A Market Timing Report based on the 7-22-2016 Close, published Sunday July 24th, 2016
I deliver focused comments on the markets. These are supplemented with “Tweets/StockTwits” (see links below).
1. SP500 Index: The market is hanging close to the new high it established above 2134.71 on 5-20-2015, now at 2175.03, 1.89% above the prior high. The market timing data on news highs after a prolonged period of no progress of a year or more are very Bullish. Review what I wrote last week on what I’m actually doing about it. I’ve been trimming my individual stock exposure over time and have sold some U.S. exposure near the highs, while adding some Chinese stock market exposure. I added some gold exposure on the pullback this week. What I am doing is noted on my Twitter/StockTwits feeds every market day (links below).
Earnings season is mixed so far. Some groups are having a worse time of it, particularly the regional banks.
The Federal Reserve has a two day FOMC meeting this next week on July 26 and 27th with no dog and pony show to follow, just the written statement. The markets would be shocked by a rate hike as the current probability per the CME group is just 3.6%. The Fed has been very reluctant to hike rates when both Japan and Europe have negative interest rate policies. Here is where you can follow the changes in their number day to day: CME Group Fed Rate Hike Risk
Note that I highlighted the volume decline during part of the recent rally. That means this rally has been a bit shaky as volume rises with price in a healthy market.
SP500 Large Cap Index (click chart to enlarge; SPX, SPY):
***DATE OF CHART IS ACTUALLY 7-22-2016 CLOSE***
Survey Says! Sentiment this week among retail investors (AAII.com) showed a Bull minus Bear percentage spread that went down just a bit to +8.71% [over 40% Neutrals is Bullish for market timing 6 months out]). At these levels there is plenty of room for sentiment to go in either direction.
|7-21-16 12 am CT close to poll||Bulls 35.43%||Neutrals 37.85%||Bears 26.72%|
2. U.S. Small Caps: I made some money on a quick addition to my IWM short last week, but kept the core short position. The Bulls have the edge based on the new closing high above the prior top. A quick reversal is needed or my short will fail. The close did not take out the 7-21-2016 high of 1213.52. Remember that I am using this to hedge just about 5% of my long positions.
Russell 2000 U.S. Small Cap Index (click chart to enlarge; RUT, IWM):
***DATE OF CHART IS ACTUALLY 7-22-2016 CLOSE***
3. Gold: I bought more gold on the pullback. When you are in a Bull market, buy the pullbacks, not the rips to the upside. Gold could keep falling a bit more, and if the economy actual turns around, it could fall a lot more, so don’t get too cozy with your trading position. With the central bank antics around the world, the intermediate trade is likely safe however.
The dollar is still rising which is OK when there is a financial rush to safety, but not OK if there is not. In any case, a strong dollar pressures the gold price for those buying it in U.S. dollar terms. If the dollar goes back to the 2015 highs, the stock market won’t like it due to pressured earnings abroad. This is especially true of international large cap stocks and less so for small caps. A strong dollar is OK if the economy is strong, but hurts when it’s not.
If you want a bigger “pop,” which also means larger losses if gold falls more, buy the gold miner ETF, GDX.
Gold ETF (click chart to enlarge the chart; GLD):
4. U.S. 10 Year Treasury Note Yield (TNX): U.S. 10 Year Treasury Note Yield (click chart to enlarge; TNX,TYX,TLT,TBF): The 10 year yield needs to hold above 1.567% to keep the momentum going into the Fed meeting statement to be released at 2 pm on Wednesday.
Stay with me throughout the week for the LATEST via the links to Twitter/StockTwits above. Feel free to comment, retweet etc. to spread the word.
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