptrend line, but for now is at 2760 [updated for Fri. close], or a drop of 8.9% from the ATH.  The June low is in between those two numbers and is therefore a viable target as well.”

What we see now is THREE lower highs with lower lows for the small caps and slightly higher lows for the large caps.  That does not change the technical picture.  The Bulls have to come up with a better bounce soon, or we’ll descend into Wave 3 Down, the “Big Red Wave.” 

What are the “upside opportunities” as I call them?  Let’s ask what could cause or substantially contribute to a sustained rally (a rise of more than 2-3 days)?

1. The U.S. Federal Reserve lowers interest rates more quickly than suggested by their latest “mid-cycle adjustment” language. 

Last week: “Not going to happen it seems, short of financial instability of greater magnitude…. The next Fed meeting is Sept. 17-18, a long time away in market terms.  The Fed could act between meetings, yes, but Powell expressed zero urgency in his speech at Jackson Hole.”

The economic picture would have to worsen, not that the slowing in manufacturing is not already apparent to the Federal Reserve.  Even Services and Consumer Sentiment are slipping.

From August U.S. Data: “IHS Markit US Manufacturing PMI dropped to 49.9 in August 2019 from 50.4 in the previous month.” Below 50 is contractionary.  Chart is HERE. “The ISM Non-Manufacturing PMI for the United States dropped to 53.7 in July 2019 from 55.1 in the previous month.” Chart is HERE.   Still above 50, so services are expanding, but in a falling trend. 

The Consumer is not quite as happy as seen in an Aug. 30th report: “The University of Michigan’s consumer sentiment for the US was revised lower to 89.8 in August 2019 from a preliminary estimate of 92.1 and well below the previous month’s final 98.4. It was the lowest reading since October 2016.” The Chart is HERE.

Building Permits are positive (low interest rates help a lot) as shown HERE.

How much weakening it will take to move the Fed to more aggressive cuts is not known.  They did not lower rates 50 basis point the first time they lowered in July, so we’ll assess their response on Sept. 18th with the full set of Fed projections, their statement, and of course, the dog and pony show (a.k.a. news conference with Chair Powell).  Again, short of a perceived crisis before then, they will not act between meetings.

2. The U.S. Treasury Intervenes to Weaken the U.S. Dollar

As said previously: “This would be taken very badly by the EU, China, etc. and they would simply respond with their own currency manipulations.  That does not mean Trump won’t attempt it, and it could goose the market for a bounce, until the market realized the rest of the world would just print their own money in kind.  Then the market would resume its fall.  We lose buying power when the dollar falls by the way.  In the late 1970’s the stock market was going up with the dollar going down such that in real terms, stock investors were LOSING MONEY.”

3. China, Europe, and Japan provide FISCAL STIMULUS to their economies.  I detailed in last week’s issue (link to upper right) that China and Japan are doing some things that could help.

4. Trump’s U.S. China Trade War Ends: Last week I said:

…”the threats are getting bigger and bigger at this point.  Perhaps that alone will force a faster solution.  Trump, after the Friday market close, now says he’ll see President #Xi and raise him 5%!  HERE are the details (Sept. 1st tariffs are going from 10 to 15% and the 25% will go to 30% on Oct. 1st.).”

That turned out to be correct it appears from comments made this week by both sides.  They are going to meet “at a higher level” as Trump put it and will be talking this coming week.  Clothing manufacturers are going to be hit with those Sept. 1 tariffs, while other favored companies like Apple will have their tariffs delayed at least until Dec. 15th, so most of Christmas won’t be impacted. That would have been an earnings disaster. As it is, some retailers will have to lower their numbers.  If the higher tariffs go into effect, I would expect consumers to react very negatively to price increases and GDP growth to slow further.

5. Timing is everything.  Two weeks ago (and this is still a major theme I’ve been hearing) I said the Bull view could be:

“‘Things will be better on a comparative basis in Q4 2019 and Q1 2020, so buy stocks now.’  Just the comparative improvement in earnings and revenues, IF the world does not in fact slip into a recession, would help the stock markets globally.  This is not only true in the U.S., but also is the case in Europe and China.  The issue is whether further weakness for Q3 results will drive stocks down more before they recover.”

Let’s check in on the context around the price action of the market by looking at the current Market Risks… 

We have some new earnings data this week…

Earnings Risk: what is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 8-09-19 with a skip of two weeks until the 8-30-19 data (details HERE)…  The last numbers for Q2 are numbers for the current reported earnings from 99% of SP500 Index companies to date.  The arrows “—>” indicate 3 weeks of of omitted data in order to compress the data.  

For Q2 2019, analysts are projecting earnings growth of 0.1%  —> -1.3% ->  —> -2.1%  —> -2.6% -> -2.6% -> -3.0% -> -1.9% -> -2.6%-> -1.0% -> -0.7% -> -0.4%

and revenue growth of 4.6%  —> 4.3%  —> 4.1%  —> 3.8% -> 3.8% -> 3.7% -> 3.8% ->4.0% ->4.1% -> 4.1% -> 4.0%

For Q3 2019, analysts are projecting earnings growth of 1.8%  —> 0.8%  —> 0.3%  —> -0.5% -> -0.5% -> -0.8% -> -1.4% ->-1.9% -> -2.2% -> -3.1% -> -3.5%

and revenue growth of 4.4%  —> 4.4%  —> 4.2% —> 3.8% -> 3.8% -> 3.3% -> 3.2% ->3.2% -> 3.1% -> 3.0% -> 3.1%

For Q4 2019, analysts are projecting earnings growth of 8.1% —> 7.5%  —> 7.2%  —> 6.3% -> 6.3% -> 6.0% -> 5.4% ->4.9% -> 4.5%  -> 3.9% -> 3.5%

and revenue growth of 4.8%  —> 4.8%  —> 4.6%  —> 4.3% -> 4.3% -> 4.2% -> 4.0% ->4.0%-> 4.5%-> 4.0% -> 4.0% -> 4.0%

For CY 2019, analysts are projecting earnings growth of  3.4%  —> 3.2%  —> 2.7% -> 2.6% -> 2.4% -> 2.3% -> 1.7% -> 1.9%  -> 1.5% -> 1.5%

and revenue growth of 4.7%  —> 4.7%  —> 4.5% -> 4.4% -> 4.3% -> 4.4% ->4.4% -> 4.4% -> 4.3% -> 4.4%

For Q1 2020, analysts are projecting earnings growth of 10.5% -> 10.7% -> 10.3 -> 9.9% -> 9.8% -> 9.5% ->9.2% >9.0% -> 8.5% -> 8.2%

and revenue growth of 6.2% -> 6.1% -> 6.0% -> 5.8% -> 5.8% -> 5.9% ->5.9% -> 5.7% -> 5.6% -> 5.7%

For Q2 2020, analysts are projecting earnings growth of 13.3% -> 13.3% -> 12.9% -> 13.2% -> 13.5% -> 12.0% ->12.6% ->  10.7 ->  9.9% -> 9.3%

and revenue growth of 6.8% -> 6.8% -> 6.6% -> 6.6% -> 6.6% -> 6.7% ->6.6% -> 6.5% -> 6.4% -> 6.5%

You can see that earnings projections for Q3 2019 are coming down and so are earnings out to 2020, although the comparisons are going to be easier vs. the prior year in 2020. 

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

China Deal Risk: Has improved slightly, simply because the situation cannot get worse without sending China and the U.S. down the tubes together.

U.S. Iran War Risk: Simmering at a low boil, and not over. France is trying to broker a deal between Trump and the Iranian leadership. 

Mueller Report/Trump Impeachment Risk: Ongoing.  Read my analysis in the July 26th issue HERE.

2020 Election Risk: No important change.  Probably the biggest risk to the markets and most Americans are oblivious to this from the markets’ point of view.  I’ll stand by this:  “The market will likely pull back at least 10-15% going into the election if the outcome is even unclear, meaning President Trump is NOT ahead by a wide margin (a likelihood, but not a certainty, depending on whether the Dems go for a “McGovern” candidate, as in Nixon-McGovern in 1972, a Democrat disaster.”

Elizabeth Warren is the biggest threat to Biden.  She’s too liberal to win the election in my view, depending on how poorly Trump behaves going into the election of course.  If the economy does not perk up soon with the China Trade War behind Trump, he’ll have no chance in a run against Biden. 

Deficit/Debt Threat: No important change.  I’ll leave this here as a monument to our monumental debt, which could threaten interest rates in the future.  The only reason we are off the hook for now is because the rest of the world is in worse shape.

Fed Rate Cut Risk:  I discussed this above on the “upside opportunity” list.  The delay until the next meeting means more risk for the stock market.  Federal Reserve Chair Powell gave no hint he’ll either act aggressively or act between meetings.

Now take a look at the SP500 chart.  The green line is 2940.91, the
9-21-2018 High
, which preceded the decline from Sept. to December 24th.

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

Market timing the SP500 Index (SPY, SPX). Third top. Is that it for the Bulls?

Third top. Is that it for the Bulls?

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Neutral.  Would benefit from trade war resolution.  A rise with volume above the 47.60 level would be the first step in a “pop.”  Close Fri. was 47.41.  Same position as the overall market (up at a much lower high in the case of Intel).

Bank of America (BAC) Market Timing Signal: Neutral but off the prior low, as is Intel.  It has a series of higher lows going for it, but also a double top at 31.17.  Close Fri. was 27.51, so there is upside in the recent range.  The major influence on it will be interest rates. 

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 34,101 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.

Join the Conversation in the StockTwits “MarketTiming” Room

Now let’s go on to review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -16.08% this week vs. -13.08% last week . As I’ve been saying, the pattern is similar to that of December, despite the fact that the price range has not had nearly as much downside.

Sentiment has to break to the single digits to tell us a new rally could be starting.  Unfortunately, the signal could be a week late, as sentiment is only assessed once a week.  The current sentiment level is actually a bit worse since last week, which is odd for a rising market.  Overall this level of sentiment is not very predictive, since it is not at an extreme.

Bulls Neutrals Bears
26.13% 31.66% 42.21%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM):

Making lower highs and lower lows still.  Horrific relative performance vs. large caps, where investors are seeking safety.

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

Market timing the U.S Small Cap Index (IWM, RUT). Small caps making lower highs and trailing large caps in a big way.

Small caps making lower highs and trailing large caps in a big way.

 3. Gold Market Timing (GLD): 

I said on 7-26-18: “Still a Bull.  Add on dips.”   If you have no exposure, you should do your best to buy more on dips than on rips.  Interest rates have not declared yet how they will pivot, although banks are up off their June lows.  The gold and gold stock up trend is still intact and with the Federal Reserve hinting at more accommodation, even if just 3 rate cuts, gold may continue its rally.  A China Trade War resolution could hurt gold somewhat by lowering uncertainty, but as long as the global economy is still shaky and weakening along with interest rates, gold will do well.

The eventual inflection point in inflation (UP) and U.S. economic growth (UP) is what we need to pay attention to.  Any sense that the Fed will end its series of interest rate cuts could trigger a gold sell-off.

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

Market timing the gold ETF (GLD). Still an uptrend.

Still an uptrend.

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

There has been no sign of a definite bounce, so I added some one year CD exposure on Friday morning.  It’s doubtful the market will be making new highs if rates continue down.  If they stabilize at current levels, that alone could help.

The dollar went to a new high this week, because our interest rates, although low, are better than those elsewhere in the world.  Tom Lee made a good point last week on CNBC when he said the yield curve inversion this time is occurring in a context that is different from that associated with past recessions.  The Fed normally has hiked rates prior to a recession as the economy expanded, which would then eventually invert the yield curve.  The last time it hiked was in December, 2018, which was considered a policy error by critics.  It is now lowering rates, and long rates are still inverted vs. short rates.  To right the curve, the Fed would have to cut faster.

The Fed clearly has room to cut rates again without having to worry much about inflation, at least for now.  Whether that would actually help much at all beyond “calming Central Bank intervention addicts” is unclear.  Businesses are not going to make different investment decisions by and large as the Fed’s Gov. Esther George pointed out recently, with the 10 Year at 1.5% vs. 1.2%, except maybe to decide to inflate asset prices by borrowing at low rates and buying back their stock.  That is a non-productive use of capital.  It’s not the Fed’s job to inflate the stock, bond, and real estate markets.  In fact, we’ve already “been there, and done that.”  It was called “The Great Recession”!

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

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

Market timing the US 10 Year Treasury Yield (TNX, TYX, TLT, IEF). Rates still have not bounced appreciably.

Rates still have not bounced appreciably.

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 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 RED for a further U.S. stock market rally with a Bearish SP500 Index trend.  The stock signal is based on small caps, as they often lead the market down.  Until the SPX attains that first goal mentioned above, I’ll keep calling it Bearish.

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!)  These are the targets: 13.31, 14.04-14.08, 15.04, the “fulcrum” range = [15.94-15.95 to 16.09], 17.06, 17.27, and 17.89.  The bonus target #8 is [12.-17-12.37].  The Bears have 8 of 8 targets at a VIX of 18.98 (Friday close).   I consider the “fulcrum” the key decision point that turns the market from Bearish to Bullish, when the VIX falls below that entire fulcrum range.

The ‘Bull Nirvana Target’ is our V*IX # of 2018: 13.31.”  (That is target #7 for the Bulls.) 

Gold Signal RED  for a further U.S. stock market rally with a BULLISH Gold Trend.   What gold does mostly as I’ve written HERE is follow real interest rates. 

From before: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise, it means the market believes real rates will  fall, which in the current context means the global economy is slowing.  That will ultimately hurt U.S. stocks. 

Rate Signal RED for a further stock market rally with a BEARISH 10 Year Yield Trend.  (Remember: lower rates mean higher bond and Treasury prices)

For Reference: “Rates usually RISE slowly in a strong recovery and the stock market rally continues as they rise, as I’ve repeated multiple times on social media and here. Empirically though, rates that are “lower” (than 3.11%) and are NOT rising rapidly have allowed the market to climb back above the prior all time high (ATH).”

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”    It closed at 55.10 this week vs. 54.17 last week but in a Bearish descending triangle falling toward the June and August lows.

Just a reminder (not a current problem, because rates are “too low” now on a relative basis): If TNX bounces too quickly and too high, this will give rise to Rate Shock III… As said before: “Watch the rate at which TNX climbs if the current trend reverses.  If it shoots up very fast, stocks will correct.”  In the Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.  That’s what I called ‘Rate Shock.'”  The period of rising rates in early October I called #RateShockII.

The risk lately has been “Negative Rate Shocks.”  (Not negative rates in the U.S. yet!  “Negative” refers to the direction of the shock.)  First we had “Negative Rate Shock I” in December 2018 (because rates FELL while the Fed raised the Fed Funds rate 0.25% in mid-December, in what was perceived as a policy error by critics),  “Negative Rate Shock II” in May, and “Negative Rate Shock III” in August, which is on pause and awaiting the next pivot.

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question or report a typo… 

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

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

Sun and Storm Investing™

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

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, 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 © 2019 By Wall Street Sun and Storm Report, LLC All rights reserved.

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