Market Timing Brief™ for the 7-19-2019 Close: “My ‘Bull Market Health Score’ Dropped. Was that a Major Top for Large Cap Stocks? Gold Investors Excited. Yield Bounce Fizzles. Fed Cutting Soon.”

A Market Timing Report based on the 07-19-2019 Close, published Saturday, July 20th, 2019…

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

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):

Earnings reports started to pour in this week, and yet the markets were down across the board.  Yes, that means large, mid and small caps.

Microsoft reported on Thursday, and although it beat on both earnings and revenues, the stock was distributed.  What’s that mean?  There were lots of buyers, but also lots of sellers, which is something that can happen at a market top.  Since Microsoft (MSFT) is leading the market, this market may be about to move into a correction of 5-15% as I’ve defined it (about 1/3 of the way down) under my New Rules.  Let’s next check my “Bull Market Health Score”…

Are the Bulls serious?

What would satisfy me that the Bulls are serious about this advance?

Let’s check the list once again… The Score this week?  Bulls 0.5/Bears 4.5.  Neutral Score at new highs!  Last week it was 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 0.5 point.  There was a new high on Monday, but the close was negative for the week.  Only if SPX falls below both of the 2018 and 2019 highs, will I move to a full Bear point, but the SP500 did come off the top of a big channel (shown via yellow lines on SPY chart below).  SPX closed below the 7-3 high, which is negative, as that was the last breakout target.  The score for the Bulls of 1/2 point is based on large caps only however.  More on that below!

2. VIX below the “Bull Nirvana Number” AND my bonus number?  Bears 1.  Why?  Because the VIX Game Score has moved to Bulls 5/Bears 3, which is a backup.  The lowest close we’ve seen was 12.39, just 0.02 points above the TOP end of my 8th Bull VIX Target.  Not good enough.  Still, we are still below my “fulcrum” number (explained at base of report).

3. AD % Line (proprietary stat; see base of report about this): Bears 1 point.  The close was 16.511 vs. 16, 577 last Friday.  The 6-20-19 high at a peak in SPX was 16,517, so this close was below there.  Negative.  Next Bear target is 16,471.

4. Volume: Bears 1 point.  Volume went UP on Friday when price went DOWN.  Bearish.

5. The “U.S. Index Matrix Signal” as I call it:  Bears 1 point.  The small caps and midcaps have both rolled over from lower highs.  Bearish.

Why might this lead to a full correction at a minimum if not a Mini Bear market?  First, I favor a correction as being more probable, because even Bearish economic forecasters I follow don’t see a recession coming, just an earnings and GDP slowing.  This move down is likely, for this reason, to look like the 2015 and 2016 corrections of 12.55% and 15.21% from the 2015 top, respectively.  Technically, anything over a 15% correction would be a Mini Bear, but it’s too little to quibble about.  An impeachment could cause more damage as I cover below.  I don’t consider it likely at this point.   

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

Earnings Risk: what is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 7-19-19 (details HERE)…  The last numbers for Q2 are numbers for the current reported earnings from 16% 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%

and revenue growth of 4.6% -> 4.2% -> 4.4% -> 4.3% -> 4.3% -> 4.3% ->4.2% -> 4.1% -> 4.1% -> 4.0% -> 3.9% -> 3.9% -> 3.8% -> 3.8% -> 3.7% -> 3.8%

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

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

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

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

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

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

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

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

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

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

China Deal Risk: No important change.  Trump likes to keep saying “Mnuchin just called XYZ in China,” but the impact on the market of those statements has fallen to near zero.  The market wants a deal now, not promises of one. 

U.S. Iran War Risk: Less stable.  A British flagged oil tanker with Swedish ownership was seized by Iran.  They are talking apparently.“Our priority continues to be to find a way to de-escalate the situation,” British Foreign Secretary Jeremy Hunt said per BBCPrior to that, an Iranian vessel was seized by the UK for violating the ban on oil shipments to Syria. 

Mueller Report/Impeachment Risk: No important change but “Mueller Time” is July 24th, having been delayed one week.   Mark your calendar for market risk on that day.  Let’s hope one day the screaming on CNN, Fox News, and MSNBC can end one day.  Don’t hold your breath too long though!  The best they can hope for in my view is Mueller makes it clear that Congress has enough to push forward with their own investigation.  He is NOT going to state any new conclusions.  He has said very clearly, it’s Congress’ job to impeach the President if they so choose, because DOJ rules do not allow him to charge a sitting President with a crime.   When Trump leaves office SDNY could go after the President, which gives him plenty of incentive to remain in office and allow the statue of limitations clock to run out. 

Remember also that the Clinton Impeachment drawdown created a Mini Bear market from which there was a fairly rapid recovery even before his Senate trial.  It was a big buying opportunity in one of the biggest Bull markets of all time.  If the Mueller testimony goes South on Weds. there could be trouble, but I doubt he’ll give the Democrats too much help beyond his report as I’ve said.

When did the SP500 Index peak in 1998 when Bill Clinton was headed to his impeachment?  July 17th.  This year?  On July 15th the all time high (ATH) of SPX was set at 3017.80.  We cannot count out the Bulls quite yet, but the challenge level has risen. 

Tangent on Ethics:  One other thing… In regard to Trump’s involvement in violating campaign finance laws as investigated by the FBI/SDNY, the FBI determined he was very likely involved in the calls per the phone logs when the Trump Organization payments to porn star Stormy Daniels were being set up by negotiations involving Trump, Hope Hicks, Cohen, the National Enquirer, and the lawyer for Daniels (Clifford is her real name).  

Why were she and Trump not charged?  One less biased prosecutor I heard said it’s likely due to the inability to prove intent.  If she did not know the laws, oddly enough, the law says you cannot convict her of violating the campaign finance laws.  Funny isn’t it?  They don’t seem to allow that out for robbing a bank.  “Oh, I thought I was just taking money from the bank that I would return later!”  😉

At any rate, this proves Trump very likely broke the law with what I’d guess is about a 99.99% probability despite the absence of wire taps.  Remember that.  In addition, he has lawyers all around him to ask about the law, and he still broke it.  Put 2 and 2 together.  I would guess he did have intent, whether the FBI can prove it or not.  Yes, I do care that we have a President that follows the law.

END of Tangent on Ethics!

More risks…

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.”

Deficit/Debt Threat: No important change.  They all see the problem and do nothing about it.  They just keep spending.  As mentioned last week: Per the NY Times: “Within a decade, more than $900 billion in interest payments will be due annually, easily outpacing spending on myriad other programs.”  The 2018 defense budget was $800 B.  Medicare?  $582 B.  Think about that!  Trump and the GOP may be spending dollars meant for your future Medicare and Social Security today.

Fed Rate Cut Risk: No important change.  We are back to a 0.25% cut for July. 

As said two weeks ago, “No cut [in July] would cause the market to dive.  A cut of just 0.25% could disappoint the market as well, although the majority would be fine as they expect that cut.”  The majority are still looking for July, Sept. and Dec. cuts per CME Group Only the minority expect other cuts thru April 2020.

As I said four weeks ago, the Fed members actually don’t believe three cuts are going to be needed, as summarized HERE

GDP Risk: This could help the Bulls via more Fed rate cuts, but eventually it will backfire should we slip into a recession.  Not in the near term, but eventually.  GDP will be reported on July 26th prior to the Federal Reserve FOMC meeting.  

Now take a look at the SP500 chart.  The first is the SPY chart showing the long term upward channel.  Note that the lower line of the channel ignores the out-sized volatility in December.  Ignore it for now.  It does not really matter as we’re most focused on the top channel line….

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

SPY market timing chart. Note the channel.

Note the up channel (yellow lines).

And now the SP500 Index as the SPX:

NOTE: It’s the 7-19-2019 Close NOT the 7-12-2019 Close despite the label…

Market timng the SP500 Index. SPX. Near a top?

Coming off a top?

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Positive, but pausing before rising above the Dec. 3, 2018 high, a level reached just before the market FELL in a big way.  Earnings out July 25th.

Bank of America (BAC) Market Timing Signal:  Neutral.  No change from last week.  “This could be a head and shoulders formation (with subsequent failure to make a new high) unless rates keep climbing.”

Rates have been in a holding pattern since June 17th, but one would think that if the Fed is lowering rates 3 times, TNX will fall further and drag down the banks or at least keep them from going very far.  Earnings for BAC were out this week and there has been no breakout response thus far.

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 34,055 investors are following the markets with me…

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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  just +7.29% vs. +6.1 the prior week.   That’s still not that Bullish.  Recent tops have been 20ish, which themselves are not that extreme. 

As I’ve said: “At the same time, we have not likely seen the ultimate top of this Bull market, at least for the large caps, because sentiment is just not positive enough.”  Sentiment is not high enough to say that this move up is finished.  This conflicts with the idea that we’re moving into a correction already, even if we only see one more marginal new ATH.  

Bulls Neutrals Bears
35.93% 35.43% 28.64%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Discussed above.  Look at the breakdown in the chart…

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 failing again?

Small caps rolling over again?

 3. Gold Market Timing (GLD): Still a Bull despite being overbought short term, which is why it pulled back a bit.  I gave advice to a follower on StockTwits on how to trade around this IF you choose to: HERE.

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

Market timing the gold ETF (GLD). Gold is still a Bull, just stretched.

Still a Bull, just stretched.

4. Interest Rate Market Timing:  The rate bounce was weak.  If the Federal Reserve is in fact lowering rates 3 times, there should be more profits ahead in TLT, gold, and gold stocks.  The market is still about 40% UNconvinced that there will be three rate cuts in 2019.

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). Weak bounce!

Weak bounce. More downside for rates, upside for Treasuries.

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 (close to real time as much 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 weakness of small caps keeps me at neutral. 

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!) See above for the close this week and other comments.  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 Bulls have 5 of 8 targets this week at a 14.45 VIX 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.  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).”  Rates are bouncing in a downtrend until proven otherwise.

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”  WTI  had bounced, but has started weakening again.  It closed at 55.76 vs. 60.21 last week and is rolling over.  There a a lower high below both 50 and 200 day mav’s.   We now have another lower low.

For 3 Weeks Now – just a reminder – I don’t think this is the path from here: If the bounce in TNX continues 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 the “Negative Rate Shock I” we saw in May.

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

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

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Market Timing Brief™ for the 7-12-2019 Close: “Large Caps Rise to New Highs. Small Caps Signal Possible Trouble Ahead. Gold Strong. Temporary Rate Bounce?”

A Market Timing Report based on the 07-12-2019 Close, published Saturday, July 13th, 2019…

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

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):

Earnings start to flood in this week, starting with Citibank on Monday the 15th, and on the 16th with JPM, WFC, GS, etc.  In the meantime, large caps just rose to brand new all time highs (ATHs).

WARNING: Twitter is running its system in an autocratic and impersonal way, most likely AI driven, that can lead to sudden shutdowns based on false AI signals.  The President is right in my view about potential bias in their algorithms – and that’s coming from a diehard political independent who listens for solutions rather than “sides.”  Currently, any social media platform may lock your account and then not tell you when they will reinstate access.  I have already contacted my Florida legislators to encourage them to legislate a solution to this problem.  They have not properly self-regulated.  Please join the StockTwits list as well as the Twitter list (links below) to be sure to get my messages on an ongoing basis.  Systems fail at times and these random suspensions require a backup system for sure. 

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 34,055 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.

Join the Conversation in the StockTwits “MarketTiming” Room

Are the Bulls serious?

What would satisfy me that the Bulls are serious about this advance?

Let’s check the list once again… The Score this week?  Bull 2.5/Bears 2.5.  Neutral Score at new highs!  Last week it was Bulls 3/Bears 2.  That makes me suspicious of this breakout, but time will tell.  For each checklist item below, I give you the points scored as Bullish or Bearish. 

1. New high.  Bulls 1 point.  Based on large caps only however.  More below!

2. VIX below the “Bull Nirvana Number” AND my bonus number?  Bulls 0.5 point.  Why?  Because the VIX Game Score based on my 8 point system (see base of this report for the numbers) is Bulls 7/Bears 1, the same as last week with a VIX close on Friday of 12.39, just above point #8 for the Bulls.

3. AD % Line (proprietary stat; see base of report about this): Bulls 1 point.  New closing high. The close was 16, 577 vs, 16,571 last Friday.  The 6-20-19 high at a peak in SPX was 16,517.  The ATH was achieved on Weds. at 16,599.

4. Volume: Bears 1 point.  Tuesday was the first close over the prior high of June 21st after a retracement test of that initial breakout level.  Volume for the next three days above the breakout was weak.  The Bears win this point.

5. The “U.S. Index Matrix Signal” as I call it:  Bears 1 point.  The small caps are back BELOW the 6-20 high, so this is a clear Bear point.  The midcaps are doing a bit better, but still below the 4-24-19 S&P Midcap high of 1984.73.

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

Earnings Risk: what is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 7-12-19 (details HERE)…

There is a catch of course with earnings estimates, as I was considering privately last week.  The predicted earnings are only slightly negative at -3% now.  Companies often try to undershoot earnings in order to “positively surprise,” so FactSet now expects, based on the past 5 year average, a surprise increase in SPX earnings of 3.7%, the earnings growth corrected for the surprise would be a POSITIVE 0.7% per their math, meaning earnings could be marginally positive for Q2 once reported.  The data refers to Year over Year growth/decline. 

For Q2 2019, analysts are projecting earnings growth of 0.1% -> -0.4% -> -0.5% -> -0.6% -> -1.3% -> -1.7% -> -1.9% -> -2.1% -> -2.1% -> -2.3% -> -2.5% -> -2.6% -> -2.6% -> -2.6% -> -3.0%.

and revenue growth of 4.6% -> 4.2% -> 4.4% -> 4.3% -> 4.3% -> 4.3% ->4.2% -> 4.1% -> 4.1% -> 4.0% -> 3.9% -> 3.9% -> 3.8% -> 3.8% -> 3.7%.

For Q3 2019, analysts are projecting earnings growth of 1.8% -> 1.4% -> 1.3% -> 1.3% -> 0.8% -> 0.6% ->0.5% -> 0.3% -> 0.3% -> 0.2% -> 0.0% -> -0.3% -> -0.5% -0.5% -> -0.8%

and revenue growth of 4.4% -> 4.1% -> 4.4% -> 4.4% -> 4.4% -> 4.3% -> 4.3% -> 4.2% -> 4.2% -> 4.1% -> 4.0% -> 4.0%  -> 3.8% -> 3.8% -> 3.3%.

For Q4 2019, analysts are projecting earnings growth of 8.1% -> 8.3% -> 8.2% -> 8.1% -> 7.5% -> 7.4% ->7.3% -> 7.2% -> 7.2% -> 7.0% -> 6.8% -> 6.7% -> 6.3% -> 6.3% -> 6.0%,

and revenue growth of 4.8% -> 4.7% -> 4.7% -> 4.8% -> 4.8% -> 4.6% -> 4.7% -> 4.6% -> 4.6% -> 4.5% -> 4.5% -> 4.5% -> 4.3% -> 4.3% -> 4.2%.

For CY 2019, analysts are projecting earnings growth of 3.8% -> 3.4% -> 3.4% -> 3.6% ->  3.4% -> 3.3% -> 3.2% -> 3.2% -> 3.2% -> 3.1% -> 3.0% -> 2.8% -> 2.7% -> 2.6% -> 2.4%.

and revenue growth of 4.9% -> 4.6% -> 4.7% -> 4.7% -> 4.7% -> 4.7% -> 4.7% -> 4.7% -> 4.6% -> 4.5% -> 4.5% -> 4.5% -> 4.4% -> 4.3%.

For Q1 2020, analysts are projecting earnings growth of 10.5% -> 10.7% -> 10.3 -> 9.9% -> 9.8%.

and revenue growth of 6.2% -> 6.1% -> 6.0% -> 5.8% -> 5.8%.

For Q2 2020, analysts are projecting earnings growth of 12.9% -> 13.3% -> 13.3% -> 12.9% -> 13.2% -> 13.5%.

and revenue growth of 6.8% -> 6.8% -> 6.8% -> 6.6% -> 6.6% -> 6.6%.

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

China Deal Risk: No important change.  Negotiation is happening we are told.  Meanwhile our markets head higher despite it all. 

U.S. Iran War Risk: No important change.  Trump supporters believe he is going to achieve peace with the terrorist leaders of Iran.  That would be nice.  An Iranian vessel was seized by the UK for violating the ban on oil shipments to Syria.  They are talking about this incident without further actions from Iran.  Maybe President Trump has them reconsidering their next hostile move. 

Mueller Report/Impeachment Risk: No important change but “Mueller Time” [WAS] THIS WEEK on Wednesday, July 17th [and is NOW delayed 1 week to July 24th (as of 7-15-19).   Mark your calendar for market risk on that day.  Just by repeating certain conclusions, he could influence public opinion against Trump.  That’s what the Democrats hope.

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.”

Deficit/Debt Threat: No important change.  Chair Powell discussed the debt as an issue that will tap out our system in the future.  It could be crippling to be paying more on our debt than we do on defense!  This has been building in the background, dollar by dollar – by BOTH irresponsible political parties.  This is a threat but won’t manifest until our interest rates climb and then it will put huge pressure on the U.S. economy and suppress corporate earnings through higher borrowing costs. Per the NY Times: “Within a decade, more than $900 billion in interest payments will be due annually, easily outpacing spending on myriad other programs.”  The 2018 defense budget was $800 B.  Medicare?  $582 B.  Think about that!

Fed Rate Cut Risk: No important change.  We are back to a 0.25% cut for July.  Without the 0.25% cut, the Fed’s credibility would likely be hurt, so they’ll do it unless GDP is overly strong vs. their long term view of the economy.  GDP will be reported on July 26th prior to the Federal Reserve FOMC meeting.   Mark that date on your calendar too!

From last week: “In my view, many investors are in LalaLand when it comes to rate cuts.  CME Group says 22.5% vs. 28.1% last week prior to Powell’s testimony this week believe the Federal Reserve will cut 0.50% in July.  The rest expect a cut of 0.25%.

As said last week, “No cut [in July] would cause the market to dive.  A cut of just 0.25% could disappoint the market as well, although the majority would be fine as they expect that cut.”  The majority are still looking for July, Sept. and Dec. cuts per CME.  Only the minority expect other cuts thru April 2020.

As I said three weeks ago, the Fed members actually don’t believe three cuts are going to be needed, as summarized HERE

Now take a look at the SP500 chart.  See how it’s rising in the up channel from 2017?  The orange lines are the 2017 up channel.  There’s plenty of room to the upside, if the Bulls want to bid up large caps further!

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

Market timing the SP500 Index (SPY, SPX). New highs, unconfirmed.

New highs unconfirmed by small caps.

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Positive.  Striking, because a breakout occurred even without a China resolution.  Volume was not great but that’s true for the entire market breakout.  Earnings are coming on July 25th (estimated date, so says Prof. Google). 

Bank of America (BAC) Market Timing Signal:  Neutral.  No change from last week.  “This could be a head and shoulders formation (with subsequent failure to make a new high) unless rates keep climbing.”

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  just +6.1 vs. -0.81% the prior week.   That’s still not very Bullish at all.

I said last week: “At the same time, we have not likely seen the ultimate top of this Bull market, at least for the large caps, because sentiment is just not positive enough.”  That was right…AGAIN…the market kept moving up. 

Bulls Neutrals Bears
33.61% 38.89% 27.50%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Discussed above, but I’ll add that the tops shown in the chart below are the LOWER highs in place.  Look at a longer term chart to see the prior ATH of 173.39.  The current target for the Bulls is that 156.22 number.  The failure there with large caps at new highs is a negative.  See the chart below…

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

Market timing the U.S Small Cap Index (IWM, RUT). Not good enough.

Not good enough!

 3. Gold Market Timing (GLD): Still a Bull.  If rates move up more by a significant amount, gold/gold stocks will not like it.

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

Market timing the gold ETF (GLD). Gold is a Bull.

Still a Bull.

4. Interest Rate Market Timing:  Rates have bounced…for now.  Gold, gold stocks, and bonds have fallen.  There could be more downside in this dip.  I will buy the dips for now.  I did on Friday (see above).  You can buy in stages.

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). Buying the dips.

Buy the dips in bonds/Treasuries (rips in rates).

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

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

Parenthetically: As my long term followers realize, my main focus here is getting the major US stock market indexes right, as much as possible, (SPX, IWM) as well as gold (GLD) and interest rates (TNX using IEF, TLT, IIM -currently I own IIM and TLT and one other leveraged muni fund I would not recommend at this time), as well as individual munis bought long ago when rates were 4.5 to 5%.  Why use IIM of late vs. individual munis, which I also own?  I am not going to ever spend the time needed to evaluate lower quality munis, and I don’t buy high quality munis with returns as low as they are now.

In the realm of equity index exposure, I hold some IJH and other midcap exposure now (less, comparatively at the moment, due to the part of the cycle we’re in – late), but do not publish my reviews of the charts.  As it is, these posts take many hours to compile, so I must of course draw the line somewhere.  The same goes for international markets.  I have often shared my buys/sells on social media, but I don’t publish my research work other than what is presented there.  I have very little small cap exposure, mainly through individual speculative stocks.

In regard to stock picks, in my view, if someone does not have both a detailed fundamental analytical perspective AND a technical opinion on a stock, I cannot place high value on their opinion.  That is not to say big money cannot be made trading technically without any understanding of what a company does besides “they do cloud stuff and their earnings and revenues are growing.”

Unfortunately, the majority of the messaging on social media is at that level.  If you asked many investors about cloud companies in detail about the companies’ products, they would not have a clue.  If you do “have a clue,” great.  “Go there.”  Otherwise, you had better have a very proven and reliable sources, watch the charts, and watch your position sizes.

I do share certain individual stocks, as I have Apple, Microsoft, and Disney as examples, based on my own big picture view of the stocks and an analysis of the fundamentals.   Again, I am not an individual stock analyst as my major focus, and you should do your own homework on any individual stocks I recommend, regardless of the big picture I may share.  Some picks may be based in part on data from various sources I use, but for the big plays in dollar terms, I arrive at my conclusions independently.  I never depend on anyone else’s opinion where there is a bigger position involved.

In regard to the three stocks I mentioned specifically, I consider only Disney (DIS) to be a buy on pullbacks now – at least not without a good sized pullback for the other two.  I do not own Apple (AAPL) and would not recommend it currently, as they face too much China headwind and have decided they won’t share their unit sales for iPhone.  I find that close to dishonesty – maybe it would be kinder to call it “a lack of openness.”  I cannot own a stock when communications by the company are not open and honest.  Microsoft (MSFT) is still growing earnings and revenues, and I have exposure to it in one of my accounts, but I don’t consider it cheap.  It is too far ahead of the market at the current time to hold an out-sized position.  Owning some seems reasonable, and I do.

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 lack of progress small caps made (noted above) keeps me at neutral. 

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!) See above for the close this week and other comments.  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 Bulls have 7 of 8 targets this week at a 12.39 VIX 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.  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).”  Rates are bouncing in a downtrend until proven otherwise.

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”  WTI  had bounced, but has started weakening again.  It closed at 60.21 vs. 57.51 last week and still looks like it could be rolling over.  There a a lower high below both 50 and 200 day mav’s.   If that lower high is exceeded, expect a further rally. 

For Two Weeks Now: If the bounce in TNX continues 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 the “Negative Rate Shock I” we saw in May.

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 7-05-2019 Close: “The Bulls Are Winning but Face Upcoming Bumps in the Road. Gold and Treasuries Dip On U.S. Jobs Bounce.”

A Market Timing Report based on the 07-05-2019 Close, published Saturday, July 6th, 2019…

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

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 have new highs this week, so part of the answer to the next question, we already know…price is working for the Bulls, volume not so much, although it is summer, and there was the July 4th holiday this week.   At the same time, as you know from last week, earnings this season do NOT match the price of the SP500 Index.  They do not warrant a new high, yet investors are still buying as they are squeezed by the dovish comments of the Federal Reserve into the stock market to find a return and/or a dividend yield.

Remember that long-only funds have no place to go other than to rotate from one SP500 Index sector to another when their mandate is to be fully invested.  The question is “Do you want to be fully invested in front of a very weak earnings season?”  You have more flexibility than a mutual fund manager.  So far, being very long stocks has worked, as price has trumped any sense of logic in reference to earnings prospects, just as it did in the stock market leading up to the internet bubble, and just as it did in the housing market leading up to the housing bubble.  Eventually the last buyer arrives.

For the devout Bulls, I will share the sentiment numbers that say the top is not yet in.  Will it take another week to get there?  Months?  Or will the market go down in between by 15-25% as it did back in December (-20%), before reaching an even more remarkable all time high (ATH)?

Earnings don’t take off until the 15th with Citibank and the 16th with JPM, WFC, GS, etc.  Pepsi goes earlier on the 9th and there have been a few (net = weak) reports already.   But that gives the Bulls another week of potential gains until reality hits with the onslaught of earnings reports. 

Are the Bulls serious?

What would satisfy me that the Bulls are serious about this advance?

Let’s check the list once again… The Score this week?  Bull 3: Bears 2.  For each checklist item below, I give you the points scored as Bullish or Bearish.  The Bulls picked up a full point against the Bulls and shifted the score to Bullish.

1. New high.  Bulls 1 point.  We had a new ATH of 2995.84, and the price is back in the 2017 channel.  Obviously the up trend has been fully re-established for the SP500 Index of large caps.  We are above the May 1st high prior to the May decline of about 7.5%.  Even the most grumpy Bear would have to call a new ATH Bullish.  As you know, I’m an independent in both market and political terms!  My positioning is shared on social media usually the same day I change it. 

2. VIX below the “Bull Nirvana Number” AND my bonus number?  Bulls 0.5 point.  “Not quite” is the answer, because it should be below BOTH those VIX numbers at a new market ATH.   The Volatility Game Score as I call it is Bulls 7/Bears 1.  The close was 13.28, just below point #7 for the Bulls (numbers at the base of this report). 

3. AD % Line (proprietary stat; see base of report about this): Bulls 1 point.  New high. That is very positive for the Bulls, because it says the advance is not overly concentrated.  (That’s not to say that some stocks have been over-represented in the advance.) The close was 16,571 on Friday.  The 6-20-19 high at a peak in SPX was 16,517.

4. Volume: Bears 1 point.  SP500 Index volume was low on Friday, although it was a holiday.  I am not allowing for an excuse though for an all time high. It is subject to reversal without volume behind it. That UP volume must show up this coming week. 

5. The “U.S. Index Matrix Signal” as I call it:  Bulls 0.5 point.  The small caps are above the 6-20 high, so I’ll score that 0.5 points.  They must be above the May 1st high to score a full Bull point.  Some would argue a new ATH would be needed or at least a close over the Jan. 2018 high.  The small cap weakness is a cause for concern on the part of the Bulls.  In a strong economy, small caps are very strong, not lagging as they’ve been doing.   The same thing applies to midcaps.  Their lagging is a negative.

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

Earnings Risk: what is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 7-03-19 (details HERE)…

Here is the data updated for the last data point from this week.  There were very few changes vs. last week’s numbers  – analysts were off drinking and lighting fireworks.  😉  We are still looking at the 2nd and 3rd earnings seasons in a row with negative earnings growth…unless the numbers change and are better than expected. 

For Q2 2019, analysts are projecting earnings growth of 0.1% -> -0.4% -> -0.5% -> -0.6% -> -1.3% -> -1.7% -> -1.9% -> -2.1% -> -2.1% -> -2.3% -> -2.5% -> -2.6% -> -2.6% -> -2.6%.

and revenue growth of 4.6% -> 4.2% -> 4.4% -> 4.3% -> 4.3% -> 4.3% ->4.2% -> 4.1% -> 4.1% -> 4.0% -> 3.9% -> 3.9% -> 3.8% -> 3.8%.

For Q3 2019, analysts are projecting earnings growth of 1.8% -> 1.4% -> 1.3% -> 1.3% -> 0.8% -> 0.6% ->0.5% -> 0.3% -> 0.3% -> 0.2% -> 0.0% -> -0.3% -> -> -0.5% -0.5%.

and revenue growth of 4.4% -> 4.1% -> 4.4% -> 4.4% -> 4.4% -> 4.3% -> 4.3% -> 4.2% -> 4.2% -> 4.1% -> 4.0% -> 4.0%  -> 3.8% -> 3.8%.

For Q4 2019, analysts are projecting earnings growth of 8.1% -> 8.3% -> 8.2% -> 8.1% -> 7.5% -> 7.4% ->7.3% -> 7.2% -> 7.2% -> 7.0% -> 6.8% -> 6.7% -> 6.3% -> 6.3%.

and revenue growth of 4.8% -> 4.7% -> 4.7% -> 4.8% -> 4.8% -> 4.6% -> 4.7% -> 4.6% -> 4.6% -> 4.5% -> 4.5% -> 4.5% -> 4.3% -> 4.3%.

For CY 2019, analysts are projecting earnings growth of 3.8% -> 3.4% -> 3.4% -> 3.6% ->  3.4% -> 3.3% -> 3.2% -> 3.2% -> 3.2% -> 3.1% -> 3.0% -> 2.8% -> 2.7% -> 2.6%.

and revenue growth of 4.9% -> 4.6% -> 4.7% -> 4.7% -> 4.7% -> 4.7% -> 4.7% -> 4.7% -> 4.6% -> 4.5% -> 4.5% -> 4.5% -> 4.4%.

For Q1 2020, analysts are projecting earnings growth of 10.5% -> 10.7% -> 10.3 -> 9.9%.

and revenue growth of 6.2% -> 6.1% -> 6.0% -> 5.8%.

For Q2 2020, analysts are projecting earnings growth of 12.9% -> 13.3% -> 13.3% -> 12.9% -> 13.2%.

and revenue growth of 6.8% -> 6.8% -> 6.8% -> 6.6% -> 6.6%.

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

China Deal Risk: Negotiation is happening we are told.  Meanwhile our markets head higher despite it all.  See last week’s post for further details (link at upper left).

U.S. Iran War Risk: Trump supporters believe he is going to achieve peace with the terrorist leaders of Iran.  That would be nice.  Meanwhile an Iranian vessel was seized by the UK for violating the ban on oil shipments to Syria.  Soon more sparks could fly. 

Mueller Report/Impeachment Risk: No change.  “Mueller Time” is Wednesday, July 17th.   Mark your calendar for market risk on that day.  Just by repeating certain conclusions, he could influence public opinion against Trump.  That’s what the Democrats hope. 

2020 Election Risk: No 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.

Deficit/Debt Threat  No change.  Building in the background, dollar by dollar – by both irresponsible political parties.  This is a building threat but won’t manifest until our interest rates climb and then it will put huge pressure on the U.S. economy and suppress corporate earnings through higher borrowing costs.

Fed Rate Cut Risk: We are back to a 0.25% cut for July, because employment was stronger than expected.  Last week we had dovish Bullard saying 0.50% cut would be “excessive.”  Without the 0.25% cut, the Fed’s credibility would likely be hurt, so they’ll do it unless GDP is overly strong vs. their long term view of the economy.  GDP will be reported on July 26th prior to the Federal Reserve FOMC meeting.  

From last week: “In my view, many investors are in LalaLand when it comes to rat cuts.  CME Group says 28.1% still believe the Federal Reserve will cut 0.50% in July.  The rest expect a cut of 0.25%.  No cut would cause the market to dive.  A cut of just 0.25% could disappoint the market as well, although the majority would be fine as they expect that cut.”  Now 68% expect three cuts of 0.25% by December, the majority looking for July, Sept. and Dec. cuts per CME.  They don’t expect any other cuts all the way out thru April 2020.

As I said two weeks ago, the Fed members actually don’t believe three cuts are going to be needed, as summarized HERE

Now take a look at the SP500 chart.  The orange lines are the 2017 up channel.

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

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

New all time high and back in the 2017 up channel (orange lines).

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Negative. Failed a breakout above the 200 day moving average, which is not a magical number,  but is a place the market is pausing ahead of earnings estimated to be on 7-25.  The stock has not recovered half of the fall from the April 17th high yet.  Intel needs a China resolution to happen quickly, AND it needs the global economy to pick up soon. 

Bank of America (BAC) Market Timing Signal:  Neutral.  This could be a head and shoulders formation (with subsequent failure to make a new high) unless rates keep climbing based on stronger than expected economic data, as we saw with the strong jobs report on Friday.  That jobs number is why rates popped a full 9.5 basis points in one day, which is a big move.  It was above the average for the past 12 months as I reported on social media on Friday.

It’s good market timing practice to pay attention to highly volatile moves such as this interest rate move, meaning the move may not be over.  That rate move is also why gold and metal stocks sold off on Friday.  Higher rates mean higher real rates, even if temporary – a negative for gold.  Remember we’re SUPPOSED to be in a falling rate cycle with the Federal Reserve CUTTING rates!  So which is it?

Wouldn’t it be just super if the Bulls now shift their thesis to say, “The Federal Reserve will raise rates, because the economy is great and we’ll buy even more market exposure”?  They cannot have it both ways.  The Fed will NOT be cutting rates in a ramping U.S. economy.  We assume this Friday move was just a blip up in a downtrend in rates, which is why I suggested buying some gold GLD/gold stock GDX exposure (the latter riskier with more potential gain) on Friday if you had none.

Now let’s go on to review investor sentiment…

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 34,055 investors are following the markets with me…

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Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of  just -0.81% vs. -2.46% the prior week.  Bulls and Bears seem to be locked in their views as the market rises! 

Short term, the position of that spread is not helpful.  There is room to convert more Bears to Neutrals or to Bulls and for the opposite. 

I said last week: “At the same time, we have not likely seen the ultimate top of this Bull market, at least for the large caps, because sentiment is just not positive enough.”  That was right…the market kept moving up. 

Bulls Neutrals Bears
29.59% 38.36% 32.05%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Discussed above. Study the chart…

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 make some progress, but still lagging.

Lagging large caps but making some progress. Will it hold?

 3. Gold Market Timing (GLD): Still a Bull.  See comments above please under BAC comments.  The next move up depends on interest rates heading lower.  That’s the Fed plan supposedly, so stick with the trade for now, perhaps setting a stop on profits IF you are willing to get back in quickly if proven wrong on an exit! 

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

Market timing the gold ETF (GLD). Pause in an uptrend...so far.

Pause or more? Depends on interest rates!

4. Interest Rate Market Timing: I warned last week: “This is a trade that could last just a few weeks or many months.  Why?  Because rates are very low and due to the current weakness globally.  As the world perks up eventually, so will interest rates, and both bonds and Treasuries will fall. “

This Friday rates shot up as said above and could go further still given the size of that move.  I’m not convinced the move is done, which is why I added short Treasury exposure on Friday, but not long maturity exposure (3 months vs. 10 years!).

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 bounced this week.

A bounce of a day or more?

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

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

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

Stock Signal NEUTRAL for a further U.S. stock market rally with a Bullish SP500 Index trend.  The stock signal is based on small caps, as they often lead the market down.  The progress small caps made (noted above) moves me to neutral. 

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!) See above for the close this week and other comments.  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 Bulls have 7 of 8 targets this week at a 13.28 VIX 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.  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.”  WTI  had bounced, but has started weakening again.  It closed at 57.51 vs. 58.47 last week and looks like it could be rolling over.  There is a lower high already forming below both 50 and 200 day mav’s.

If the hard bounce on Friday in TNX continues, 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 the “Negative Rate Shock I” we saw in May as discussed previously.

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 6-28-2019 Close: “Deal or No Deal, Earnings Season Could Be Rough. Gold and Treasuries Poised for More Gains.”

A Market Timing Report based on the 06-28-2019 Close, published Saturday, June 29, 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 miss 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):

When the market is again within spitting distance of the April ATH (all time high), and Trump wrestles with Xi over our economic future, we must ask…

Are the Bulls serious?

What would satisfy me that the Bulls are serious about this advance?

Let’s check the list once again… The Score?  Bull 2: Bears 3.  For each checklist item below, I give you the points scored as Bullish or Bearish.  The Bulls picked up some strength this week, but we’re headed into a troublesome earnings season.  Not to mention other trouble spelled “Democratic Candidates.”  Even if you are Democrat (I’m an independent who has been known to vote for the best people!), you must realize the threat they pose to corporate earnings if tax rates are ratcheted back up.  

1. New high.  Bears 1 point.  Because the AD% Line (see below) made a new closing high, but price did not, I’ll score this as a negative.  The SP500 Index has been above the Wave 2 top, since 6-13-19.  That’s a positive.  We avoided marking a weaker lower high in doing that.  

2. VIX below the “Bull Nirvana Number” AND my bonus number?  Bears 1 point.  The Bears get this point, because of the lack of progress during a week when the market was close to re-topping.  Last week the VIX close was 15.40.  This week?  15.08.  The Volatility Game Score as I call it is still Bulls 4/Bears 4.  As before, the Bulls have a slight edge, having overtaken the “fulcrum,” which is that 4th Bull point.  

3. AD % Line: Bulls 1 point.  The prior high on May 1st when the market topped out was 16,471, and the prior closing high on May 20th was 16, 483.  The close Fri. was 16,495, which is above there.  It is a new closing high, but not a new intraday all time high.  Still, it is a positive.

4. Volume: Bulls 1 point.  SP500 Index volume was high on Friday.  There was quarterly options expiration, but the volume far exceeded that seen either last quarter or last year, so the Bulls win this one.    

5. The “U.S. Index Matrix Signal” as I call it:  Bears 1 point.  I score this on the MAJOR TREND.  Small caps hit support and bounced on Thursday and Friday, so it’s not enough to say the intermediate term trend has changed, but renders the immediate trend neutral – it could just be bouncing temporarily within a lower range.  A new high would be needed above 156.22 AND 161.11 on a close to change the picture to Bullish, on the immediate term time frame.  The Friday close was 155.50.  All we have so far is a set of two lower highs below two other lower highs.  Not good enough. 

What about mid caps?  The close for IJH was 194.26 with the two goalposts for a trend change to UP at 194.75 and 198.31.  The prior all time high (ATH) on 205.47 was on 9-21-2019 when the large caps, i.e. SPX, topped.  The small caps topped out earlier on 8-31-19.  The fact that the midcaps as well as the small caps are not tracking with the large caps in the recovery rally, tells us it is a weaker rally.

As I said last week: “The U.S. Stock Market Topped on August 31st, 2018!”  Read that issue (link upper left) if you haven’t…

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

Earnings Risk: what is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 6-28-19 (details HERE)…

Q2 earnings are reported in earnest starting in mid-July, although Pepsi will report on July 9th (See July Earnings Calendar).   Some companies like Apple have not announced their earnings report dates.  Note that earnings were negative in Q1 per FactSet and are slated to be negative for Q2 and Q3 unless something changes.  That means we are entering an Earnings Recession with Q2 earnings, unless companies beat the current estimates. 

The real question the markets face is whether the decline in earnings will find a softer landing than a recession, which by definition means two quarters of back to back negative growth.  GDP is estimated by the N.Y. Fed to be in the mid-1’s for Q2, but they’ve been way off before.   We get that big Q2 GDP number on July 26th.  Recessions are market wounders and killers depending on how bad they are in GDP negative growth terms. 

Are you tanked up on tech going into earnings?  I hope you’ve reviewed all the tech stocks you own, and they all plan on beating earnings, or their stock prices will drop like a rock, because as FactSet stated:

“The Information Technology sector is expected to report the second highest (year-over-year) earnings decline of all eleven sectors at -11.9%. At the industry level, two of the six industries in this sector are predicted to report a decline in earnings: Semiconductors & Semiconductor Equipment (-31%) and Technology Hardware, Storage, & Peripherals
(-22%).”

Here is the data updated for the last data point from this week:

For Q2 2019, analysts are projecting earnings growth of 0.1% -> -0.4% -> -0.5% -> -0.6% -> -1.3% -> -1.7% -> -1.9% -> -2.1% -> -2.1% -> -2.3% -> -2.5% -> -2.6% -> -2.6%.

and revenue growth of 4.6% -> 4.2% -> 4.4% -> 4.3% -> 4.3% -> 4.3% ->4.2% -> 4.1% -> 4.1% -> 4.0% -> 3.9% -> 3.9% -> 3.8%.

For Q3 2019, analysts are projecting earnings growth of 1.8% -> 1.4% -> 1.3% -> 1.3% -> 0.8% -> 0.6% ->0.5% -> 0.3% -> 0.3% -> 0.2% -> 0.0% -> -0.3% -> -0.5%.

and revenue growth of 4.4% -> 4.1% -> 4.4% -> 4.4% -> 4.4% -> 4.3% -> 4.3% -> 4.2% -> 4.2% -> 4.1% -> 4.0% -> 4.0% -> 3.8%.

For Q4 2019, analysts are projecting earnings growth of 8.1% -> 8.3% -> 8.2% -> 8.1% -> 7.5% -> 7.4% ->7.3% -> 7.2% -> 7.2% -> 7.0% -> 6.8% -> 6.7% -> 6.3%.

and revenue growth of 4.8% -> 4.7% -> 4.7% -> 4.8% -> 4.8% -> 4.6% -> 4.7% -> 4.6% -> 4.6% -> 4.5% -> 4.5% -> 4.5% -> 4.3%.

For CY 2019, analysts are projecting earnings growth of 3.8% -> 3.4% -> 3.4% -> 3.6% ->  3.4% -> 3.3% -> 3.2% -> 3.2% -> 3.2% -> 3.1% -> 3.0% -> 2.8% -> 2.7%.

and revenue growth of 4.9% -> 4.6% -> 4.7% -> 4.7% -> 4.7% -> 4.7% -> 4.7% -> 4.7% -> 4.6% -> 4.5% -> 4.5% -> 4.5% -> 4.4%.

For Q1 2020, analysts are projecting earnings growth of 10.5% -> 10.7% -> 10.3 -> 9.9%.

and revenue growth of 6.2% -> 6.1% -> 6.0% -> 5.8%.

For Q2 2020, analysts are projecting earnings growth of 12.9% -> 13.3% -> 13.3% -> 12.9%.

and revenue growth of 6.8% -> 6.8% -> 6.8% -> 6.6%.

Despite the slowing growth in earnings, analysts expect this from the SP500 Index over the next 12 months per FactSet: “The bottom-up target price for the S&P 500 is 3218.88, which is 10.1% above the closing price of 2924.92″ (they seem to have an error as the Friday close was 2941.76 for a 9.42% rise in the next 12 months).

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

China Deal Risk: Chinese President Xi apparently agreed to step up farm product purchases, but wants the Huawei ban lifted by President Trump, who said he was OK with products being sold to Huawei by U.S. companies IF they don’t endanger our national security.  Both sides agreed to wait on further tariffs.  A Huawei ban lift is not a done deal yet though.  Trump cannot afford to wait too long to make a comprehensive deal.  Nothing was said at the G20 meeting about forced tech transfer and tech patent violations.  Much remains to be resolved.  More here @CNBC.

IMF Chief Lagarde said “While the resumption of trade talks between the United States and China is welcome, tariffs already implemented are holding back the global economy, and unresolved issues carry a great deal of uncertainty about the future.”

U.S. Iran War Risk: Things have calmed down even though President Trump threatened to obliterate the country of Iran should they attack Americans, military or otherwise.  Iran is a terrorism supporting country that needs to come out of the darkness.

Mueller Report/Impeachment Risk: “Mueller Time” is Wednesday, July 17th.   Mark your calendar for market risk on that day.  Just by repeating certain conclusions, he could influence public opinion against Trump.  That’s what the Democrats hope. 

2020 Election Risk: 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 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.

Deficit/Debt Threat  Unchanged.  Building in the background, dollar by dollar.  This is a building threat but won’t manifest until our interest rates climb and then it will put huge pressure on the U.S. economy and suppress earnings through higher borrowing costs.

Fed Rate Cut Risk: Now this week we had Bullard, the super Federal Reserve dove that he is, come out and saying a 0.50% cut would be “excessive” for July.  Oddly enough, investors still believe the Fed cut cut 0.50% in July!  This is pretty amazing considering Bullard’s comment.

In my view, many investors are in LalaLand when it comes to rat cuts.  CME Group says 28.1% still believe the Federal Reserve will cut 0.50% in July.  The rest expect a cut of 0.25%.  No cut would cause the market to dive.  A cut of just 0.25% could disappoint the market as well, although the majority would be fine as they expect that cut. 

From last week: Three cuts are expected by December 2019.  The Fed members actually don’t believe that yet however, as I summarized HEREBullard’s view is not the majority view yet.

Now take a look at the SP500 chart.  The orange lines are the 2017 up channel.

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

Market timing the SP500 Index (SPY, SPX). Near prior All Time High.

Near the prior ATH.

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Neutral.  Now subject to economic gravity despite China.  It edged up to the 50 day moving average and has been playing with it for the past 3 days, not rising above it.  Negative.  47.32 was the last breakout that must be held with a Friday close at 47.87.  A China trade resolution would be very helpful to Intel, and that’s what the rally has been about.

Bank of America (BAC) Market Timing Signal:  Neutral.  Despite the Federal Reserve gearing up to lower rates several times, a negative for banks’ interest rate margins, BAC rose above the down channel, which was its first test.  It’s likely to stall out by the time it reaches the 2018 -2019 highs.  Don’t expect much until things start improving vs. deteriorating from an economic and rising rates point of view.  Only a strengthening global economy will help the banks recover. 

Now let’s go on to review investor sentiment…

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Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of  -2.46% vs -2.62% the prior week.  That could be the smallest change I’ve ever seen week over week. 

The rest is the same as last week: “As before, sentiment should be more Bullish at a test of a prior all time high.  Over the short term, I view this as Bearish, because the price action is failing to change sentiment in a positive way.  The other side of that coin is there are more investors to convert into being Bulls.  For this reason, sentiment is not too helpful here in the middle.

At the same time, we have not likely seen the ultimate top of this Bull market, at least for the large caps, because sentiment is just not positive enough.  Investors came closest to euphoria at the end of January 2018, but that was 7 months prior to the small cap market top on August 31st.   Remember we had a “Mini Bear Market” in December, but no “Big Bear” as defined HERE under “New Rules.”  A “Big Bear” is by definition required to terminate a Bull market.”

Bulls Neutrals Bears
29.59% 38.36% 32.05%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Discussed above including immediate Bull targets.

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

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

Another bounce, but still lagging.

 3. Gold Market Timing (GLD): Still a Bull.  I bought on this week’s pullback as I stated I would.  Follow the rate trend along with the gold chart!

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

Market timing the gold ETF (GLD). Gold in uptrend.

Gold is in an uptrend. Stick with it!

4. Interest Rate Market Timing  Still a Bear in rates, Bull in Treasuries.  Stay with the trend.  Buy the bounces in rates until the trend changes – then get the heck out! 

This is a trade that could last just a few weeks or many months.  Why?  Because rates are very low and due to the current weakness globally.  As the world perks up eventually, so will interest rates, and both bonds and Treasuries will fall.  

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). Rate trend is still down.

Rate trend is down for now with room for bounces. Buy Treasuries on the bounces.

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

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

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

Stock Signal RED for a further U.S. stock market rally with a Bullish SP500 Index trend.  The stock signal is based on small caps, as they often lead the market down.  Since the major trend is Bearish still for small caps, I’ll call the signal RED. 

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!) See above for the close this week and other comments.  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 Bulls have 4 of 8 targets.   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.  It’s still leaning Bullish, but with no progress made this week at a time we are near the SPX ATH.

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.  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.”  WTI  has been weak but is stabilizing a bit at a lower level.  It closed at 58.47 vs. 57.43 last week and is losing steam just as the 50 day mav is almost down to the 200 day mav.  

I’ll keep this here as a reminder: this is not currently an issue… “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 the “Negative Rate Shock I” we’ve seen as discussed above.

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

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, contact me.  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 6-21-2019 Close: “The Health of the Large Cap Market Top. The Good News and the Bad. Gold and Bond Bulls Both Strong But Stretched.”

A Market Timing Report based on the 06-21-2019 Close, published Saturday, June 22, 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 miss 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 start with the key issue: The SP500 has failed its first attempt to reach a new all time high…

Are the Bulls serious?

What would satisfy me that the Bulls were serious about this advance?

Let’s check the list once again… The Score?  Bull 1: Bears 4.   This week the goal line was a new all time high.  But parts of the total stock market are not even close to that as you’ll see…  For each checklist item below, I give you the points scored as Bullish or Bearish. 

1. New high.  Bears 1.  The SP500 Index is above the Wave 2 top I’ve been writing to you about.  That’s a positive, because if you look back at the 2018 chart, the market failed horribly from LOWER highs in Nov. and Dec.  This time the market was able to scale above the prior lower high achieved in May.  The negative?  It failed to rise above the prior all time high this week.  That does not mean it cannot retry taking out the top, although I’ll show you why it may not, as we examine the health of the market fully. 

2. VIX below the “Bull Nirvana Number” AND my bonus number?  Bears 1 point.  The Bears get this point, because of the lack of progress during a week when the market re-topped.  Last week the VIX close was 15.28.  This week?  15.40.  The Volatility Game Score as I call it is Bulls 4/Bears 4.  As before, the Bulls have a slight edge, having overtaken the “fulcrum,” but being back at the old ATH (all time high) with the VIX not making progress to a new recent VIX low (meaning not taking even point #5) is a sign of weakness.  

3. AD % Line: Bears 1.  The prior high on May 1st when the market topped out was 16,471.  The close Fri. was 16,455.  This mirrors the market to some extent, because it tested a breakout and failed on the first try last week.  That failure is a negative that could be overcome.  More buyers are needed!

4. Volume: Bulls 1. There was a good increase in volume through Thursday, but Friday was a triple witching day, so that throws off the volume comparisons vs. recent numbers. 

5. The “U.S. Index Matrix Signal” as I call it:  Bears 1.  To avoid making false comparisons due to recent dividends, I reviewed the data for the raw indexes.  While SPX is tested the prior all time high (ATH) and failed, midcaps (MID) are just above the Wave 2 high of 1922.32, but well below the Sept. 2018 high of 2052.39 with a Fri. close of 1928.11.  Small caps are even worse off.  The high for the week was 1570.74, ABOVE the Wave 2 high of 1567.17, but the CLOSE for the week was 1549.63, back below that high.   In summary, we have:

  1. Large: SPX failing to achieve a new all time high, but above the Wave 2 high.
  2. MID: rising above the Wave 2 top, but still -6.06% vs. the Sept. 2018 ATH.
  3. Small: RUT FAILING to rise above the Wave 2 top of 1567.17 despite testing up to a high of 1570.74 this week.  And the close Friday was at 1549.63, still -11.05% vs. the Sept. 2018 ATH.

Do you see the pattern?  The higher the risk, the greater the lag.  The market is still wary of higher risk stocks.  That is not the healthy picture of a rip roaring Bull market.  Small and midcaps have been lagging large caps since the May 1st market high, and since the small cap market top of course.  The May 1st high is the one the large caps are now challenging, but without company from their smaller siblings.

Here’s the Truth Behind the Headlines:  The U.S. Stock Market Topped on August 31st, 2018!

What do I say that?  Because that is where the small caps topped.  They lead when things are actually good vs. “Trump saying their good” or “The media saying they are good” and especially not “The Fed saying their good.”  Small cap companies create the most jobs in a healthy economy, and are the true engine of the economy and the birthplaces of many great innovations.

President Trump knows the economy is not that strong now and to be re-elected he MUST have a strong economy.  His negatives are too high to be elected in the midst of a weak economy.  And the bad news for Dems is that historically, they will likely lose with any of their 20+ candidates going against Trump, if the economy is extremely strong just prior to the election.  That is why Trump has been jawboning Fed Chair Powell nearly to death, or at least to demotion (unlikely to be legal or it would already have happened and would have shaken the markets to their core by the way).  He wanted Powell to cut rates this past week.  It did not happen, but 100% of all investors polled say it will start in July.  Maybe even with an impressive 0.50% cut.

The success of what I share here is created by a simple fact...and hear this clearly…THEY CANNOT HIDE CERTAIN THINGS FROM US!   The politicians, pundits, machines, and big money buyers and short sellers can create a lot of noise, but they cannot hide price, relative performance, volume, and volatility from our eyes.  The rest provides context for that essential information.     

The above conclusion means we now and always will know things that the “big players” would rather we not know. 

And this we know this… – > The small caps led the market down off its “True Top” marked by the small cap Russell 2000 high on August 31st, 2018,  and it has not recovered since, despite all the ups and downs in between.  The small caps are the most sensitive indicator of the health of the market, and they have just failed at a critical level (the Wave 2 Top of May 16th) in this decent from the May 1st high.  Until that Wave 2 Top is scaled with conviction, this top is the same as the prior two tops – unhealthy and likely to lead to more downside in the intermediate term than upside.  Small caps must then make a new high above the May high or this overall rally is toast.  Those are two key check marks needed for the rally to persist.

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

Earnings Risk: what is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 6-21-19 (details HERE)…

Q2 earnings are reported starting in mid-July.  Note that earnings were negative in Q1 per FactSet and are slated to be negative for Q2 and Q3 unless something changes.  An earnings recession may precede a real recession or just indicate a soft spot for growth that then resumes.  Note that earnings start to look better again in Q1 and Q2 of 2021, because, for one thing, the comparisons are easier – the comparisons are against the same quarters this year, which are negative until Q4 2019, when the sun is supposed to shine once again.

Here is the data updated for the last data point from this week:

For Q2 2019, analysts are projecting earnings growth of 0.1% -> -0.4% -> -0.5% -> -0.6% -> -1.3% -> -1.7% -> -1.9% -> -2.1% -> -2.1% -> -2.3% -> -2.5% -> -2.6%.

and revenue growth of 4.6% -> 4.2% -> 4.4% -> 4.3% -> 4.3% -> 4.3% ->4.2% -> 4.1% -> 4.1% -> 4.0% -> 3.9% -> 3.9%.

For Q3 2019, analysts are projecting earnings growth of 1.8% -> 1.4% -> 1.3% -> 1.3% -> 0.8% -> 0.6% ->0.5% -> 0.3% -> 0.3% -> 0.2% -> 0.0% -> -0.3%.

and revenue growth of 4.4% -> 4.1% -> 4.4% -> 4.4% -> 4.4% -> 4.3% -> 4.3% -> 4.2% -> 4.2% -> 4.1% -> 4.0% -> 4.0%.

For Q4 2019, analysts are projecting earnings growth of 8.1% -> 8.3% -> 8.2% -> 8.1% -> 7.5% -> 7.4% ->7.3% -> 7.2% -> 7.2% -> 7.0% -> 6.8% -> 6.7%.

and revenue growth of 4.8% -> 4.7% -> 4.7% -> 4.8% -> 4.8% -> 4.6% -> 4.7% -> 4.6% -> 4.6% -> 4.5% -> 4.5% -> 4.5%.

For CY 2019, analysts are projecting earnings growth of 3.8% -> 3.4% -> 3.4% -> 3.6% ->  3.4% -> 3.3% -> 3.2% -> 3.2% -> 3.2% -> 3.1% -> 3.0% -> 2.8%.

and revenue growth of 4.9% -> 4.6% -> 4.7% -> 4.7% -> 4.7% -> 4.7% -> 4.7% -> 4.7% -> 4.6% -> 4.5% -> 4.5% -> 4.5%.

For Q1 2020, analysts are projecting earnings growth of 10.5% -> 10.7% -> 10.3.

and revenue growth of 6.2% -> 6.1% -> 6.0%.

For Q2 2020, analysts are projecting earnings growth of 12.9% -> 13.3% -> 13.3%.

and revenue growth of 6.8% -> 6.8% -> 6.8%.

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

China Deal Risk: Meeting scheduled at the end of July with Xi at G20 will lay clear groudwork for a definitive deal, or it will be seen as a big failure.  The teams from both sides are talking vs. stagnation before.  Positive.  I added to China exposure, which I’ll warn you is still viewed as risky due to their economic slowing.  I could be early.  Still, I re-entered some FXI exposure I had ditched due to the turn around of the chart in response to the positive news.  This may not stick if the Chinese intend to wait out Trump vs. finish this and grow up (stop stealing tech from us and forcing tech transfers in collaborations with Chinese companies, and dumping cheap products as examples)

U.S. Iran War Risk:  After the tanker attacks, I said last week “There could be a message sent by air to the Iranians however (a few missiles) as early as next week.”  That was about right, except for the execution part of the plan, which was put on hold, supposedly 10 minutes before “go time.”

The Iranians know Trump does not want another Trillion Dollar War, and know from his prior limited action against the Syrians that he likes proportional strikes vs. risking all out war.  Trump must negotiate an end to the Iran situation or he will bring down his Presidency in 2020 Election terms, as well as destroy his legacy.  There is no way he’ll win the 2020 Election with a war raging with Iran.  Zero chance.  And he would become known as the President who started “the U.S. Iran War.”  Let’s hold something more positive.  Negotiated solutions.

[Tangentially: He was dissuaded from action supposedly because of the potential loss of 150 lives, which conservative media I hear on Florida radio were all weepie eyed about.  “He saved 150 poor souls from perishing” was the gist of it.  Funny how he and they like the idea of torching souls, but not killing them.  When Trump has a conscience, they do too.  When he doesn’t, some other issue is more important that what is just.  I like people who are consistently just.

Personally I like the fact that Trump hates the dollar cost of war as well as the gore and maiming of actual human beings on both sides during war, which is NOT the consistent belief of the “right wingers.”  Remember, David, one of God’s greatest warriors, never made it into the promised land, because of all the killing he had done at God’s own behest.  That seems like a raw deal, but I’m fairly sure he eventually made it to the real promised land above… Being a President or anyone who is charged with killing in the name of freedom, is an honor, but also a huge burden to carry.  So no, I will not judge Trump for hesitating to kill.  I will judge him for publicly supporting human torture, which even General James N. Mattis, Trump’s first Secretary of Defense, said does not work vs. other approaches.

Finally, John Bolton is a know Iran hawk, meaning he really wants to change the government there.  Aren’t we past that practice now?  Trump needs to axe him to stay out of another major war.  I believe Bolton tempted Trump to take military action without blinking.  But Trump has not fallen for it so far, as close as he came.  Again, good!]

Mueller Report/Impeachment Risk  As said last week: “Speaker Pelosi won’t move forward until the Dem ducks are in a row.  It’s a slow motion process.”  As I’ve said, as an independent, my first allegiance is to the U.S. Constitution and to the right of the people to life, liberty, and the pursuit of happiness above all parties and politics.  If we could do what is right, what everyone truly knows in their hearts is right, that would be a nice change for D.C. and our nation.

2020 Election Risk: Probably the biggest risk to the markets and most Americans are oblivious to this from the market’s point of view.  The attack on the U.S. markets and the “wealthy” could begin with the Democrat Debates on Weds. and Thursday.  Attacks on drug pricing should also be expected, so watch your healthcare stocks carefully for signs of breakdown.  From last week:The markets will suffer as all Dem candidates say they’ll roll back the tax cuts on all but the middle class.  That means higher corporate tax rates again and lower earnings, and lower E’s mean lower P’s – prices!  The market will likely pull back at least 10-15% going into the election if the outcome is even ‘unclear.'”

Deficit/Debt Threat  Unchanged.  Building in the background, dollar by dollar.  This is a building threat but won’t manifest until our interest rates climb and then it will put huge pressure on the U.S. economy and suppress earnings through higher borrowing costs.

Fed Rate Cut Risk: Bigger risk than the market realizes – for NO cut or just one cut in July.  Three cuts are expected by December.  The Fed members actually don’t believe that yet however, as I summarized HERE(Scroll up to read the other messages on Fed day.)  The media read the Fed incorrectly.  I pointed this out to CNBC in that message, and the next day they published a similar headline/article.  Just keeping you on your toes, my media friends.  😉

If the Fed fails to cut in July, the market will drop quickly and hard, as 100% believe they will cut in July.   The majority on the Fed FOMC Committee was NOT for that (I verified this with the actual numbers in their projection materials, not a guess!).  They want to see more negative data before getting on board with an easing cycle.  Powell cleverly quoted the feelings of the MINORITY in his press conference, NOT the majority.  What if the tariffs are taken off the table with China and the stock market is 5% above the prior ATH by July 30-31 when they meet?  You think they will cut 0.50%?  Could they simply just pause again?

Now take a look at the SP500 chart.  The orange lines are the 2017 up channel.

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

Market timing the SP500 Index now tesing all time high.

Tested all time high and failed first attempt.

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Neutral leaning toward positive in an up trend off low.  Did remain above 45.95 number pointed out last week.  47.32 was the last breakout that must be held.  A China trade resolution would be very helpful to Intel, and that’s what the rally is about.

Bank of America (BAC) Market Timing Signal:  Negative.  Unchanged vs. 1 week ago.  “Off the prior low, but turned down from the 200 day mav, which is negative…. BAC is at the top of the downward channel that started back in early 2018!  Stay away!”  BAC has to break above that down channel on the daily chart to make any progress.   With the Fed lowering rates for the next 6 months at least, do not count on it! 

Now let’s go on to review investor sentiment…

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Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of  -2.62% vs. -7.36%.  Sentiment should be more Bullish at a test of a prior all time high.  Over the short term, I view this as Bearish, because the price action is failing to change sentiment in a positive way.  The other side of that coin is there are more investors to convert into being Bulls.  For this reason, sentiment is not too helpful here in the middle.

At the same time, we have not likely seen the ultimate top of this Bull market, at least for the large caps, because sentiment is just not positive enough.  Investors came closest to euphoria at the end of January 2018, but that was 7 months prior to the small cap market top on August 31st.   Remember we had a “Mini Bear Market” in December, but no “Big Bear” as defined HERE under “New Rules.”  A “Big Bear” is required to terminate a Bull market.

Bulls Neutrals Bears
29.51% 38.36% 32.13%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Still in correction territory per my defintions (covered in detail above). 

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

Market timing the U.S Small Cap Index well below all time high.

Well below all time high and FAILED to break above Wave 2 lower high this week.

 3. Gold Market Timing (GLD): We had no deeper correction in gold and gold stocks than a brief dip.  That’s the way Bull markets are.  This is a very strong Bull Market that closed above the 7-11-2014 high.

Add to gold/gold stocks (higher risk) on pullbacks until the trend changes.  This has been a great hedge and will likely continue to perform in my view, even if stocks fail here, as long as Fed rates are being lowered. 

We have to be careful at the end of this Fed easing cycle IF it happens – meaning, if they cut rates starting in July.  If stock market selling becomes brutal though, that won’t be the case, because value is always relative, and you may have to preserve profits. Follow the price!

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

Market timing the gold ETF GLD in a clear Bull market.

Clearest Bull market around.

4. Interest Rate Market Timing – This is another very strong Bull market in Treasuries, which means a Bear market in interest rates.  If you examine the stretch, it’s to the downside, so I expect a further bounce could occur before Fed cuts show up.  This may happen due to a rise in nervousness that the Fed in fact will NOT cut in July.  If there is a new low in the 10 Year Yield, it will confirm both the global slowdown as well as Fed rate cuts to come. 

The lower it goes, the worse it will be for the U.S. economy in the coming quarters….not a good set up for higher PE ratios in stocks, right?

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. Rates weak but due a bounce.

Further bounce ahead?

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

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

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

Stock Signal RED for a further U.S. stock market rally with a Bullish SP500 Index trend.  The stock signal is based on small caps, as they often lead the market down.

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!) See above for the close this week and other comments.  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 Bulls have 4 of 8 targets.   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.  It’s still leaning Bullish, but with no progress made this week at the time of a failed attempt at a new SPX high.

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.  For Reference: “Rates usually RISE slowly in a strong recovery and the stock market rally continues, as I’ve repeated multiple times on social media as well as 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.”  WTI  has been weak but is stabilizing a bit at a lower level.  It closed at 57.43 vs. 52.51 last week – huge move based on the Iran initiated attacks.  Last week I said: “Oil looks like it could revisit the January low at this point.  The Middle East could interfere with that outlook should the Iran situation ignite.”  It ignited with the downing of the U.S. drone by Iranian forces, something they admitted to, so it’s no speculation.  See above. 

I’ll keep this here as a reminder: this is not currently an issue… “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 the “Negative Rate Shock I” we’ve seen as discussed above.

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

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Market Timing Brief™ for the 6-14-2019 Close: “Bulls Must Push Upward or Say Hello to the Big Red Wave Down. Stick with Gold and Treasury Positions and Buy Pullbacks.”

A Market Timing Report based on the 06-14-2019 Close, published Saturday, June 15, 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.

NOTE: The summer appears to be distracting investors enough to warrant a speedier read unless otherwise warranted.  I’ve mainly curtailed the “risk section” to make it more succinct. 

I provide quite a bit of intraweek commentary, and if you miss 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):

Where is the market as of the end of the week?

  1. The SP500 Index failed to scale the Wave 2 high this week (F.Y.I 5-16 high = top of Wave 2 UP wave), despite a couple of tries.  That means the next wave could be the Big Red Wave 3 down (see last week’s issue; link to upper right).  Close of SPX was 2886.98, below that Wave 2 Up top.   The SPY’s closed just barely above target, but it’s within the margin of error so to speak, and I’ll go with SPX on this call.  No, 0.05 points over for the SPY with the SPX below target is a “no go” to me.  Not good enough.
  2. I will be adding exposure to the market if it can make it through the top of Wave 2. (see my VIX comments at the bottom of this report)
  3. Emerging markets (EM) appear to be rolling over in some cases.  Examples are INDA and EWZ.
  4. The Greater China indexes (H Shares: FXI, A Shares: CAF/KBA, and Hong Kong (a “developed market”): EWH) have slipped back a notch after starting to post gains, but it appears to be in a weak holding pattern, waiting to see if the Trade War can be resolved.  If this drags on and on, they will likely break to lower lows.  There is no China agreement in sight, although Trump said they’ll arrive at one.  It just won’t happen at the G20 at the end of June, because Xi probably won’t show up we are told by Trump, and that’s all OK of course.  😉  Not really!
  5. Interest Rates (10 Year Yield is what we follow most of all along with the shape of the yield curve) have stabilized at an impressive low that says the U.S. economy is definitely going to slow down.
  6. The Fed decision comes out on Weds.  What’s in the market?  Three cuts of 0.25% are in the market to occur with over a 50% probability in July, Sept, and December.  No other meetings reach that 50% threshold all the way out to April 2020.  Unless the stock market is down 15% or the Treasury market dives to another extreme, the Federal Reserve will probably move slowly.  I laid out the consequences of not cutting rates in June through Sept or the opportunity in the market if they do cut rates last week, so please review that if you have not.
  7. About 30% of participants are off-sides going into the Fed meeting expecting a June cut.  The Fed does not likely have enough to support a cut in June, so rates should pop a bit on Weds. and allow a buying opportunity for BOTH bonds/Treasuries AND gold (GLD/GDX) to develop on Weds. or within a few days.  That would be nice!

Let’s check in with the earnings trend again…

Earnings Risk: what is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 6-14-19 (details HERE)…

We now have new U.S. earnings and revenue estimates this week for Q2 2019 through Q2 of 2020.  Q2 earnings are reported starting in mid-July.

Here is the data updated for the last data point from this week:

For Q2 2019, analysts are projecting earnings growth of 0.1% -> -0.4% -> -0.5% -> -0.6% -> -1.3% -> -1.7% -> -1.9% -> -2.1% -> -2.1% -> -2.3% -> -2.5%.

and revenue growth of 4.6% -> 4.2% -> 4.4% -> 4.3% -> 4.3% -> 4.3% ->4.2% -> 4.1% -> 4.1% -> 4.0% -> 3.9%.

For Q3 2019, analysts are projecting earnings growth of 1.8% -> 1.4% -> 1.3% -> 1.3% -> 0.8% -> 0.6% ->0.5% -> 0.3% -> 0.3% -> 0.2% -> 0.0%.

and revenue growth of 4.4% -> 4.1% -> 4.4% -> 4.4% -> 4.4% -> 4.3% -> 4.3% -> 4.2% -> 4.2% -> 4.1% -> 4.0%.

For Q4 2019, analysts are projecting earnings growth of 8.1% -> 8.3% -> 8.2% -> 8.1% -> 7.5% -> 7.4% ->7.3% -> 7.2% -> 7.2% -> 7.0% -> 6.8%.

and revenue growth of 4.8% -> 4.7% -> 4.7% -> 4.8% -> 4.8% -> 4.6% -> 4.7% -> 4.6% -> 4.6% -> 4.5% -> 4.5%.

For CY 2019, analysts are projecting earnings growth of 3.8% -> 3.4% -> 3.4% -> 3.6% ->  3.4% -> 3.3% -> 3.2% -> 3.2% -> 3.2% -> 3.1% -> 3.0%.

and revenue growth of 4.9% -> 4.6% -> 4.7% -> 4.7% -> 4.7% -> 4.7% -> 4.7% -> 4.7% -> 4.6% -> 4.5% -> 4.5%.

For Q1 2020, analysts are projecting earnings growth of 10.5% -> 10.7%

and revenue growth of 6.2% -> 6.1%.

For Q2 2020, analysts are projecting earnings growth of 12.9% -> 13.3%

and revenue growth of 6.8% -> 6.8%.

Are the Bulls serious?  As I asked nine weeks ago…

What would satisfy me that the Bulls were serious about this advance?

Let’s check that list once again…  1/5 Positive

1. New high.  Negative.  No new high, and failed to scale the top of Wave 2 UP.  If not overcome soon, it will usher in quite a bit of downside.

2. VIX below the “Bull Nirvana Number” AND my bonus number?  Positive.  Not great exactly, but Bulls have a slight edge, having overtaken the “fulcrum,” so I’ll score this as a positive.  The VIX Game Score as I call it is Bulls 4/Bears 4 (Game numbers are at the base of this report).  That means the Bulls are below the key “fulcrum target” range, so they have an edge without the price technical view to match it yet.

3. AD % Line: Negative.  Now at 16,371, above the close of 16,341 last week, and still above the 9-21-2018 high of 16,175 as well as the Feb. 25th high of 16,258, so you could argue this one, but I’m scoring it negative, because of the failure to make a new high above the 5-16 high.  It confirms the inability to scale the Wave 2 high for the SPX.

4. Volume: Negative. The Bulls did not had the volume at any point in the recent 5 day rally.  It was a 5 day rally with poor volume and then 4 days sideways this week.

5. The “U.S. Index Matrix Signal” as I call it:  Negative.  IJH and IWM fell significantly more than SPY on Friday.  They usually lead to the downside.

Here’s a Brief Review of the Other Market Risks at Hand (with terse comments only where there is new information):

China Deal Risk: Meeting scheduled in three weeks, but little seems to be happening in terms of preparation per reports.  See above.

U.S. Iran War Risk Higher after Japanese and Norwegian tanker attack supposedly by Iranian forces.  Fortunately Trump cannot afford another big war and hates the waste of war of national resources for infrastructure and the like, as well as the killing and maiming of soldiers.  There could be a message sent by air to the Iranians however (a few missiles) as early as next week. 

Mueller Report/Impeachment Risk  Speaker Pelosi won’t move forward until the Dem ducks are in a row.  It’s a slow motion process.  Trump’s people are slow-walking every request.  Not only that, they are trying to turn the whole thing around to say the investigation was a conspiracy.  This is hogwash.  Goebbels would have been very proud of Trump and his people.  Nixon was an angel in comparison to Trump.  To be clear, I do not care about ANY President of our country or any party more than I care about the U.S. Constitution, the rule of law, a free press, and the truth.

2020 Election Risk Probably the biggest risk to the markets and most Americans are oblivious to this.  Many just want Trump gone, but if that happens, the markets will suffer as all Dem candidates say they’ll roll back the tax cuts on all but the middle class.  That means higher corporate tax rates again and lower earnings, and lower E’s mean lower P’s. The market will likely pull back at least 10-15% going into the election if the outcome is even “unclear.” 

Deficit/Debt Threat  This is a building threat but won’t manifest until our interest rates climb and then it will put huge pressure on the U.S. economy and suppress earnings through higher borrowing costs.

Fed Rate Cut Risk: See above and last week’s roadmap.

Now take a look at the SP500 chart.  The orange lines are the 2017 up channel.

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

SP500 Index Market TIming. Must push higher almost immediately to avoid huge decline.

Time to push up and through that Wave 2 top or else!

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Neutral signal due to mixed technical picture.  Some progress, but could as easily roll over.  On the positive side, while it looks like a lower high is forming (negative), INTC managed to close above the prior consolidation high of 45.95, which was “anointed” upon being tested.   It needs to stay above that number to make progress to the upside.

Bank of America (BAC) Market Timing Signal:  Negative.  Off the prior low, but turned down from the 200 day mav, which is negative.  It will rise more, however, if the Fed does not cut rates this coming Wednesday. BAC is at the top of the downward channel that started back in early 2018!  Stay away!

Now let’s go on to review investor sentiment…

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 34,011 investors are following the markets with me…

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Join the Conversation in the StockTwits “MarketTiming” Room

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of  -7.36% vs. -20.1%We are at an important lower high for the SP500 Index and sentiment should be more Bullish.  At this point though, I don’t think sentiment helps too much other than to say we are not at EITHER extreme to the Bull or Bear side.  It means we could move either way from here.  The Bulls will have to increase their buying to take us above the Wave 2 top.

Bulls Neutrals Bears
26.74% 38.96% 34.20%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Look at where the small caps started rolling over on Friday.  They are below the 200 day mav.  Weak!  Stay away.  If they can push above the 5-16-19 high, that would be another thing.

A failure here would auger bad things for the overall market.  Small caps are 12.5% below their all time high, which means they are already in a full correction.  (See my “New Rules” HERE for useful ranges in thinking about market dips, corrections, and Bear markets.)

In a healthy economy, small caps outperform tremendously, but when the economy slows, that “beta” works directly against you – the losses are far bigger.  

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

US Smalll Caps IWM rolling over just below the 200 day moving average.

Rolling over from lower high, below the 200 day moving average. Weak!

 3. Gold Market Timing (GLD): Gold is pulling back from a prior high reached both in February and on June 7th.  This failure is due to a fear IMO (In My Opinion) that the Federal Reserve will NOT lower rates as about 30% feel they will.  That means rates could RISE to some degree driving down gold and causing the US Dollar to strengthen.  I’ll be waiting to buy the dip in gold/gold stocks if we are so lucky.

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

If the Fed does not cut rates next Weds. gold will fall a bit. Buy the dip IMO!

4. Interest Rate Market Timing – The 10 Year Yield lies in wait of the next Federal Reserve meeting where the Fed will likely NOT cut rates.  If it is extremely dovish vs. what has been said previously, rates could continue their dive however.  Just follow rates and you’ll know what to do in regard to both bonds/Treasuries and gold/gold stocks.  (read the last few issues and my key gold trading post HERE if you haven’t).  

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 10 Year Treasury Yield. Bounce or no bounce after the Fed meeting?

June 19th will decide a bounce vs. no bounce in rates.

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

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

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

Stock Signal RED for a further U.S. stock market rally with a Bullish SP500 Index trend.  The stock signal is based on small caps, as they often lead the market down.

Caveat: If this is the end of Wave 2 up as discussed above, the SP500 Index will not be looking Bullish next week.  If the Wave 2 top is taken out, the market can retop or MORE. 

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!) closed at 15.28 vs. 16.30 last week.  These are the other 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 Bulls have 4 of 8 targets.   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.  With the VIX below that target, but the SPX below the Wave 2 top, I’d say it’s a crap-shoot as to which way the market turns, but the economic picture would suggest it will fall.  The weak earnings won’t come out until mid-July, so the Bulls could attempt a further rally before then.  That’s the upside risk. 

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 would hurt U.S. stocks. 

Rate Signal RED for a further stock market rally with a Bearish 10 Year Yield Trend.  For Reference: “Rates usually RISE slowly in a strong recovery and the stock market rally continues, as I’ve repeated multiple times on social media as well as 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.”  WTI  has been weak but is stabilizing a bit at a lower level.  It closed at 52.51 vs. 53.99 last week.  Oil looks like it could revisit the January low at this point.  The Middle East could interfere with that outlook should the Iran situation ignite. 

I’ll keep this here as a reminder: this is not currently an issue… “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 the “Negative Rate Shock I” we’ve seen as discussed above.

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

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

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Market Timing Brief™ for the 6-07-2019 Close: “Is the Stock Market Bounce on Peace with Mexico and Hope on China Sustainable? The Five Things I’ve Done to Protect from More Downside. Gold Still Strong as ‘Negative Rate Shock I’ Pauses.”

A Market Timing Report based on the 06-07-2019 Close, published Saturday, June 8, 2019…

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

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

I posted on StockTwits and Twitter Friday evening that President Trump signed a deal with Mexico to not impose punitive tariffs in exchange for their sending 6000 National Guard troops to their southern border, but these efforts may be delayed until 2021 in terms of full deployment as noted HERE.  In addition:

“The agreement did not include a demand from the U.S. that Mexico agree to a “safe third country” designation, requiring the country to permanently accept most asylum seekers from Central America.”

Trump plans to ship the asylum seekers back out of the U.S. to Mexico to await decisions on their claims, which they had already been doing.

“The U.S. promises that those asylum applicants will be “rapidly returned” to Mexico as they await the result of their claims. Mexico agrees to accept them and offer jobs, health care and education.”

The results of this “agreement” are iffy, given the built-in delay, but perhaps we can assign a partial victory to Trump.  I’m sure we’ll no longer hear about the problems at the border, since that’s now “been solved.”  I wrote that last line on Friday night, and this morning I saw via a Fox news quote (I search on multiple sites, fake and otherwise  ;)) that Chuck Schumer said THIS.  Otherwise, if Trump keeps yapping about the Mexicans, the problem has not been solved, right?

Although Mexican responsibility is good, the more important point is the way Trump went about it should be unconstitutional if it isn’t, as using tariffs as threats to accomplish legislative goals is not the way a President should act…and the GOP leadership was starting to get riled up about that very fact including Texas Senator Ted Cruz.  Having the Congress impose tariffs on Mexico to secure the borders is the way Democracy is supposed to work.  Remember that Trump used the EMERGENCY Powers Act to invoke tariffs in the first place, but much of the solution won’t be fully deployed until 2021!  Some “emergency.”

Importantly, the markets were spared damage that did not have to be inflicted in the first place.  Trump proved he can drive the markets down and then up at will through his antics.  But what’s the net result?  Do these “solved Tariff problems” created by Trump mean the stock market should move higher?  Investors thought so from Tuesday through Friday apparently.

The market turned around from the prolonged May decline this week.  It had a very good week after dropping over 7% in just a few weeks.  The second up day this week on Wednesday shifted the immediate trend from down to up as shown HERE for XLK, the SP500 Tech Sector ETF and for SPY HEREThe rally then continued Thursday and Friday.

Some of the perma-Bulls out there (remember, I’m an independent both in political and market terms!) will tell you, you were stupid to raise any cash and should hold stocks for the long term and never sell anything.  Why is it that Jack Bogle who founded Vanguard warned before his death that stock market returns for the next decade would likely be half of normal or worse?  Read on if you are thinking “Mexico being out of the way solves everything, so I’m back to 100% invested!” 

Go to all cash?  No way.  I share my investment allocation to stocks regularly on social media and posted it last week.  I believe investors who can afford to lose money on paper for a while should always be at least 30% invested in stocks long term That is a “raw percentage” of investable net worth (means minus your house, but not investment properties), not the percentage of usual max. exposure I share with you – I do that so you will think for yourself!

Even “old people” should have at least 30% in stocks, unless their money could run out if they take on that risk.  At any time point, you must assume it will take up to 10 years to “get your money back” from a paper loss.  What you NEVER want to do is SELL LOW.  This is how most investors underperform the markets.  You only sell low if you MUST protect your capital from further loss or “Susan won’t be able to go to college” for example.

Why 30%?  Because 1. stocks make more over the long term than bonds do and 2. A 50% loss on your stocks at 30% exposure means you only lose 15% of your capital, which is not hard to come back from.  If you lose 50% of your capital, you have to have a 100% return to get back to even as investors did in 2009.  That is a tough climb!

You say you can get out and back in in time if you are wrong about your exit?  Some of you can (less than 5% of you at best), but you are major exceptions.  Most investors who leave the market sit there like deer frozen in the headlights of a car that never hits them and fail to re-invest in the market, when it turns out they sold the exact low in the market!

I promised on my stream this week, I’d share “What to do now” so you can protect yourself against a further downturn in the markets, despite the bounce.  What have I done to face off the risks listed on this blog including earnings risks for Q2? 

1. I lowered my stock exposure. You can take some off each time the market moves up or use stop losses to protect profits on the way down.  Your choice. 

2. Added REITS like AMT at the December 26th low, and re-entered Realty Income (O) more recently. 

3. Bought long term munis (which have risen about 5% in just a couple months of averaging into them as rates have crashed).  Rates down, bonds up (for the newbies)!

4. Increased my gold exposure by adding gold stocks (GDX, by buying outright and being assigned shares on a put sale, and did an option play on FNV recently). Buy the dips and be willing to trade your non-insurance gold positions or don’t buy any to begin with!  Gold stocks are not things to ride up and down like a pony at a fair.

5. Invested cash by laddering out month by month to about 1 year in Treasuries, which is easy to do on Schwab or Fidelity among other brokers.  Do it yourself, using the Treasury Yield Curve page as a guide or you’ll pay commissions.  That way I can move money back into stocks to increase my exposure on a larger pullback, because Treasuries are very liquid.  You may have to give up a little bit of return if you need to sell, which is why I have a chunk of cash in money markets paying 2.20%, down from 2.31% just a couple of weeks ago as rates fall.  Because rates will likely fall further, it will pay to lock in some Treasuries going out a number of months, because those yields are most likely headed back below 2% for money markets.  

So what’s the technical challenge for the Bulls?  The Bulls now face what is know in Fibonacci terms as a Double 2 Wave UP, which can either be violated to the UPSIDE or can turn downward into a big, red 3rd wave down.  (The pattern is wave one down, two waves up, and then the 3rd down wave starts…) The top of Wave 2 for X*LK is 76.54 with a high of 76.64 and a close of 76.19 and an S*PY Wave 2 top of 289.21 with a high of 288.85 and a close of 287.65.  Some of the selling into the close could have been related to the perceived risk of the Mexico deal falling through, so we cannot count the Bulls out.

But IF that 3rd down wave starts, watch out, because it is the largest wave of the standard 5 wave pattern.  Beyond Mexico there are many other issues facing this market, not the least of which are the upcoming Q2 earnings!  After clocking in a negative Q1 for earnings, the SP500 Index is set to repeat “negative earnings growth” for Q2 as well, unless companies surprise enough to the upside to turn the numbers positive again.  You’ll also note from the sequences noted below that 2020, which compares against the current slow 2019 will look better to the market.

Let’s check in with the earnings trend again…

Earnings Risk: what is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 6-07-19 (details HERE)…

We now have new estimates this week for Q2 2019 through Q2 of 2020.  There was no update to Q1 earnings this week.

Here is the data updated for the last data point from this week:

For Q1 2019 (not updated this week), earnings growth of -3.6% -> -4.3% -> -3.9% -> -2.3% -> -0.8% -> -0.5% -> -0.5% -> -0.4% -> -0.4% .

and revenue growth of 4.9% -> 4.8% -> 5.0% -> 5.1% -> 5.2% -> 5.3% -> 5.3% -> 5.3% -> 5.3%.

For Q2 2019, analysts are projecting earnings growth of 0.1% -> -0.4% -> -0.5% -> -0.6% -> -1.3% -> -1.7% -> -1.9% -> -2.1% -> -2.1% -> -2.3%.

and revenue growth of 4.6% -> 4.2% -> 4.4% -> 4.3% -> 4.3% -> 4.3% ->4.2% -> 4.1% -> 4.1% -> 4.0%.

For Q3 2019, analysts are projecting earnings growth of 1.8% -> 1.4% -> 1.3% -> 1.3% -> 0.8% -> 0.6% ->0.5% -> 0.3% -> 0.3% -> 0.2%.

and revenue growth of 4.4% -> 4.1% -> 4.4% -> 4.4% -> 4.4% -> 4.3% -> 4.3% -> 4.2% -> 4.2% -> 4.1%.

For Q4 2019, analysts are projecting earnings growth of 8.1% -> 8.3% -> 8.2% -> 8.1% -> 7.5% -> 7.4% ->7.3% -> 7.2% -> 7.2% -> 7.0%.

and revenue growth of 4.8% -> 4.7% -> 4.7% -> 4.8% -> 4.8% -> 4.6% -> 4.7% -> 4.6% -> 4.6% -> 4.5%.

For CY 2019, analysts are projecting earnings growth of 3.8% -> 3.4% -> 3.4% -> 3.6% ->  3.4% -> 3.3% -> 3.2% -> 3.2% -> 3.2% -> 3.1%.

and revenue growth of 4.9% -> 4.6% -> 4.7% -> 4.7% -> 4.7% -> 4.7% -> 4.7% -> 4.7% -> 4.6% -> 4.5%.

For Q1 2020, analysts are projecting earnings growth of 10.5%

and revenue growth of 6.2%.

For Q2 2020, analysts are projecting earnings growth of 12.9%

and revenue growth of 6.8%.

The question you and the market may have is “Will the stock market favorably discount the re-acceleration of earnings and revenue growth in 2020 or only do so after a further correction?”   The answer likely depends on how close the current estimates are to the truth and if the likely coming rate cuts by the Federal Reserve (I’ll get to that in a bit) actually help goose the economy into 2020.  The honest answer by anyone given the risks stated on this blog today would be “I don’t know for sure.”  If you are the eternal blind optimist, go for it!  If not, find middle ground as I describe below. 

But above all do NOT believe anyone can guarantee the market will be at a new daily high before it hits a new daily low.  THEY DON’T KNOW!  I believe the best approach is to assess the degree of risk to returns and adjust market exposure, and sector exposure to some extent, accordingly. 

Factset pointed out that the earnings shortfall in Q2 for companies doing over 50% of their business abroad would be around -9.3% vs. -2.3% for all SPX companies and +1.4% for companies doing most of their business inside the US as noted HEREBe sure to look up your companies’ earnings projections now to be ready for the next earnings season.  Trim your losers on the bounce, or decide you will ride out an ugly period, your choice!

Not only are earnings due to slow more, employment did not look so great this past Friday.  The low ADP report at 27K jobs was weak, but is not always a reliable predictor of the Bureau of Labor Statistics (BLS) Friday number, which was 75K, well below the 180K expected.  Here is what the longer term trend looked like per the BLS on my stream HERE.  The Fed will watch this for a developing trend, but it is not what will cause the Federal Reserve to cut rates this summer, as I said in that message.

Are the Bulls serious?  As I asked eight weeks ago…

What would satisfy me that the Bulls were serious about this advance?

Let’s check that list once again…  3/5 Positive

1. New high.  Net Positive.  No new high, but the trend on an immediate basis is UP vs. down last week.

2. VIX below the “Bull Nirvana Number” AND my bonus number?  No and that’s a Negative.  The VIX Game Score as I call it is Bulls 3/Bears 5 (Game numbers are at the base of this report).

3. AD % Line: Positive.  Now at 16,341, still above the 9-21-2018 high of 16,175 as well as the Feb. 25th high of 16,258.  I said last week: “The most charitable view of that is that a bounce is due.  Since a Treasury yield bounce is also due, stocks could stage a minor counter-trend rally.”  In fact we got the stock market bounce and the 10 Year Yield did not bounce, but stayed above the Monday low into the Friday close.

4. Volume: Negative.  Although volume was not horrific, it did decline to a lower level than the prior negative day on the 1st day of the rally (Tues.) and then declined into Friday as the market rose.  That’s not what we like to see.  With each larger leap in price at least, volume should participate and confirm the move.

5. The “U.S. Index Matrix Signal” as I call it: Positive.  IJH and IWM were both trending up with the large caps. 

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

China Deal Risk:  Essentially Unchanged.  Trump will talk to Xi this month at the G20, June 28-29th.  Xi said Trump was his friend while making deals with Putin this week.   We’ve heard about his friends like North Korea’s Kim before, who went on to kill one of his negotiators and send others to hard labor camps for not delivering in negotiations with Trump.  The Mexico deal is a sign that Trump will be somewhat flexible and not insist on getting everything he wants.  He’ll have to make a deal prior to 25% tariffs or the 2020 Election Campaign period or else.  The market sees the overall risk as lower, but it may not pan out that way.  Trump likes to be unpredictable!

U.S. Iran War Risk:  No heated rhetoric at the moment.  Risk is low only because President “Bone Spurs” Trump hates wars.  He does not even like going to them when he’s legally obligated to do so, as during the Vietnam War!  My Dad went to Europe as a private not knowing his fate during World War II.  But he went!  Trump dishonored ALL veterans with his fake excuse from a dishonest doctor.  You can see the lie right across Trump’s face in the interviews asking him direct questions about his bone spur problem, not remembering which foot the painful spur was on!  100% #FakeNews!

Mexico Tariff Risk: Gone, because Trump gave them up to get some concessions as noted above.

Mueller Report/Impeachment Risk:  Moderate to High risk now.  Mueller will testify one way or another.  He will only recite what is in his report, but that will potentially move the public.  If it’s not public, the Democrats won’t be happy.  Speaker Pelosi said privately she would prefer Trump be jailed vs. impeached, which some took as meaning she would prefer to turf the whole thing to the courts after he loses in 2020.  Others took it to mean she wanted a case the Senate could agree with including Republicans that would lead to a conviction.  In the end, she won’t be able to withstand calls for impeachment IMO.

Key Conclusion: Without new evidence beyond the Mueller report, I do not believe the Democrats will be successful in convicting Trump in the Senate.  He will of course then claim “I’m vindicated of all fake charges.  I’ve been so maligned!”  And he knows how to sell that and win the 2020 election, particularly if the economy is strong.  If the economy is getting worse in a tangible way to the voting public by election day, there is no way he’ll win a second term. 

2020 Election Risk: The tax cuts for corporations and for the wealthy but not the middle class would be at risk if any Democrat is elected.  June Democrat debates are on their way with Joe Biden still the track favorite, although he’s had trouble adjusting his abortion views to the demands of the left, while still being a devout Catholic (former VP Candidate Kane also flipped as a Catholic in 2016). Let the flip-flopping begin!  Biden is slipping a bit vs. the other Democrats in recent Polls.  If anyone but Biden is nominated, Trump will win the election, unless the economy is awful just prior to the election.  It will simply be a rerun of Nixon vs. McGovern in 1972.  The leading alternatives to Biden are all to far left to stand a chance in a general election.  If the Democrats as dumb now as they were then, they’ll stand on principle and allow Trump to rule for eight full years.

Deficit Threat: Moderate, but more an issue when rates are rising, not when falling.  The fool Laffer who created what I call “tinkle down economics” under Reagan (a scam as Laffer and Reagan created the first multi-trillion dollar deficits and claimed that does not matter)  says debt servicing is low vs. GDP.  Just wait until rates rise, when the U.S. dollar is no longer the top reserve currency.  That’s the prize China wants most of all – the currency crown.  This is an ongoing threat to our current system, and fiscal liberal Trump and Congress seem to care less about it by their actions.  Stock buybacks based on debt will be long gone by the time China’s yuan is the top currency (if nothing is done!).

Fed Rate Cut Risk:  This week Powell says he’ll make sure the expansion continues.  That a boy!  Now you’re talkin’!  That’s what the market wanted to hear.  Still, how fast the Fed acts is important as I went over HERE. Now 85.2% believe the Fed will cut 25 or 50 basis points from the Fed Funds rate per CME.

Here’s the “Rate Cut Reaction Map”

1. No rate cut in June -> Market slips a bit more.

2. No rate cut in July -> Market fall accelerates

3. No rate cut in Sept -> Market crashes (so Fed won’t allow that).

4. Rate cut of 25 bp or more in June -> Rally back to prior highs or higher

5. Rate cut of 25 bp in July -> market stabilizes and may rally

6. Rate cut of 50 bp or > in July -> market rallies significantly.

7. Rate cut of 50 bp in Sept. after NO earlier cut -> market rallies from much lower level than today.

The next Fed “statement day” is just 8 market days, which now routinely comes with the TV dog and pony show by Powell. 

This is the Federal Reserve FOMC meeting schedule for the rest of 2019:

June* 18-19 July 30-31 September* 17-18 October 29-30 December* 10-11.  The * means the meeting comes with an economic projection update.

Now take a look at the SP500 chart.  The orange lines are the 2017 up channel.

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

SP500 Index Market Timing of the Mexican Bounce

Bouncing into slowing Q2 earnings.

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Neutral now but below the consolidation high of 45.95.   It needs to rise above that number to make progress to the upside.

Bank of America (BAC) Market Timing Signal:  Negative.  Was down 1.26% today with the market up 1%.  The only plus is that it held the March low.  If things deteriorate in the economy further, rates will move still lower and drag the banks down with them. 

Now let’s go on to review investor sentiment…

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 34,011 investors are following the markets with me…

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Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of  -20.1% vs. -15.29 last week. This was low enough to allow for a bounce, but it’s not a major sentiment low.  Nevertheless, this bounce could continue for a while as Q2 earnings reports don’t hit the fan until mid July.  The Fed has to keep the rate cut ball high in the air before then.

Bulls Neutrals Bears
22.53% 34.89% 42.58%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): In an uptrend and somewhat favored now with multinational earnings at risk, BUT they are still higher beta stocks, and have badly lagged the SP500 Index, so be careful to take profits on time if you buy them.  There is still earnings risk.  I prefer sticking to high quality large caps that are going to meet their earnings goals. 

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

Market TIming: Small caps are still lagging despite the bounce.

Small caps bounce, but from a big drawdown.

 3. Gold Market Timing (GLD): Our gold trade is working nicely though approaching the Feb. high.  As long as rates continue to fall, gold will continue to rise as the US dollar falls.  That is the way the dance works.  Buy pullbacks.

Now if the economy starts to re-accelerate into 2020, gold may decline, so other than your long term “gold insurance,” this trade should be seen as temporary.  Preserve profits at some level on all gold trades!

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

Market timing gold (GLD). Still rallying, but near a resistance level.

Rally is on, but GLD just tested Feb. high. Rates are stretched LOW, so gold could pull in a bit before a higher high is reached.

 

4. Interest Rate Market Timing – Last week I said, “The 10 Year Yield is now stretched to the downside and due for a bounce.”  There was no bounce as there were still too many worries.  The Mexico tariff resolution could perpetuate the market bounce we are seeing in equities, so bonds could suffer from that.

As you have seen of late, rapidly FALLING rates are disliked by the market as well.  You could say we’ve had “Negative Rate Shock I” in the month of  May.  That shock is what has the Fed’s attention!  The yield curve at both the 3 and 6 month levels vs. 10 year level has gone kaput

Remember if the Federal Reserve lowers rates, they don’t just lower them once.  If only one cut were needed, they might not even act.  They will lower rates multiple times if they do so.

Long rates should continue to fall as they lower the Fed Funds rate until the market worries about the inflation that can create.  The long bond trade will work until inflation re-accelerates.  Then the Fed will follow the bond market back up by tightening (if they can), and Treasuries will start to generate losses.  Buy longer term Treasuries on the bounces – until it stops working when inflation comes back (that will take a while!).

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 10 Year Treasury Yield. Stretched to downside.

Market timing the US 10 Year Treasury Yield (TNX, TYX, TLT, IEF). Stretched to the downside now.

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

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

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

Stock Signal RED for a further U.S. stock market rally with a Bullish SP500 Index trend.  The stock signal is based on small caps, as they often lead the market down.  I’m not calling the IWM Trend Bullish at this level, despite the short term uptrend/bounce.  It’s tradable, yes, but as a signal, it’s not there yet.  Those are different things.

Caveat: If this is the end of Wave 2 up as discussed above, the SP500 Index will not be looking Bullish next week.  Watch the market’s decision on Monday (and in the futures Sunday).  If the Wave 2 top is taken out, the market can retop or MORE. 

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!) closed at 16.30 vs. 18.71 last week.  These are the other 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 Bulls have 3 of 8 targets.   

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 would hurt U.S. stocks. 

Rate Signal RED for a further stock market rally with a Bearish 10 Year Yield Trend.  For Reference: “Rates usually RISE slowly in a strong recovery and the stock market rally continues, as I’ve repeated multiple times on social media as well as 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).”  We are below that high at the moment, but the trend is UP.   

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”  WTI  has been weak but is stabilizing a bit.  It closed at 53.99 vs. 53.50 last week.

I’ll keep this here as a reminder: this is not currently an issue… “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 of late has been “Negative Rate Shock I” as discussed above.

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

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

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