Market Timing Brief™ for the 2-17-2023 Close (2-21-23 through 3-15-23 Updates) “Still Just a U.S. Stock Market Bounce. How is Gold Holding Up? When Will the Bond/Treasury Market Be Safe Again?”

A Market Timing Report based on the February 17, 2023 close, with charts and commentary updated through 2-27-2023…

Market Timing Update for 3-15-23: The Bullish Scenario for U.S. Stocks and Bonds

The Bullish scenario is based on a “Big Green Wave” in long term Treasuries that could be starting.  I flagged it on March 5, 2023 as timestamped HERE.  A Big Green Wave is the opposite to a Big Red Wave pattern I’ve pointed out before, which was shared in the Barron’s online edition in 2018.  That’s when stocks were crashing to their Christmas low during the “Christmas Crash.”

I also pointed out the current U.S. Stock Bear market Big Red Wave right on time, which was ignored by Barron’s.  Their loss!  (all timestamped from just after the late March lower high in the SP500 Index, and in plenty of time to protect my assets and yours if you understood and followed my advice)

So what could happen now?  I call it…

“The Double Big Green Wave Scenario” 

  1. The “Big Green Wave” in U.S. Treasuries continues UP.  That will require a breakout above the Dec. and Feb. highs, which correspond to the lows in the 10 Year Treasury Yield (TNX) as noted in the chart below (4th chart down)
  2. IF the December SP500 Index Low holds in this pullback/Mid-sized Bank Run Crash that is going on now, that sets up the SAME possible “Big Green Wave” in stocks. Counting the SP500 Index waves off the Oct low: A. Wave 1 up to the Dec.1st high.  B. Wave 2 down to the Dec. low.  C. Wave 2, Number 2 up (called a “Double Two Wave”) to the Feb. high with a complete give back (Wave 2, Number 2 down) to the Dec. low where we are right now (close enough). D. This Wave hasn’t happened yet: Wave 3 Up, the “Big Green Wave” for the SP500 Index (and other U.S. stocks including IJH, IWM etc.).
  3. That means we would have TWO “Big Green Waves Up” going on at the same time and the 60/40 investors would be making a lot of their money back, because 60% is in stocks and 40% is in bonds and BOTH would be appreciating in value.
  4. Again, this requires BOTH “Big Green Waves” to be successful.  As the jingle goes, “You can’t have one without the other.”  Otherwise continued high rates would keep a lid on growth and a lid on returns on BOTH stocks and bonds.

Those who have said the Bear market is “already over” were a early I thought and as usual, the necessary negative stimulus got the current wave down started in earnest. The financial sector of SP500, XLF, is almost back to its October low today!

What to do?  Nothing yet, although if you have zero stock exposure, you could add a bit here or a bit closer to the Dec. low and then use a stop if the SP500 closes below the Dec. low.  You’d lose a few percent if that were to happen.  Or you can wait with me to see the signals I will get in my Market Indicator Panel™.  We may be a few percent behind the market, but that’s OK in a Big Green Wave.  We’ll realize enough gains to make it worthwhile, and avoid biting too early and eating losses.

Having shared the above scenario, you know if you have been reading my posts that a different, much more Bearish scenario is also possible.  Treasuries/Bonds could keep rising in price while stocks fall due at first to an earnings recession expected in the next two unreported quarters (Q1 through the end of June to be reported as Q2 starting in July 2023), possibly followed by an outright recession (falling GDP usually for a period of two quarters or more).  If that happens there will be new lows in most every U.S. stock ETF. 

I am not predicting new lows in stocks, because that would be foolish.  There is no factual basis IMO to state that as a “certain scenario,” but it is a possible scenario, which is why we don’t latch on to any ONE scenario or “narrative” as Professor and Noble Laureate Robert J. Shiller calls them.

I will report my buy signals (as I do my sell signals), and you will see me buying when I do.  So be sure to follow me on social media (links below) if you haven’t!  We will use a stop on new positions, so be prepared to take smaller losses to avoid bigger ones, if the signals reverse.  Or you can just hold your losses if that is your plan.  The point is to have a plan and to execute on it nearly “no matter what.” 

Outside events like Federal Reserve action sometimes require a faster reversal in our thinking, and that is why I follow the markets as they respond to events, rather than assuming a particular economic scenario and ignoring price action!  

Continue reading below for prior updates and my prior major post to catch up.  It includes my trend naming system you will need to know to follow my work…

Market Timing Update for 2-24-23 Close:

Sun And Storm Market Timing Trend System™ Updates

Symbols are in bold.  I’ve included about 1/3 of the 61 markets/sectors I follow.  Key for the trend classification abbreviations is in the table below in the original post…

DG-D1 = Downgrade Day 1

UG-D1 = Upgrade Day 1

If there is no “Day” number, the market timing trend is confirmed.  If not, it’s unconfirmed.

This does not mean you buy a market that is stretched to the upside or sell one that is stretched to the downside by blindly following the trend names.  The trend names tell you which markets to consider buying, which to consider selling, and which to stay away from until proven otherwise.  See the detailed notes on “Actions to Consider” in the “Key” for the system in the original post below the updates….

NOTE THESE ARE FOR 2-23-23 and may have changed since then.  I share many trend changes on social media (links below)…

DXJ EMXC GDX GLD HEDJ
UT CDT CDT CONUT UT
HYG IJH INDA ITB IWM
CDT CDT DT CORUT CDT
KBA KWEB QQQ SLV SPY
CDT CDT CDT CDT CDT
DG-D1 DG-D1 DG-D1 DG-D1
SPYG SPYV TLT USCI UUP
CDT CDT CDT CDT UT
UG-D1
VGK
CORUT
DG-D1

Market Timing Update for 2-23-23 at 3:05 pm:

Time to get ready for PCE Index Inflation Data out tomorrow at 8:30 am ET.

Except for the “Needed IMO” numbers, which are mine, the values are from HERE. They are the Year Over Year (Y/Y) percentage changes. The actual data will appear on the Econoday site by a few minutes after the release.  Keep these numbers handy/bookmarked for the release, so you know why the markets are moving the way they are… 

#Inflation % Y/Y

Prior Est Range Needed IMO
PCE Headline 5.0 4.9 4.8-5.1 4.7
PCE Core 4.4 4.3 4.2-4.5 4.1

ACTUAL NUMBERS were PCE Headine 5.4% and PCE CORE 4.7%. Note that the prior month’s numbers were revised to 5.3% and 4.6%, respectively, both HOTTER than previously reported. That means both PCE readings ticked up by 0.1% on a Year Over Year (Y/Y) basis.  This is clearly Bearish as the Fed will have more work to do unless these trends change.  

As you can see, the analysts believe the Fed’s favorite inflation gauge, PCE Core Inflation is not going to move down much at all.  That delta of 0.1% vs. prior for both headline and CORE readings shown would amount to noise, not an indication of a continued downtrend in inflation. 

You can see on the far left what the market would need to be reasonably sure the trend is still down, but the analysts don’t see it being accomplished.  In fact, some estimates are for a RISE in PCE inflation! 

The market may not like the numbers if they match the analysts or are worse, meaning both bond and stock markets, and gold may fall when it is announced tomorrow.  The dollar would rally if the PCE numbers come in hot. 

It would be a real surprise and a good one for all assets noted above except the U.S. Dollar, if my much lower numbers above are met!   See you for the release!  Read on to get the updated picture of the markets…


Update for 2-23-23 at 10:55 am:

“Master Market” (a petulant toddler) is what I call the markets when they act like this from day to day. They are in fact not rationally Bullish over extended periods of time (Overbought Bubbles with maximum greed) and then at other times they are irrationally Bearish (Oversold wipeouts with maximum fear), and at others still, they are priced “just right.” Market timing is for that reason an imperative.

GDP was too hot (2nd reading of Q4 2022 GDP was released today), and today they liked it for almost exactly 30 minutes. The soft landing/no landing buyers showed up for a half hour. The S&P 500 Index has sold off since to about flat. GDP being “too hot,” means the #Fed continues hiking until they bring it down.

The recent bounce is based on the idea that you CAN “Fight the Fed.” Not this Fed. Not at this time. The Fed is going to win this thing no matter what, because with egg on their faces for “Transitory Inflation,” they cannot allow for even the possibility of being wrong a second time…

Back to the #Original Post…

Yesterday, on a market holiday (2-20-23) I wrote: “The market is at a tipping point. Which way it will tip is never known for sure until the signals are confirmed.  At the moment, the tip appears to be down for bonds and down for equities, although that requires a bit more tipping to confirm it.”  Today we see the immediate uptrend line on the SP500 Index chart (below) being breached.  

Here are some highlights from my analysis of the 61 markets and sectors I follow as of Monday evening.  I’ll be writing up my nomenclature in more detail, but here’s a quick summary of my system.  Please enter any questions on this in the comments sections below the post.  If you follow my calls on social media (links below), you will catch on quickly…

Sun And Storm Market Timing Trend System™

UpTrend™ (UT™) Despite small pullbacks, the trend is up.

Action to Consider: “Buy The Slips,” as I like to say.  Some pullbacks will be so small the market or sector won’t be downgraded to a CORUT, the next trend down in strength.

Correcting UpTrend™ (CORUT™) More serious pullback, but often “Buyable.”

Action to Consider: “Buy The Slips.”

Consolidating UpTrend™ (CONUT™) Deeper pullback that can morph further into a class of DownTrend™ (the three such patterns are noted below).

Action(s) to Consider: Buy the slip only if there is corroborating evidence for timing a buy, such as a major turn upward in the overall market along with a sector you are considering.  As said, the market/sector may end up in s DownTrend™ if the trend continues further downward, so if you buy a CONUT, use a stop.  After an extended rally, a downgrade to a CONUT can be a good time to take profits or even eliminate a position until it shows strength.

Bouncing DownTrend™ (BDT™) Bounce in a Bear Market/serious decline with minor pullbacks.

Action to Consider: This is a tradable move up to add to on slips unless the move is very extended in volatility terms (such as an exponential move up, which may end a trend, and certainly lead to a pullback).

Consolidating DownTrend™ (CDT™) Scraping along the bottom.  Off a low, but there isn’t even a convincing bounce.

Action(s) to Consider:  Stay away until it shows signs of beginning a bounce (generally meaning an upgrade to a “Bouncing DownTrend™).”  Use a stop if you attempt an early buy of a small bounce, as a CDT is still a downtrend until proven otherwise.  Example, you could add on a retest of a major low that has not been broken, but use a stop if you do.

DownTrend™ (DT™) Despite small bounces that don’t warrant an upgrade to a Bouncing DownTrend™ or even to a Consolidating DownTrend™, the trend is down.

Action(s) to Consider: Stay away.  You could short small bounces if you are comfortable doing so, but shorting requires a much higher degree of attention as you are trading against the natural direction of the market over long periods of time, which is up.  For that reason I prefer “Passive Shorting™ described HERE.


Here are some key findings with my comments (NOTE: All trend status determinations below were made on 2-20-23; I will update some key markets this afternoon and tonight on social media):

The “Safety Trade” has been in trouble, and Consumer Staples XLP, Healthcare XLV, and Utilities XLU are all in Consolidating DownTrend™ status.  XLP and XLE are the only sectors being spared on 2-21-23, but they are light red.  The rest of the sectors are deep red including both XLV and XLU.  As of the Friday close on 2-17-23, the Safety Trade sectors were just consolidations (sideways moves), as the potential bottoms could give way to new lows in the “Safety Trade” if the entire market starts to sell off again with a further rates and US dollar rally.  In fact, the dollar is doing just that.

The interesting thing is that key cyclical sectors like XLF and XLI are teetering near recent highs with XLB slipping further than those. Now all deep red on 2-21-23!

I also wrote yesterday (2-20-23): “The latter 3 sectors need to quickly make new recent highs to re-confirm their UpTrend™ status.   If they don’t the entire market may start falling in synch…”  Nine of eleven SPX sectors are falling together!  All are shades of red today.

CPER  “CORUT” (trend abbreviations are above)  – Why is there an uptrend in copper if the global economy is slowing?

UpTrend™ Status (again, as of 2-17-23 close)DXJ  EWG EWU  FEZ  HEDJ  VGK  XLF XLI

Some US sectors remain strong (but are teetering as noted above): XLF and XLI.

Europe is strong, despite their sluggish economy: You can see both US dollar hedged Europe (HEDJ) and unhedged Europe (FEZ and VGK) have UpTrend™ Status.  The UK market EWU is also strong at the moment despite their economic issues.  Remember the EU and the UK still both have high levels of inflation.

Japan is strong: DXJ’s  UpTrend™ is stronger than the EWJ Correcting UpTrend™, but that’s because the US dollar is strengthening (DXJ is dollar hedged, so it goes up faster when Japanese stocks are strong and the US Dollar is strong.).

Emerging markets like Brazil EWZ and India INDA are among the weakest markets in the world, both with “Consolidating DownTrend™” status.

China has slipped a bit on the tensions of late (popping balloons!) with FXI in a CORUT and KWEB in a CONUT but just Day 1, unconfirmed.  In general, it can take up to 3 days to confirm a “morph,” as I call them from one trend status to another.  Of course if there is a big high volume move, it may be wise to cut exposure sooner than that.

Oil related stocks started slipping on Friday.  OIH (CORUT Day 1) and XLE (CONUT Day 1).  See comments are on social media.

Gold and gold stocks:  GLD and GDX both have  Consolidating UpTrend™ (CONUT) status. Those are deeper corrections as noted above.

Silver stocks, SIL, are in Consolidating DownTrend™ status, Day 1 and SLV is in CONUT status.

Treasuries and Bonds are in Consolidating DownTrend™ status again, meaning Treasuries, IEF (10 Year) and TLT (20+ years), and LQD (corporates).

The Big Picture

Wherever possible I’ll keep my commentary to bullet points, because what matters most are the trends, not the narratives, but I’ll give you my sense of what the “True Narratives” are…

The single mandate Fed, as I called them many months ago, will continue to hike at least 2-3 times at 0.25% per meeting, but perhaps more.  I covered that issue in the prior post (link to upper right).

In the last issue I asked,” What’s are the ‘catches’?  The economic slowing and earnings recession the Federal Reserve is creating through their interest rate hikes along with the elevation of the US dollar that is further aggravating global growth and shrinking the earnings in dollar terms of our multinational companies.”  STILL a problem for the US and other equity markets.

A good call in my prior post: “The market assumes Fed hikes will stop at a top (terminal) Fed Funds rate of 4.75%, but who is to say that will be enough?”  It is now headed to 5.25% to 5.50% or so at a minimum per the CME data.

My key observation: During “…several bouts of inflation, when the Fed Funds Rate was raised to contain inflation, rates had to rise ABOVE the CPI inflation rate to bring inflation down as the chart shows HERE.”  We cannot be entirely sure at what rate level the Fed will finally stop hiking. 

Still True: Slower growth means lower stock prices.  “It’s a tradable bounce, not very likely a sustainable bounce, despite the fact that three writers I follow have declared the Bear market over on Friday.”

The final low may already be in, yes, but if the recession we are now headed toward induced intentionally by the Fed is worse than expected, US stocks could make a new low.  I would not count on that, and I will be following the trends rather than “calls” about when the market bottomed or will bottom.

From the prior post: “My point?  I would not listen to anyone who says the market MUST make a new low.  It doesn’t IMO…”  We will know what to do by examining the markets themselves every day. 

WARNING still holds: IF the market does break the June low again, the risk of a breach of the Oct. low clearly becomes real.  And by that, I mean a BIG breach!  If the October low is breached, we will be entering another major leg down into a Big Bear market as I’ve defined it with my “New Rules.” (they are HERE -scroll to “New Rules” in blue type). 

I will significantly lower my stock exposure further than I have should those breaches occur. ” 

Now we’ll look at the current charts…

Be sure to…

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Keep up-to-date and read my comments on the current setup during the week at Twitter and StockTwits at the above links) where a combined 36,290 investors are following the markets with me…

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

This was correct (prior post): “I think it’s likely this bounce goes to the early June high, which will be above the 200 day mav, which contained the August bounce as you see above.  That will suck in the last of the buyers.”  The S&P 500 Index has failed at the June high. (This chart was from 1:46 pm on 2-21-2023, and the price is now below that slanted yellow line to the right on the chart below as you see…)

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

spx-sp500-index-market-timing-chart-2023-02-21

Sinking below the immediate uptrend line.

Now let’s review investor sentiment…

Survey Says!

The AAII Survey of Individual Investor Sentiment (AAII) spread is +5.3% (Bulls – Bears).  That says investors are tilted slightly Bullish as the SPX retops at the June 2022 high.  Not much help, as it’s not at an extreme.

Bulls Neutrals Bears
34.1% 37.1% 28.8%
Thurs. 12 am CT close to poll

Now let’s look at the small caps, gold, and interest rates…

2.  U.S. Small Caps Market Timing – Russell 2000 U.S. Small Cap Index  (click chart to enlarge; IWM, RUT)   

The June high was exceeded, but that breakout has now been given up.  More downside is likely.  Chart below was done at 9:34 am.  Currently at 187.85 at 2:33 pm ET, 2-21-23.

iwm-market-timing-chart-2023-02-21

Failed below the Aug. high, and now below the June and Dec. highs as of 1:34 pm on 2-21-23.

Gold is next…

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

Gold was discussed above.  This is a more serious correction within an uptrend per my system. Rate pressure means pressure on gold as the US dollar goes up against it.  Investors hold more dollars when rates go up.  Chart below was done at 9:34 am. Currently GLD is 170.48, -0.46% at 2:32 pm. 

gld-market-timing-chart-2023-02-21

Pullback in an uptrend. Until its more!

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

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

UPDATE 5-04-23: The TNX number I’ve been following is 3.334%. It must sustain a fall below there to get the “Big Green Wave” going in earnest.  That is the “number of the year” for the long bond/long Treasury market (means 10 years to maturity or more in this context).

The status of IEF, TLT, and LQD is discussed above.  TNX needed to hold below 3.905%, and it’s gone to 3.949% at 2:33 pm 2-21-23, up 12.1 basis points from last Friday.  It could still hold to a lower high than the October high as stocks sell off and the earnings recession and possible GDP recession manifests. Then as rates fall again, Treasuries and high quality corporate bonds will be working again…

Here’s the current chart…

tnx-10-year-treasury-note-market-timing-chart-2023-02-21-946am

TNX above 3.905% is a problem for both Treasuries/Bonds and stocks..

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

Do not use these signals as a trading plan.  They are rough guidelines.  I currently share my actual BUYS and SELLS in as timely a way as possible on social media (links above).

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

Stock Signal Bearish for a further U.S. stock market rally with a short term Bearish and longer term Bearish SP500 Index trend.  The small caps determine the stock signal in this section of the report.  Small caps are breaking down, which is why the signal is Bearish short term.

Gold Signal Bearish for a further U.S. stock market rally.  The Gold Trend is short term Bearish and longer term Bullish (see discussion above though).  The Fed raising rates is a problem for gold until the economy starts slowing or until the market starts anticipating that happening.

Gold will take off again to the upside IF/WHEN 1. Rates start falling at the long end.  2. The economy slows  3. Earnings fall for stocks, which reduces the overall yield on stocks.  Gold likes weak competition! 

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

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

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

In liquidity crunches (which the Fed is supposed to prevent) gold can drop with everything else but the US dollar.”  

What gold does mostly as I’ve written HERE is follow real interest rates around the world (if you own “gold in dollar terms” you care about U.S. rates most of all).  The rest of the world does matter however, including massive buying by central banks.  Real interest rates have been rising around the globe.  Economic slowing is creeping in now, which means ultimately real rates will fall again if the Fed suppresses growth.  

GUIDE: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise again, it means the market believes real rates are going to fall or stay negative for a period of time.  

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

(Remember: higher rates mean lower bond and Treasury prices and vice versa).  We want slowly rising rates in a recovering economy.  That’s what happens normally.  The Fed raises rates slowly as the economy continues to grow until it doesn’t.  What we don’t want is rapidly rising OR rapidly falling rates, both of which I call “Rate Shocks.”  We are currently experiencing a “Rate Shock” due to the Fed 1. Hiking Fed Funds rates and 2. Reducing the Balance Sheet.     

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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 © 2023 By Wall Street Sun and Storm Report, LLC All rights reserved.

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Market Timing Brief™ for the 10-28-2022 Close “Just Another Bounce or the End of the Bear Market for Stocks? When Gold Will Rise Again. How High Will Rates Go?”

A Market Timing Report based on the October 28, 2022 close…

First, how has my “Big Red Wave” level worked out?  We came down to SP500 Index of 3491.68 on 10-13-2022 vs. my level of 3461. 

That means we came to within 2.25% of the distance from the all time high of 4818.62 and my Big Red Wave Level of 3461.  A miss of just 30.68 points out of 1357.62 from top to bottom.  That’s even more accurate than it was in 2018 when my comments were featured on MarketWatch.com.  This time, they did not pay attention.  Their loss!  😉  To be fair, the exact numbers are not as important and predictive as the wave pattern.

The single mandate Fed will continue to hike this week on Nov. 2nd by 0.75% or 75 basis points.  I predicted prior to Gov. Daley of the Fed of the San Francisco Fed saying it, that the Fed would have to indicate they might go a bit lighter on rate hikes as in 0.50% vs. 0.75% the previous times AND/OR scale back the rate of balance sheet runoff.  The Fed balance sheet was massively increased in size to save the economy during the COVID-19 Pandemic.  The chief blame for the current inflation is the Fed, not Biden or Trump, though BOTH contributed to it by issuing unneeded checks (some needed them; many did not), and through Trump’s misguided tax cuts for the very wealthy that are STILL adding to our federal deficit.

Biden is making the political error of not blaming the Fed when the Fed itself has said it’s to blame.  As the economy is driving this election, which translated is NOT “Jobs,” but rather “Inflation,” the GOP stands to recapture the House of Representatives and possibly also the Senate, although the pollsters say it’s too close to call the Senate at 50:50.  As I’ve explained, it’s because we are at a 40 year low in unemployment that we have this level of inflation.

This election will give us a Congress unable to pass much of anything except emergency funding for disasters (unless your name was DeSantis when Sandy hit the Northeast; he voted against hurricane relief funds and now is begging for them for my state of Florida! And he’s getting the money of course.).  The markets like gridlock, since tax policy won’t change further.  Corporations were only hit with a 1% tax on buybacks, which is entirely fair as the buyback trick was invented to duck regular capital gains rates on dividend payments by companies, as well as a 15% minimum tax on the profits of large companies.

Normally the pattern prior to an election is that it falls into it and then rises just before and after it occurs.  This time, the market knows the outcome for the House, so it is frontrunning the election outcome in my view.  It won’t matter, except for judicial appointment confirmations in the Senate.

The markets are bouncing, and on Oct. 21st I messaged on social media HERE and HERE that the equity market and even the bond market could enter a sustainable bounce given the horrific investor sentiment in part. 

What’s are the “catches”?  The economic slowing and earnings recession the Federal Reserve is creating through their interest rate hikes along with the elevation of the US dollar that is further aggravating global growth and shrinking the earnings in dollar terms of our multinational companies.  Apple was saved by its strong orders for iPhone 14, but the CFO pointed out a 10% dollar headwind, which could get even worse if the Fed keeps raising rates.

The market assumes Fed hikes will stop at a top (terminal) Fed Funds rate of 4.75%, but who is to say that will be enough?  I believe they’ll have to slow down a bit due to liquidity issues they are going to be generating for municipalities among others.  But will they stop?  No one can tell you.  No one.  So please be aware that the pressure on tech COULD pick up again if inflation does not descend as fast as the Fed wants.  Even if they drop the hike sizes, they may do 0.50% hikes for multiple meetings, not just enough hikes to get them to 4.75%.

There is precedent for that warning, because if you look at a chart of Fed funds rates vs. CPI inflation, in several bouts of inflation, when the Fed Funds Rate was raised to contain inflation, rates had to rise ABOVE the CPI inflation rate to bring inflation down as the chart shows HERE.  

Now look at where CPI was on the last reading by the BLS. The headline CPI was 8.2% Year/Year (red bar on left).  

Year Over Year Change in U.S. Inflation

Now the Fed may not have to go all the way to above 8.2% to lower inflation, because it is also running off its balance sheet, which will also act to bring down inflation, but it may have to go higher than the market currently thinks.  In addition, it’s going to be hard to add another 8% to the 8% inflation of this year.  Inflation goes to zero when prices remain high, as long as prices stop going up.  Actual deflation, vs. a falling rate of inflation or disinflation, would lower prices if the Fed overdoes the rate hikes.    

If the Fed has to hike above 4.75%, those even higher rates will further pressure economic growth, earnings and stock prices during a period in which the CEO of Intel, Pat Gelsinger, says the chip industry (chips run virtually everything) faces a year of slower growth.

Slower growth means lower stock prices.  As growth then picks up again, stock prices will rise, and they will likely rise in anticipation of that by 3-6 months, but if it’s a year off, we can likely assume the current gains being achieved in the market will slip away once again.  It’s a tradable bounce, not very likely a sustainable bounce, despite the fact that a growth oriented newsletter writer I know declared the Bear market over on Friday.  He may not be right in terms of “back to usual” but… there is a “However”!

However…  I have to say that in terms of the overall wave pattern, we may have made the final low of this Bear Market.  The final fifth wave may exceed the length of the fourth wave as it has, so that’s OK, but it does allow for yet another lower low in the SP500 Index.  But what if the wave pattern IS actually complete?  The market could just bounce up and down from the June low to the August high until 2023 becomes clearer and perhaps improves in terms of expectations.

My point?  I would not listen to anyone who says the market MUST make a new low.  It doesn’t IMO…

IF the market does break the June low again, the risk of a breach of the Oct. low clearly becomes real.  And by that, I mean a BIG breach!  If the October low is breached, we will be entering another major leg down into a Big Bear market as I’ve defined it with my “New Rules” (link above). 

Why cover both possibilities?  Because I will significantly lower my stock exposure further than I have should those breaches occur.  

Now we’ll look at the current charts…

Be sure to…

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

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

Even though we are in a sustainable bounce as said above, it’s just a bounce for now.  Earnings will be weak for Q4 2022 into the 3rd Q of 2023. 

And if this becomes a big recession as opposed to a shallow one, the market will sell off significantly more than the 25% or so it reached in the October skid to a new low (SP500 Index).

I explain this along with my rules for naming small to huge pullbacks in the market, known as my “New Rules,” they are HERE (scroll to “New Rules” in blue type).

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

Bounce under way.

The SP500 Index’s next stop?  It has to rise above that late June high and extend the bounce to the 200 day moving average (the downward curving white line).  It has already risen above the 50 day moving average (mav), but one day above is not a confirmation of strength.  That won’t happen IMO if rates climb further after the Fed meets this week.

I think it’s likely this bounce goes to the early June high, which will be above the 200 day mav, which contained the August bounce as you see above.  That will suck in the last of the buyers.

The market stopped right at that white line (200 day mav) in August.  That would be the lowest extent of this bounce most likely.

Could it make it all the way to the August high?  Of course, although the fact that the last bounce to that high failed completely with a total give back of all the gains indicates to me that it won’t get that high unless the Fed changes it’s stance dramatically, which should not be in the immediate cards.  Bear market bounces routinely challenge the Bears, many of whom have never learned to trade these bounces.  Buy and hold does not work for Bulls or Bears, at least those who want to beat the market.

I’ll be reporting on my indicators on social media (links above) during this bounce and let you know what I see at each of these levels.  The given level itself is not predictive, but where the indicators end up once we arrive at a given level is in my experience.

Now let’s review investor sentiment…

Survey Says!

I covered recent Bearish sentiment in the posts with links above (if you did not click them, you’ve missed a lot!), and my comment on this week’s follow through on the prior extreme Bearishness is HERE.  The negative spread was less this week, but has plenty of room to fall toward zero from here, which is Bullish by itself.  The spread is -19.1 (Bulls – Bears).

Bulls Neutrals Bears
26.6% 27.7% 45.7%
Thurs. 12 am CT close to poll

Now let’s look at the small caps, gold, and interest rates…

2.  U.S. Small Caps Market Timing – Russell 2000 U.S. Small Cap Index  (click chart to enlarge; IWM, RUT)   

I said last time, “the trend does not change until the June high (June 7th in this case) is exceeded.”  That’s still the case.  The 200 day mav is the first hurdle followed by the Sept. and June highs. Then the August high comes into play, which seems a stretch, but this is a crazy market that generated a huge return off the June low only to give it all back.  The pattern of rising to falling moving averages is typical of Bear markets across the world…

Bounce across all caps!

Gold is next…

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

Gold has long been broken and is only an “insurance play” on the dollar resuming its long term decline.  The strongest variable is real interest rates (Google “When Does Gold Shine and When Does it Decline” if you want to read them all).  When they are rising or very high, gold is unattractive as an investment.  Rising rates also cause the dollar to strengthen as foreign money chases after the USD.  That hurts gold prices in dollars too.

The trend is down until interest rates reverse their steep climb. 

In a downtrend.

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

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

The trend is still up in rates.  Recently the 10 Year Treasury Yield broke above the Sept. high of 3.992%. This past week it fell to retest it, but closed above it.  That’s the most important marker now as we head into a Fed meeting.  If you see TNX rise further after the Fed meeting, stocks will likely take a hit and could resume their downtrend.

Federal Reserve Chair Powell has a tough job in the next few months.  If he indicates they are stuck on a 75 basis point hike indefinitely, the stock market could certainly give back its recent gains.  If they moderate their talk a bit at the Fed, specifically if Power does, you’ll see stocks rise further.  I spelled out what could do that in the introduction at the top…

There is a Bullish tilt to the current rise in TNX as charted below.  You can see there is an upward wedge, which is Bearish for rates, Bullish for Treasuries, as such wedges tend to break to the downside.  You now know what to look for this week…

Here’s the current chart…

10 Year Yield is still in an uptrend.

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

Do not use these signals as a trading plan.  They are rough guidelines.  I currently share my actual BUYS and SELLS in as timely a way as possible on social media (links above).

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

Stock Signal Bullish for a further U.S. stock market rally with a short term Bullish and longer term Bearish SP500 Index trend.  The small caps determine the stock signal in this section of the report.  Small caps are bouncing, which is why the signal is Bullish short term.

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

Gold will take off again to the upside IF/WHEN 1. Rates start falling at the long end.  2. The economy slows  3. Earnings fall for stocks, which reduces the overall yield on stocks.  Gold likes weak competition! 

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

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

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

In liquidity crunches (which the Fed is supposed to prevent) gold can drop with everything else but the US dollar.”  

What gold does mostly as I’ve written HERE is follow real interest rates around the world (if you own “gold in dollar terms” you care about U.S. rates most of all).  The rest of the world does matter however, including massive buying by central banks.  Real interest rates have been rising around the globe.  Bad for gold.  

GUIDE: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise again, it means the market believes real rates are going to fall or stay negative for a period of time.  

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

(Remember: higher rates mean lower bond and Treasury prices and vice versa).  We want slowly rising rates in a recovering economy.  That’s what happens normally.  The Fed raises rates slowly as the economy continues to grow until it doesn’t.  What we don’t want is rapidly rising OR rapidly falling rates, both of which I call “Rate Shocks.”  We are currently experiencing a “Rate Shock” due to the Fed 1. Hiking Fed Funds rates and 2. Reducing the Balance Sheet.     

Thank you for reading.  Would you please leave your comments below where it says “Leave a reply”… or ask a question if you like…

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

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

Sun and Storm Investing™

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

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, contact me for any questions, or click HERE.  Please use that link when you sign up as I am an affiliate (I don’t make much, but it may help to pay for some of my website expenses).  It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.

Note: I’ve updated my criteria for the equity signal for a further U.S. stock market rally to the following: GREEN = Bullish, YELLOW = Neutral, RED = Bearish.  In other words, the colors tell you whether the signal supports the stock rally or not, while the Bullish, Neutral, and Bearish designations are about the trend. 

A BEARISH trend signal does not mean we should not buy.  A BULLISH trend signal does not mean you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold or bought, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL trend signal does not mean the end of the Bull or Bear. It means to wait and look for possible subsequent entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the IWM and GLD charts for now as reference points only; they have historical value for us from the post-2016 election period.

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

Posted in Bonds, gold, investment, investor sentiment, large cap stocks, S&P 500 Index, small cap stocks, Treasuries | Tagged , , , , , , , , , , , , , , , , , , , , , | 1 Comment

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Now we’ll look at the current charts…

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

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

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

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

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

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

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

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

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

First step in recovery. More progress needed!

Now let’s review investor sentiment…

Survey Says!

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

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

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

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

Bulls Neutrals Bears
19.4% 27.8% 52.8%
Thurs. 12 am CT close to poll

Now let’s look at the small caps, gold, and interest rates…

2.  U.S. Small Caps Market Timing – Russell 2000 U.S. Small Cap Index  (click chart to enlarge; IWM, RUT)   

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

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

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

Gold is next…

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

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

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

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

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

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

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

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

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

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

Here’s the current chart…

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

Consolidating since early May despite a slight correction.

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

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

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

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

Do not use these signals as a trading plan.  They are rough guidelines.  I currently share my actual BUYS and SELLS in as timely a way as possible on social media (links above).

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

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

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

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

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

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

In liquidity crunches (which the Fed is supposed to prevent) gold can drop with everything else but the US dollar.”  

What gold does mostly as I’ve written HERE is follow real interest rates around the world (if you own “gold in dollar terms” you care about U.S. rates most of all).  The rest of the world does matter however, including massive buying by central banks.  Real interest rates have been rising around the globe.  Bad for gold.  

GUIDE: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise again, it means the market believes real rates are going to fall or stay negative for a period of time.  

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

(Remember: higher rates mean lower bond and Treasury prices and vice versa).  We want slowly rising rates in a recovering economy.  That’s what happens normally.  The Fed raises rates slowly as the economy continues to grow until it doesn’t.  What we don’t want is rapidly rising OR rapidly falling rates, both of which I call “Rate Shocks.”  We are currently experiencing a “Rate Shock” due to the Fed 1. Hiking Fed Funds rates and 2. Reducing the Balance Sheet.     

Thank you for reading.  Would you please leave your comments below where it says “Leave a reply”… or ask a question if you like…

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

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

Sun and Storm Investing™

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

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, contact me for any questions, or click HERE.  Please use that link when you sign up as I am an affiliate (I don’t make much, but it may help to pay for some of my website expenses).  It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.

Note: I’ve updated my criteria for the equity signal for a further U.S. stock market rally to the following: GREEN = Bullish, YELLOW = Neutral, RED = Bearish.  In other words, the colors tell you whether the signal supports the stock rally or not, while the Bullish, Neutral, and Bearish designations are about the trend. 

A BEARISH trend signal does not mean we should not buy.  A BULLISH trend signal does not mean you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold or bought, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL trend signal does not mean the end of the Bull or Bear. It means to wait and look for possible subsequent entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the IWM and GLD charts for now as reference points only; they have historical value for us from the post-2016 election period.

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

Posted in Bonds, gold, investment, investor sentiment, large cap stocks, S&P 500 Index, small cap stocks, Treasuries | Tagged , , , , , , , , , , , , , , , , , , , , , | 1 Comment

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

1. Short rates up (by the Fed)…

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

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

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

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

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

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

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

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

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

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

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

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

1-11-22  107.50%

1-14-22  98.50% (broken trend)

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

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

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

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

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

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

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

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

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

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

Click the chart to see the details…

SP500 Index Market Timing Chart for 04-29-2022

Will it hold?

Now let’s review investor sentiment…

Survey Says!

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

US Recession 7-1990 through March 1991.

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

8-16-90 -41.0% Bull Bear Spread

8-30-90 -38 .0%

9-20-90 -43.0%

9-27-90 SPX 295.98.

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

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

10-18-90 -54%

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

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

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

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

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

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

Bulls Neutrals Bears
16.4% 24.2% 59.4%
Thurs. 12 am CT close to poll

Now let’s look at the small caps, gold, and interest rates…

2.  U.S. Small Caps Market Timing – Russell 2000 U.S. Small Cap Index  (click chart to enlarge; IWM, RUT)   

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

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

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

Small caps have broken the prior lows of 2022.

Gold is next…

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

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

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

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

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

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

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

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

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

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

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

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

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

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

And now to the WEEKLY chart…  

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

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

Rate trend has not yet reversed.

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

Do not use these signals as a trading plan.  They are rough guidelines.  I currently share my actual BUYS and SELLS in as timely a way as possible on social media (links above).

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

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

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

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

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

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

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

What gold does mostly as I’ve written HERE is follow real interest rates around the world (if you own “gold in dollar terms” you care about U.S. rates most of all).  The rest of the world does matter however, including massive buying by central banks.  Real interest rates have been rising around the globe.  Bad for gold.  

GUIDE: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise again, it means the market believes real rates are going to fall or stay negative for a period of time.  

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

(Remember: higher rates mean lower bond and Treasury prices and vice versa).  We want slowly rising rates in a recovering economy.  That’s what happens normally.  The Fed raises rates slowly as the economy continues to grow until it doesn’t.  What we don’t want is rapidly rising OR rapidly falling rates, both of which I call “Rate Shocks.”  We are currently experiencing a “Rate Shock” due to the Fed 1. Hiking Fed Funds rates and 2. Reducing the Balance Sheet.     

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

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

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

3-25-2022 UPDATE

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2-25-2022 Market Timing Update

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

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

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

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

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

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

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

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

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

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

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

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

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

…Back to the January Issue….

What’s the Market Timing Set-up Now?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Click the chart to see the details…

SP500 Index Crash or a Correction?

Correction or beginning of a crash?

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

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

Now let’s review investor sentiment…

Survey Says!

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

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

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

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

Bulls Neutrals Bears
21.0% 32.3% 46.7%
Thurs. 12 am CT close to poll

Now let’s look at the small caps, gold, and interest rates…

2.  U.S. Small Caps Market Timing – Russell 2000 U.S. Small Cap Index  (click chart to enlarge; IWM, RUT)   

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

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

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

IWM U.S. Small caps are crashing.

Small caps are crashing.

Let’s get to gold…

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

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

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

Again, I’ll wait for the breakout…

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

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

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

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

Have rates peaked?

Rates have peaked for now perhaps.

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

What Downside Risks Are There?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Do not use these signals as a trading plan.  They are rough guidelines.  I currently share my actual BUYS and SELLS in as timely a way as possible on social media (links above).

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

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

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

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

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

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

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

What gold does mostly as I’ve written HERE is follow real interest rates around the world (if you own “gold in dollar terms” you care about U.S. rates most of all).  The rest of the world does matter however, including massive buying by central banks.  Real interest rates have been rising around the globe.  Bad for gold.  

GUIDE: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise again, it means the market believes real rates are going to fall or stay negative for a period of time.  

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

(Remember: higher rates mean lower bond and Treasury prices and vice versa).  We want slowly rising rates in a recovering economy.  That’s what happens normally.  The Fed raises rates slowly as the economy continues to grow until it doesn’t.  What we don’t want is rapidly rising OR rapidly falling rates, both of which I call “Rate Shocks.”  

Thank you for reading.  Would you please leave your comments below where it says “Leave a reply”… or ask a question if you like…

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

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

Sun and Storm Investing™

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

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, contact me for any questions, or click HERE.  Please use that link when you sign up as I am an affiliate (I don’t make much, but it may help to pay for some of my website expenses).  It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.

Note: I’ve updated my criteria for the equity signal for a further U.S. stock market rally to the following: GREEN = Bullish, YELLOW = Neutral, RED = Bearish.  In other words, the colors tell you whether the signal supports the stock rally or not, while the Bullish, Neutral, and Bearish designations are about the trend. 

A BEARISH trend signal does not mean we should not buy.  A BULLISH trend signal does not mean you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold or bought, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL trend signal does not mean the end of the Bull or Bear. It means to wait and look for possible subsequent entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the IWM and GLD charts for now as reference points only; they have historical value for us from the post-2016 election period.

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

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

Market Timing Brief™ for the 10-01-2021 Close: 1) “Is the Correction Over? 2) Why Is Gold Doing Badly with High Inflation? and 3) Interest Rates Are Rising Again.”

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

What’s the Market Timing Set-up Now?

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

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

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

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

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

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

The following applies to the uninfected and unvaccinated.  I covered this in the last issue, but it bears repeating.  “In 2015, the Pew Research Center conducted a survey of 2 thousand adults which concluded about 12 percent of liberals and 10 percent of conservatives believed that childhood vaccines are unsafe.” (Ref. here)  The total of the two groups is 22%, which is about equal to the group who are still resisting vaccination.  

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

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

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

This still holds: On the plus side, it also provides a longer time period in which the recovery will occur, so it will effectively drag out the recovery period and the stock market returns that go with it.  That is why I bought this last correction as documented on my social media feeds (see links just below).  

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

However, the strongest months for the Dow in order from top down are April (1), November (2), July (3), October (4), December (5), and March (6).  August (8) is barely above flat, and May (7) is barely below flat.

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

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

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

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

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

Click the chart to see the details…

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

Has it bottomed?

Now let’s review investor sentiment…

Survey Says!

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

Bulls Neutrals Bears
28.13% 31.1% 40.7%
Thurs. 12 am CT close to poll

Now let’s look at the small caps, gold, and interest rates…

2.  U.S. Small Caps Market Timing – Russell 2000 U.S. Small Cap Index  (click chart to enlarge; IWM, RUT)   

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

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

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

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

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

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

So let’s get to gold…

3. Gold Market Timing (click chart to enlarge; GLD):  I only had to change a few words of this – mainly, the dates!  Gold is being crushed again based on the impression many market participants have (right or wrong) that short term rates will rise again as the Fed ratchets down their balance sheet as well as ratchets up interest rates by 2022 (changed from 2023) vs. the previous guess they would do that in 2023 (changed from 2024).  They will taper the balance sheet as soon as the next meeting.  Rate increases will be data dependent as well, and will depend not only on the economy, but also upon fiscal and tax policy.

Many argue inflation will come back down from current levels due to the fact that there will be no more stimulus payments to individuals.  But President Biden has plans to inject lots of money via infrastructure and social programs that are being negotiated.  Both bills will be passed, although the number for the social infrastructure Build Back Better package is under negotiation.  The bills must be passed by the Democrats, or they’ll lose credibility.

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

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

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

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

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

4. Interest Rate Market Timing (10 Year Treasury Yield; click chart to enlarge; TNX, IEF, TLT):  See caption.  You see the yellow line that stopped the recent rise in rates?  If it goes up through there, you’ll know what the market thinks about inflation being under control.   Higher rates would mean increasing inflation concerns.  

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

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

What Downside Risks Are There?

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

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

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

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

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

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

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

Do not use these signals as a trading plan.  They are rough guidelines.  I currently share my actual BUYS and SELLS in as timely a way as possible on social media (links above).

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

Stock Signal NEUTRAL for a further U.S. stock market rally with a short term Neutral and longer term Bullish SP500 Index trend.  The small caps determine the stock signal in this section of the report. They are in a trading range and have been for months.   

Gold Signal GREEN for a further U.S. stock market rally.  The Gold Trend is  short term NEUTRAL and longer term BearishEconomic glitches that arise will help gold.  Unconstrained fiscal spending will help as well over time, but not while the economy is recovering at a reasonable pace and real rates (the yield in excess of inflation) are rising.  Real yields on the U.S. 10 Year Note are now negative though they are rising…  Click on “Daily Treasury Real Yield Rates” HERE.  They were -1.08 in August and were -0.89 on 10-08-21.  They are becoming less negative, which is negative for gold that likes falling real yields…

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

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

In liquidity crunches (which the Fed is supposed to prevent) gold can drop with everything else but the US dollar.” 

What gold does mostly as I’ve written HERE is follow real interest rates around the world (if you own “gold in dollar terms” you care about U.S. rates most of all).  The rest of the world does matter however, including massive buying by central banks.  Real interest rates have been rising around the globe.  Bad for gold.  

GUIDE: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise again, it means the market believes real rates are going to fall or stay negative for a period of time.  

Rate Signal: Bullish for a further U.S. stock market rally.  Rates are back to rising in the near term.  The 10 Year Yield trend  is short term Bullish, and intermediate term NEUTRAL to Bullish depending on the time frame considered. (Remember: higher rates mean lower bond and Treasury prices and vice versa).  We want slowly rising rates in a recovering economy.  That’s what happens. What we don’t want is rapidly rising OR falling rates, both of which I call “Rate Shocks.”  

Thank you for reading.  Would you please leave your comments below where it says “Leave a reply”… or ask a question if you like…

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

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

Sun and Storm Investing™

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

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, contact me for any questions, or click HERE.  Please use that link when you sign up as I am an affiliate (I don’t make much, but it may help to pay for some of my website expenses).  It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.

Note: I’ve updated my criteria for the equity signal for a further U.S. stock market rally to the following: GREEN = Bullish, YELLOW = Neutral, RED = Bearish.  In other words, the colors tell you whether the signal supports the stock rally or not, while the Bullish, Neutral, and Bearish designations are about the trend. 

A BEARISH trend signal does not mean we should not buy.  A BULLISH trend signal does not mean you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold or bought, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL trend signal does not mean the end of the Bull or Bear. It means to wait and look for possible subsequent entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the IWM and GLD charts for now as reference points only; they have historical value for us from the post-2016 election period.

Copyright © 2021 By Wall Street Sun and Storm Report, LLC All rights reserved.

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

Market Timing Brief™ for the 06-18-2021 Close: “Is This a Dip, a Correction or Worse? Why Did Gold Crash This Week? Why Are Rates Falling?”

A Market Timing Report based on the June 18, 2021 close…

What’s the Market Timing Set-up Now?

The economy is recovering thanks in large part to the success of the pharmaceutical industry in creating highly effective vaccines in record time.  Trump does get credit for helping to speed things up, which is ironically the reason why some say they won’t take it.  Both the Former President and First Lady were vaccinated, but his followers don’t seem to care.

Liberal voters are also among the anti-vaxers going back even before Trump: “In 2015, the Pew Research Center conducted a survey of 2 thousand adults which concluded about 12 percent of liberals and 10 percent of conservatives believed that childhood vaccines are unsafe.” (Ref. here)  The total of the two groups is 22%.  Of course the one thing they agree on is negative for society as a whole and for the economy potentially.

Why does this matter?  It matters because the continuation of the pandemic among the anti-vaxer population will not only cause further morbidity (Long-COVID Disease, the kind that lasts for many months) even among younger people who are infected as well as killing older people with weaker immune systems, especially those who have medical issues.  

Anti-vaxers will continue to kill off other anti-vaxers, but also expose the rest of us who are vaccinated to new mutants that arise in their infected bodies.  That has the potential to start an entirely new pandemic all over again.

However, take a breath, because the variants have not escaped the vaccines, due to the human body’s killer T-cell response, which kills off virally infected cells, even though antibody titers are lower in response to some variants.

Still, the variants are more infectious among the unvaccinated.  That means that the sizable unvaxed population will continue to create more genetic variants of the SARS-CoV-2 virus (the viral cause of COVID-19 disease).

COVID-19 still entails a finite risk to our economy.  Eventually a variant could arise and evade the vaccines.  It has not happened yet, but the longer the delay of ridding or at least dramatically reducing the amount of virus in circulation, the more likely that will be.  That’s why getting the vaccine is really a patriot duty unless a patient has an allergy to vaccines or some other special and rare issue.

We send soldiers off to war to be killed to protect the homeland.  If no one served our country, because everyone thought “something might happen to me,” how in the world could we ever defend ourselves?  There is one alternative to vaccination that is acceptable.  The unvaxed would need to wear an N-95 mask any time they are around others (and not some piece of cloth or second rate blue surgical mask either; the N-95 mask is the only mask worth wearing if you are going to bother to wear one IMO. Both Trump’s and Biden’s administrations failed to produce N-95 masks in sufficient quantities.  Did the double cloth masks and the blue surgical masks help? Yes, but N-95s would have prevented more infections and deaths.).

The persistence of COVID-19 and the lack of vaccination outside the U.S. is also a threat for the same reasons I cited above.

On the plus side, it also provides a longer time period in which the recovery will occur, so it will effectively drag out the recovery period and the stock market returns that go with it.  

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

Price is at least testing below both the lower channel line (magenta) and the longer term trend line (yellow line; shown at higher magnification below)…

spx-sp500-etf-index-market-timing-chart-2021-06-18-close

Shorter term trend lines broken.

You can see the SP500 Index price is just below the 50 day moving average, and it has broken both the tighter trend established after the election as well as the trend line connecting the pre-election and March lows.  Note the rising volume with the selling.  That’s a negative.

One can still argue this is a test below the 50 day moving average.  Early this week, the market must rally, or  this will turn into a significant correction (link to my definitions of dip/rally etc. at the link referred to below).

In the March pullback, there was just one close below the 50 day mav and then the market bounced.  Any more weakness will lead to another leg down.

spx-sp500-etf-index-market-timing-chart-2021-06-18-close

Higher magnification!

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

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

Join the Conversation in the StockTwits “MarketTiming” Room  (I’ll publish comments in the room periodically.)

Now let’s review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +14.9%, which was on the Fed statement day.  That’s a relatively low reading of Bullishness, but tells us little, as it’s not at an extreme in either direction.  I would say that it’s highly unlikely that we’ve seen a top, as sentiment normally maxes out at market tops.  There is still too much of a wall of worry to climb for the rally to be over, even if we see a deeper correction this month, mid-summer, or fall.

 

Bulls Neutrals Bears
41.1% 32.7% 26.2
Thurs. 12 am CT close to poll

In terms of Dow history this century there have often been dips in the month of June (rank 10; 3rd worst month).  September (rank 12) has also typically been negative (the #1 worst month).  January (rank 11) is the 2nd worst month for the Dow this century, and February (9) is slightly negative as well (4th worst month).  That said the strongest months for the Dow in order from top down are April (1), November (2), July (3), October (4), December (5), and March (6).  August (8) is barely above flat, and May (7) is barely below flat.

The average Dow drops are all less than 1% for the negative months, but that’s because we’re considering the average results here.  Obviously you can still be up nicely for a longer period such as a year and still be down several percent in a given month.  July and October exceed 1% average returns and April and November exceed 2% average returns. In the end the market goes up over time because the indexes contain companies that are successful in creating higher value for their businesses, because bad businesses are kicked out, and because of inflation.  Earnings rise in part due to inflation.  Stock prices follow earnings.

Now let’s look at the small caps, gold, and interest rates…

2.  U.S. Small Caps Market Timing – Russell 2000 U.S. Small Cap Index  (click chart to enlarge; IWM, RUT)   

Small caps are trading down from a lower high, coming off a significant series of tops.  That keeps them in consolidation.  A breach of that lower yellow line would raise concern for lower lows and a much deeper correction or mini-Bear market.  This downturn needs to end within 3 days or so or small caps will sustain more damage.  Potential “levels” to consider as I call them include the 200 day moving average or the Sept. 2018 high, which would be a 24.7% mini-Bear market as I define them.  I doubt we are headed into anything more than a correction for several reasons I will summarize at the end.  

I call “levels” what others call “targets,” a term which really means nothing.  A level only becomes a target once proven to be significant.  Just look at how many times the 50 day mav has been broken in the chart below.  It was NOT predictive of a bigger downturn in small caps.

I assess what other people call “targets” in real time to determine whether they are tradable and/or investable or not.  That assessment is not always correct, but it’s generally better than just blindly buying.  Because of the real time nature of this process, it’s best to follow me on social media (links above) to stay connected…

I let my followers know when I make buy AND sell decisions.  You’ll see many on social media who buy stocks constantly and never sell.  How can that be?  That is not reality.  Otherwise they are giving up huge profits during certain periods as stocks and markets crash.  You can use my stated actions to inform your own investment decisions, even if you don’t change your allocations as often as I do.  I hold many investments long term, but some I trade more aggressively to preserve profits and capital.

iwm-russell-2000-market-timing-chart-2021-06-18-close

Coming down from a lower high of the recent trading range.


3. Gold Market Timing (click chart to enlarge; GLD):  Gold is being crushed again based on the impression many market participants have (right or wrong) that short term rates will rise again as the Fed ratchets down their balance sheet as well as ratchets up interest rates by 2023 vs. the previously guess they would do that in 2024.  Of course, they have no idea when they’ll do any of that.  It depends on the economy as well as fiscal and tax policy.  Many argue inflation will come back down from current levels due to the fact that there will be no more stimulus payments.  The free money deals are over.  

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

gld-etf-market-timing-chart-2021-06-18-close

Gold hit by expectations of interest rate hikes sooner than previously expected.

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

4. Interest Rate Market Timing (10 Year Treasury Yield; click chart to enlarge; TNX, IEF, TLT):  The 10 Year Yield close was at the 6-11-21 low of 1.450% one week ago.  A close below there would re-assert the recent downtrend.  Further downside would cause more trouble for the reopening sectors of XLB, XLE, XLF, XLI, and XLRE.  Those are the sectors that depend on the continued success of the U.S. and global reopening process.  A reversal back above the 1.471% low of May 7th, could lead to a resumption of the uptrend in rates and help those four sectors tremendously.  

tnx-10-year-treasury-note-market-timing-chart-2021-06-18-close

The 10 Year Treasury Yield closed at the 6-11-21 low. It is leaning into a downtrend, unless things change next week.

How Much More Downside Is There?

Regardless of the immediate outcome for rates just discussed, I believe this move down will be contained as a dip to a buyable modest correction (see my definitions under “New Rules” in the October 26, 2018 issue HERE).  Why?

1. The Fed is not yet lowering the size of their balance sheet OR raising rates. They are just using words to goose the markets, a trick called “jawboning.”  The market is not going to sell off steeply IMO at a time when reopening is still on ongoing process.

2. The drag on reopening will lengthen the rally of the stock market.  Slower reopening abroad will help our multinationals as well as the economies and stock markets of the slow to recover countries.

3. Sentiment has not peaked yet.  Sentiment invariably gets fully giddy at big tops, and the meme stock mania is a fairly localized sideshow.  Overvalued tech stocks have taken their beating already.  Despite that, the SP500 Index went UP!  Older, wiser investors have far more money invested in, and still to be invested in, this market.

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

5. Rates have eased and are low enough to support the economy.  That takes some pressure off of higher valuation tech stocks for now. That’s why they have been recovering a bit.

I remain at just under 100% of my usual maximum exposure for a Bull market for those reasons.  

I believe the Fed will lag behind on inflation, and the 10 Year Treasury will resume its rally as the economy continues to recover and expand.  From what level is the question, but instead of obsessing on answering the unanswerable, we can simply follow the lead of various market indexes…

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

Do not use these signals as a trading plan.  They are rough guidelines.  I currently share my actual BUYS and SELLS in as timely a way as possible on social media (links above).

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

Stock Signal NEUTRAL for a further U.S. stock market rally with a short term Neutral and longer term Bullish SP500 Index trend.   The immediate trend break is the issue here (same as in March!).  The small caps determine the stock signal in this section of the report.  If they are strong/weak, generally the SPX is strong/weak too.

Gold Signal GREEN for a further U.S. stock market rally.  The Gold Trend is  short term Bearish and longer term BearishEconomic glitches that arise will help gold.  Unconstrained fiscal spending will help as well over time, but not while the economy is recovering at a reasonable pace and real rates (the yield in excess of inflation) are rising.

Kept for Reference: “Gold can RISE with stocks when real rates are FALLING, and the dollar is falling.  Gold HAD recently been falling with rising real rates, despite US dollar weakness, because the stock market is made more attractive by the combination of 1. Rising real rates (a direct threat to gold which pays nothing; banks and other companies make more money with rising rates) and 2. Economic recovery with higher corporate earnings (stocks pay dividends, rise in value as they grow, and buy back stock; gold pays nothing).

However, gold fell hard this past week because the Fed is hinting at hiking short rates, which is never good for gold, because gold has no real return.  

In liquidity crunches (which the Fed is supposed to prevent) gold can drop with everything else but the US dollar.” 

What gold does mostly as I’ve written HERE is follow real interest rates around the world (if you own “gold in dollar terms” you care about U.S. rates most of all).  The rest of the world does matter however, including massive buying by central banks. 

GUIDE: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise again, it means the market believes real rates are going to fall or stay negative for a period of time.  Investors tend to stay out of gold particularly when stocks are doing well as they provide a higher real return. 

Rate Signal: Bearish for a further U.S. stock market rally.  Rates are back to falling in the near term.  The 10 Year Yield trend  is short term Bearish, and intermediate term NEUTRAL to Bearish. (Remember: higher rates mean lower bond and Treasury prices and vice versa).  We want slowly rising rates in a recovering economy.  That’s what happens. What we don’t want is rapidly rising OR falling rates, both of which I call “Rate Shocks.”  

Thank you for reading.  Would you please leave your comments below where it says “Leave a reply”… or ask a question if you like…

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

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

Sun and Storm Investing™

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

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, contact me for any questions, or click HERE.  Please use that link when you sign up as I am an affiliate (I don’t make much, but it may help to pay for some of my website expenses).  It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.

Note: I’ve updated my criteria for the equity signal for a further U.S. stock market rally to the following: GREEN = Bullish, YELLOW = Neutral, RED = Bearish.  In other words, the colors tell you whether the signal supports the stock rally or not, while the Bullish, Neutral, and Bearish designations are about the trend. 

A BEARISH trend signal does not mean we should not buy.  A BULLISH trend signal does not mean you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold or bought, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL trend signal does not mean the end of the Bull or Bear. It means to wait and look for possible subsequent entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the IWM and GLD charts for now as reference points only; they have historical value for us from the post-2016 election period.

Copyright © 2021 By Wall Street Sun and Storm Report, LLC All rights reserved.

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

Market Timing Brief™ for the 03-19-2021 Close: “What to Do if the Stock Market Weakens Further. Any Help for Gold? Will the Ramp in Interest Rates Slow Down?”

A Market Timing Report based on the March 19, 2021 close…

What’s the Market Timing Set-up Now?

The Tech Sector became grossly overvalued (numerous stocks with massive Price/Sales ratios), and some of that is being corrected.  However, new lows in QQQ and/or XLK, which track each other fairly closely, will damage the SPX and likely also IWM (small caps) and IJH (mid caps – which have been doing the best and are still mid range in their up channel).  Prices are relative.  The other indexes can levitate a bit longer as tech crashing and then they’ll all trend together in a bigger correction, Mini Bear Market, or Big Bear Market (enter “New Rules” in the search box to find my numbers for those).

Take profits “high” if you can, but I’d advise that you sell falling stocks in steps as they fall, just in case you see a bounce, sustained or not.  Decide what profit you intend to protect and do it.  If you can sell 20-50% of your exposure near a high (depending on your tax situation and how much you want to trade your positions), then you can sell the rest if the trend breaks down in a given stock or ETF.  Some stocks and ETFs will fail earlier than others.  Be careful not to sell strong stocks and then not rebuy them if the trend reverses.  You MUST be disciplined in both taking profits (especially when you have BIG profits; see my last issue for my selling rules on stocks making big gains) AND also in the rebuying of stocks and ETFs you have sold.

IF you sell at least some of your exposure high enough and the market continues down, you can engage in what I have coined as Passive Shorting You can sell 2 or 3 times, incrementally, as long as you don’t do it too late.  You should generally buy in steps too.  Many don’t.

There is no secret formula, although I measure weakness using multiple signals (I share my moves, buys and sells on social media; links below). Your last sell or even your first can be wrong , and you must have the discipline to buy back lower or don’t do the selling in the first place – unless the stock, sector, or country ETF is no longer a buy of course.  Buy incrementally after a fall, as you don’t know where the bottom will be until you get there.  Buy some of your renewed exposure on the confirmation of a bounce.

You don’t have to capture every single percent of gain off a bottom to succeed, and you generally won’t.

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

You can see that Friday was what I refer to as a “cute close.”   It’s a tease to draw in Bears who say “That line is broken!”  But the trend is still up.  We just made a higher high and have not made a lower low.  That’s about all you need of technical analysis to get the big moves right, which are by far the most important.  I’ll discuss the possible paths of the market going forward below…

Hugging the lower up channel line!

Hugging the lower up channel line (magenta).

Keep up-to-date and read my comments on the current setup during the week at Twitter and StockTwits (links below) where a combined 34,571 investors are following the markets with me…

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

Join the Conversation in the StockTwits “MarketTiming” Room  (I’ll publish comments in the room periodically.)

Now let’s review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +25.3%, which is relatively high, but not at an extreme yet.  That gives the Bulls room to the upside if they want it.

Bulls Neutrals Bears
48.9% 27.5% 23.6%
Thurs. 12 am CT close to poll

Now let’s look at the small caps, gold, and interest rates…

2.  U.S. Small Caps Market Timing – Russell 2000 U.S. Small Cap Index  (click chart to enlarge; IWM, RUT)   

Small caps made a new high, although a marginal one, and are still above the 50 day moving average, which is just a reference point for the degree of weakness.  The negative is that we are still not back within the prior upward channel (although the midcaps are within their up channel).  SPX is at the base of its up channel as we reviewed above.

U.S. Small caps (IWM) have slipped, but the recent higher high means further upside is not out of the question..

Below channel but above the 50 day moving average and just made a higher high.


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

Same as last time.  Gold’s being doing horribly and remains in the doldrums due to a recovering economy and rising real interest rates.  Read my link posted below this report on how to invest in gold properly.  I use gold only as fiat currency disaster insurance (think Venezuela) when it turns weak.  I sell my entire gold trading position in a gold downtrend and have done just that.  At the same time, I’ve increased exposure to commodities through oil stocks, oil service stocks, rare earth minerals, and agricultural commodities as my social media entries have told you.  I also own positions in cryptocurrencies, which trade like commodities in terms of volatility, although more limited in supply than commodities.  

Gold is in an intermediate term downtrend.

Gold is mid channel in a long down trend.

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

4. Interest Rate Market Timing (10 Year Treasury Yield; click chart to enlarge; TNX, IEF, TLT):  Same: The trend was reasserted as UP this week.  Funny how things don’t change very fast in strong trends!  

From two issues ago.  Same thing holds: “The rate of rise is the key, not the level of interest rates in a strong recovery until we reach 4.5-5% some say, but regardless of the precise level that spells “trouble,” it’s MUCH higher than we are now.  A rapid rise in rates is what I call a “Rate Shock,” and it’s something that could send the market into a correction at least.”

Have we just had a “Rate Shock”?  Yes, and the issue is whether there will be more or whether we’ll get a bit of a break at this level.

The recent rise as you see on the chart has been far too fast and the 10 Year Yield has burst up and out of the channel it was previously in – twice in fact.  At this point, you can see a Doji candlestick formed on Thursday (often a sign of reversal) and the market went sideways on Friday.  I believe rates will have to ease a bit for the stock market to stabilize.

If rates just keep ramping up in too steep a fashion, we’ll head into a full stock market correction at a minimum – an ALL CAP correction, and not just in tech.

Now we turn to the scenarios for investing and trading and update them… (below the chart)

tnx-10-year-treasury-note-market-timing-chart-2021-03-19-close

Rates rising, but the current picture suggests a pullback could occur soon.

Scenarios for Trading and Investing:

(My updates are after the >>>>)

A. “That was it!”  Scenario A1) Friday was the low as after the 10-29-20 VIX high.  The market was done going down the next day. Scenario A2) even if we revisit the same low a few weeks from now as happened in June 2020, and then bounce, all will be well with the trend.  Either of these could be the eventual scenario.  We are headed into  a stronger recovery via vaccine deployment and resumption of life.
>>>>> The 1-29 low DID hold as the SPX dropped to just above that January low.  It may still hold, and it must hold, or else…

 

B. “That was just the start!  We are headed into a massive Bear Market yet again.”  I consider this highly unlikely due to the fact that the recovery is not even close to complete yet.  Vaccination needs to be sped up, yes, but it’s happening and 70% of people are now wearing masks.  More need to do so.  The number of active cases is high for sure, and we need to start seeing a DROP in them as I’ve gone over along with my #COVID19 charts for many weeks now (see my social media COVID-19 posts; search @SunAndStormInv and “#COVID19” on Twitter to find them). Still, the economy is recovering, not involuting.  The Y/Y comparisons remain positive for this and the next quarter.  Then we’ll see where the recovery is.

>>>>Still unlikely due to the future greater and greater reopening.  Remember too, stimulus is being piled on top of stimulus, which could push the market far higher than anyone believes right now.  Tech may even resume its uptrend, but for now, the reopening stocks are taking money from overvalued tech.

C. “We could go up a bit and then move to a new somewhat lower low.”  Yes we could. That happened after the 9-04-2020 VIX high. (see table link above)  The trend would still be fine.

>>>> At this point, I do not believe the market will tolerate a new recent SPX low.  If that happens, we’ll enter into a deeper correction in every cap (small, mid, and large) IMO.

D. “December 2018 could happen now.”  Meaning a “Mini Bear Market” could occur now.  That is not likely IMO.  The fear level now is higher than it was at the bottom of that market move.  I believe the price would already be lower if this were what I call a “Mini Bear Market.”   (You won’t understand that last comment unless you know my “New Rules.” If you don’t know my rules, please see THIS.)

>>>>Same answer as above for 2.  But we need to hold the Jan. low.

The gist of my favored scenarios (A1, A2, or C) above is that the price move of only -4.05% for the SPX pales in comparison to prior similar VIX readings when the drawdowns were much bigger.  I think the fear is currently overdone and a false signal.

>>>> I was right as it turned out.  The SP500 Index made a new all time high (ATH).

SAME AS BEFORE: “If the intermediate term trend breaks, you’ll see me drop my market exposure.  Stay close by following me on Twitter and StockTwits (sometimes one of them has been down.  I use the one that is UP when that happens!).”

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

Do not use these signals as a trading plan.  They are rough guidelines.  I currently share my actual BUYS and SELLS in as timely a way as possible on social media (links above).

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

Stock Signal BULLISH for a further U.S. stock market rally with a short term Bullish and longer term Bullish SP500 Index trend.   The immediate trend break is the issue here.  The positive is that IWM made a new ATH. The small caps determine the stock signal in this section of the report.  If they are strong/weak, generally the SPX is strong/weak too.

Gold Signal GREEN for a further U.S. stock market rally.  The Gold Trend is  short term Bearish and longer term Bearish It is still in its down trend channel.  “Longer term” may only be for a few more months or much longer.  No one can tell you how long it will continue to decline.  Economic glitches that arise will help gold.  Unconstrained fiscal spending will help as well over time, but not while the economy is recovering at a reasonable pace and real rates are rising.

Kept for Reference: “Gold can RISE with stocks when real rates are FALLING, and the dollar is falling.  Gold has recently been falling with rising real rates, despite US dollar weakness, because the stock market is made more attractive by the combination of 1. Rising real rates and 2. Economic recovery with higher corporate earnings. 

In liquidity crunches (which the Fed is supposed to prevent) gold can drop with everything else but the US dollar.” 

What gold does mostly as I’ve written HERE is follow real interest rates around the world (if you own “gold in dollar terms” you care about U.S. rates most of all).  The rest of the world does matter however, including massive buying by central banks. 

GUIDE: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise again, it means the market believes real rates are going to fall or stay negative for a period of time.  Investors tend to stay out of gold particularly when stocks are doing well as they provide a higher real return. 

Rate Signal: Rates are still RISING and that hurts interest rate sensitive stock sectors like utilities and helps financials.  The Rate signal is Bullish for a further stock market rally with a short term Bullish, and an intermediate term BULLISH 10 Year Yield Trend as long as rates don’t run up too fast (“Rate Shock” is not taken well by the markets).  (Remember: higher rates mean lower bond and Treasury prices and vice versa).

Thank you for reading.  Would you please leave your comments below where it says “Leave a reply”… or ask a question if you like…

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

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

Sun and Storm Investing™

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

I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, contact me for any questions, or click HERE.  Please use that link when you sign up as I am an affiliate (I don’t make much, but it may help to pay for some of my website expenses).  It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.

Note: I’ve updated my criteria for the equity signal for a further U.S. stock market rally to the following: GREEN = Bullish, YELLOW = Neutral, RED = Bearish.  In other words, the colors tell you whether the signal supports the stock rally or not, while the Bullish, Neutral, and Bearish designations are about the trend. 

A BEARISH trend signal does not mean we should not buy.  A BULLISH trend signal does not mean you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold or bought, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL trend signal does not mean the end of the Bull or Bear. It means to wait and look for possible subsequent entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the IWM and GLD charts for now as reference points only; they have historical value for us from the post-2016 election period.

Copyright © 2021 By Wall Street Sun and Storm Report, LLC All rights reserved.

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

Market Timing Brief™ for the 01-29-2021 Close: “Is the U.S. Stock Market Done Giving Back Gains? Gold with Losses for 2021 and Interest Rates Still Climbing.”

A Market Timing Report based on the January 29, 2021 close…

What’s the Market Timing Set-up for February?

We had an initial decent start to the year, and then things got a bit crazy with stocks like Gamestop and AMC going up despite their problematic fundamentals. Is it right or wrong?  Neither.  It is what it is.  Anything can be bid up based on the action of a crowd.  We’ve seen what a crowd mentality can do both early as well as late in January.  There is huge risk built into overvalued stocks that don’t then hit their numbers.  They can fall precipitously once they disappoint.

The upside is fun.  The sudden downside, less fun.   If you have such gains, take off 100% of  your principal once you have a double.  That way, you can ride out further volatility and decide when you will protect remaining profits.  After selling your principal, you could even set your stop at 50% of profits, which means the stock has to drop by half before you’ll need to act.  You can decide at that point whether the downturn was overdone, or if the company is falling apart and whether you should take your remaining profits and redeploy them.

I followed my own advice and took off 100% profits on 8 positions over the past year and a half.  I did the same with three different cryptocurrencies over the past couple of weeks (these were recommended by other advisors, so I cannot share those obviously, but I did tell my followers on social media to take profits in the small coins near the height of the cryptomania in January).

I did the same thing with my gold exposure during the 2011 drawdown off the high.  I took off 100% of my principal.  I can now “ride the gravy,” as I like to say.  The pressure to trade the position is gone.  I can decide at what price I’ll cut more exposure and may never have to do so.  I put on a new GLD trading position more recently and have taken off nearly all of it as gold is behaving badly.

How do people get tricked into thinking the Gamestop trading game is reliable?  It can work, but it’s not a reliable way to make money unless you jump shrewdly from mania to mania and take profits as I’ve described.  But some will mortgage their house and lose the money on speculations when they start to work against them.  What goes up fast, goes down even faster very often.

The human mind is programmable and if you make 100% on your money or more doing the same thing even twice, you are already being programmed if you don’t stay acutely aware. Sadly most human beings walk around in a stupor anchored to their last one or more experience of success or failure, rather than having a plan they execute dispassionately.

On that basis, let’s look at the current level of market fear without being fearful ourselves!  Bear with me and reread anything you don’t immediately understand, because the value of what I’m sharing this month is considerable.  How you use it is up to you.

The fear indicator I’m talking about is the VIX, the estimate, based on option pricing, of the upcoming 30 days of SP500 Index volatility.  In other words, the VIX tells us how wild the swings in the SP500 will become over the next 30 days.  When it trends steadily higher, the market goes down into corrections or worse. When it shoots up and dies back, the market just suffers a dip or a mild correction and continues upward.  You’ll have to decide how you want to interpret what I share.  If you agree or disagree, please comment (respectfully) below.

The interesting thing about the prediction of future market volatility is that when the VIX rises from relatively low levels, the change in the VIX is predictive of market price as it moves up, but when the VIX rises to very high relative levels vs. its base, it becomes a contrary indicator at some point.  In other words, it becomes overdone relatively to what happens within the following 30 day period.

To understand VIX peaks and their meaning, I studied the history of the past few big volatility spikes which marked the June, Sept. and Oct. 2020 lows as well as the 2020 COVID-19 Big Bear, the 2018 December Mini Bear, and even the 2000 Big Bear VIX spikes.  I published my findings in an Excel File that you should be able to download just below…  Print it out if you like so you can follow along with my explanation.  Click the following link and when the document, opens press “Read Only.” (I screened the file for viruses, and it came up negative.)

NOTE: When you open up the following Excel Spreadsheet the 2nd Column from the right should say “Drop by Wednesday VIX Peak” as the VIX high was achieved then, not on Friday.  Click this link to open the spreadsheet please…

1-29-21 Volatility Spike vs Prior Volatility Spikes in Corrections, Mini Bear and Big Bear Markets – Click to Open

What you see is that the current spike in volatility is far more exaggerated compared to the associate PRICE DROP vs. prior spikes in both corrections as well as various sizes of Bear Markets including both Mini Bears and Big Bears.  My Rules for Dips, Corrections and Bears are HERE (Scroll to “New Rules”).

The drawdowns that occurred in the corrections last year were more than twice the level of the current loss off the SP500 Index top of 4.05%.  What I did was look at the price of the SP500 Index on the day in each market drawdown when the VIX hit the level it reached at the peak on Wednesday, January 27th.  Then I calculated the SPX loss to that point.

What you see is except for the Sept. 2020 Correction, the other corrections and even the Mini Bear Crash of December 2018, when the market lost just over 20%, were nearly at their final lows by the time the VIX hit the level we saw on Jan. 27th.  In the Sept. 2020 Correction, the market rose for a few days to a lower high on 9-16-20 and then fell 6.4% from the lower high.  Then the market recovered, resuming its uptrend.

We don’t care about small corrections in the market unless we have a plan for trading them.  I’m fine with that IF you know how to get back in.  But what I am trying to discern here is whether this downturn is likely to be a sizable one or not…

What happened in the Big Bear Markets as I call them?  Realize the key is that they are associated with big recessions and financial dislocations.  That’s what happened in each of the last Big Bear Markets.  The tech market crashed by 78% in the 2000-2003 Bear.  The housing market crashed in the 2007 to 2009 Bear as you know.  And most recently, there was a left field event called COVID-19 that is essentially a temporary GDP interrupter that was looked past faster than any other market perturbation of its magnitude in history.  GDP was temporarily flattened and is now recovering.

The SPX was down over 35% in the COVID-19 Crash, and yet we are already at new all time highs in under a year from the 2-19-2020 peak! Even after the 1987 peak which was followed by Black Monday when the Dow fell over 22.8% in one day, it took almost two years to get back to the prior high.  (I was completely OUT of the market the day before Black Monday and about half out by mid-September.

How does the current decline compare to the Big Bears?  During those three declines, the SPX was already down over 12% in two cases and over 23% in 2009, which registered the highest VIX spike in history to date.  The current SP500 Index decline is just 4.05%!  That is 25.17% of the average decline of those three Big Bear Markets when they had reached the current VIX level. 

What that means is the VIX index reflects a level of fear way out of proportion to what is actually happening in the market as communicated by current pricing.  You want to compare the mania now to 2000?  Well, the VIX then reached only 110.2% of the current level.

One might argue “That proves it’s going to get far worse in terms of the losses in the SPX!”  No.  The losses that should be accompanying it should be 3 times as high if it were a parallel example.

The mispricing of VIX when compared to the prior big Bears, says that back then people were headed into an accident of unknown proportion, but were ACTING accordingly.  They are not acting accordingly today.  What this says to me since VIX mispricing is routine at market lows is that we could have already made a “dip low” or could enter into, at worst, another further slide to the level I call a correction (new “New Rules”).  That is not the end of the world.  Yes, for a time, you may feel bad, but markets recover far faster from corrections and typically if you leave during them, you are at risk of missing out on the recovery and even more gains ahead.

My conclusion is that the weight of evidence says investors are “overbuying protection” in the form of put options at a time when the price drop reflects something far more benign than these market players are thinking.

What would lead to a “deep correction”?  A fall below the January 4th low would do it I believe.  That could take us down to the 200 day moving average or so.  Other targets would be the lower magenta channel line shown below or the 2-19-2020 high (green line) we hit prior to the COVID-19 Bear Market Crash.  If it goes below there, we are headed to a recession.  Since a recession is not in the cards given the current outlook IMO, we should not see the market action that accompanies recessions.  It’s always possible to see a Mini Bear Market as we did in December 2018, but the Fed was raising interest rates then.

What could scare the markets into a Mini Bear Market?

A market led “Rate Shock” as I call rapid increases in interest rates could do it.  Why?  The Fed is not raising rates until it has to, but that does not stop markets from moving rates up and front running the Fed.  That is because the market will assume the Fed may have to act sooner rather than later.  Tighter monetary policy in a stock market that is currently somewhat pricey historically could create a Dec. 2018 Mini Bear.  But they come and go.  The Big Bears have a much longer recovery time.  

The serious damage comes only with recessions.  Could we see an inflation induced recession?  Of course, because if the Fed is forced to deal with persistent and rising inflation, PE multiples are compressed as stocks are then sold.  But this will take time.  The COVID-19 pandemic itself is a damper on inflation.  If you want to decrease exposure now for something that may not happen for many months at the earliest, you are welcome to, but the Bull market will resume in my opinion and new highs will be attained, because the global economy is still in recovery mode.  The longer the recovery period extends, as long as we make continuing progress, the easier it will be for the market to rise ahead of ever increasing earnings estimates.  When everyone is back to work and inflation gets out of hand – then we’ll have to drop our exposure level.  It will take some time before we get there.

One of the biggest mistakes I’ve heard retold is from those who left big Bulls too early.  2000 was a great example.  If you missed 1999, you missed a massive part of the final move in the market to the upside.  Remember too that Bulls don’t die with pitiful sentiment numbers.  This week’s sentiment numbers are not excessive, for the AAII investors at least.  These somewhat older investors on average will be the last ones to come back to the market in a big way.  The “kids” are leading this time!  (Hey, some of us are still kids at heart, right?!  ;))

We will also watch to be sure we don’t overstay our welcome based on many of the thoughts and considerations just discussed…  I don’t look at “one thing.”  I look at many things simultaneously. 

Now I’ll show you the charts, so you can see where we are.  Reread this post more than once, as you’ll pick up new things the second time through.  I do that myself.  I always reread my post the next market day too, so I ACT on what I believe.  First the charts, and then I’ll discuss the possible trading/investing scenarios in a summary form that will help you further “get” what I’ve just said…

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

You see the immediate trend break, but the close was just barely below the 50 day moving average.  The market could easily head lower, but consider the scenarios I lay out after the chart review before acting.

The immediate trend is broken, but not the longer term trend.

Now let’s go on to look at investor sentiment…

Keep up-to-date and read my comments on the current setup during the week at Twitter and StockTwits (links below) where a combined 34,571 investors are following the markets with me…

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

Join the Conversation in the StockTwits “MarketTiming” Room  (I’ll publish comments in the room periodically.)

Now let’s review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -0.6%, which was 1st week of negative sentiment spread since the last negative reading in a 34 week continuous series of negative sentiment spreads! 

The peak positive sentiment was on Nov. 11th at 31.0%, two days after the election results were known (it was known the prior Saturday who won).  That is a respectably high sentiment spread for a Bull market, and it does not often stay up there forever, but we just made a new all time market high in the SP500 Index on Tues. 1-26, and the spread had fallen to just 13.5% by 1-06 after a small 1.48% drop in the SPX.  The market then headed higher.

This is not the way Bull markets generally end.  Bull markets end with the vast majority of investors enthusiastic about stocks.  Despite the Gamestop, AMC, etc. hype this week, we are not there yet.

Were the “AAII investors” right back in Feb. – March 2020?  Investors in the AAII Survey did turn negative on 1-30-20 after the first little drop in the SPX.  Then there was a rally back to a new all time high (ATH).  So following them did not really work.  After that, sentiment turned back to negative at -8.7% on 1-26-20.  From there the market rallied to the 3-04-20 high before turning down again, so they missed that move.

Then the market continued to crash to the 3-23-20 final low of that Big Bear Market.  And then the AAII investors froze in the headlights for 34 long weeks of net negative sentiment!!!  Horrible idea in a raging Bull market!  

I’ll get to the scenarios to consider, but first let’s look at the small caps, gold, and interest rates…

Bulls Neutrals Bears
37.7% 24.0% 38.37%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing – Russell 2000 U.S. Small Cap Index  (click chart to enlarge; IWM, RUT)   

The breach on higher volume means some more downside cannot be excluded, but the intermediate term trend is still intact.   

See my scenarios after we look at gold and interest rates…

Short term trend breach.

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

Gold remains in the doldrums due to a recovering economy and rising real interest rates.  Read my link posted below this report on how to invest in gold properly…  

Market timing the gold ETF (GLD). Gold still not working

Gold still not working.

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

4. Interest Rate Market Timing (10 Year Treasury Yield; click chart to enlarge; TNX, IEF, TLT):  The trend was reasserted as UP this week.

From last issue. Same thing holds: The rate of rise is the key, not the level in a strong recovery until we reach 4.5-5% some say, but regardless of the precise level that spells “trouble,” it’s MUCH higher than we are now.  A rapid rise in rates is what I call a “Rate Shock” and it’s something that could send the market into a correction at least.  So far, it’s not a problem and COVID-19 will probably slow the recovery and keep interest rates at least relatively lower for longer…

Now we turn to the scenarios for investing and trading… (below the chart)

Rates rising still.

Scenarios for Trading and Investing:

  1. “That was it!”  Scenario 1A) Friday was the low as after the 10-29-20 VIX high.  The market was done going down the next day. Scenario 1B) even if we revisit the same low a few weeks from now as happened in June 2020, all will be well with the trend.  Either of these could be the eventual scenario.  We are headed into a stronger recovery via vaccine deployment and resumption of life.
  2. “That was just the start!  We are headed into a massive Bear Market yet again.”  I consider this highly unlikely due to the fact that the recovery is not even close to complete yet.  Vaccination needs to be sped up, yes, but it’s happening and 70% of people are now wearing masks.  More need to do so.  The number of active cases is high for sure, and we need to start seeing a DROP in them as I’ve gone over along with my #COVID19 charts for many weeks now (see my social media COVID-19 posts; search @SunAndStormInv and “#COVID19” on Twitter to find them). Still, the economy is recovering, not involuting.  The Y/Y comparisons remain positive for this and next quarters.  Then we’ll see where the recovery is.
  3. “We could go up a bit and then move to a new somewhat lower low.”  Yes we could. That happened after the 9-04-2020 VIX high. (see table link above)  The trend would still be fine.  
  4. “December 2018 could happen now.”  Meaning a “Mini Bear Market” could occur now.  That is not likely IMO.  The fear level now is higher than it was at the bottom of that market move.  I believe the price would already be lower if this were what I call a “Mini Bear Market.”   (You won’t understand that last comment unless you know my “New Rules.” Read it if you haven’t and come back to read this. See link above.)

The gist of my favored scenarios (1A, 1B, or 3) above is that the price move of only -4.05% for the SPX pales in comparison to prior similar VIX readings when the drawdowns were much bigger.  I think the fear is currently overdone and a false signal.

Could I be wrong?  Of course.  If the UK virus variant a.k.a. Variant of Concern 202012/01) takes hold in a bigger way in our country (being predicted by Dr. Osterholm btw) where mask wearing is still optional for some (30% anti-maskers plus 25% who wear their mask below their nose – nice try but that won’t work!), things could get even worse on the COVID19 front for example.  (My apologies to the Brits (and Scottish) with whom combined, I am about 70% homologous for singling out their variant!)

The intermediate U.S. stock market trend will break, if we are headed to a worse outcome.  I’ll let you know on social media if I see that.  And the vaccine prevents bad outcomes even with the variants apparently, even though the antibody affinity for the South African mutant virus (apologies to the South Africans; aka “501.V2”) is weaker.

If the intermediate term trend breaks, you’ll see me drop my market exposure.  Stay close by following me on Twitter and StockTwits (sometimes one of them has been down.  I use the one that is UP when that happens!).

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

Do not use these signals as a trading plan.  They are rough guidelines.  I currently share my actual BUYS and SELLS in as timely a way as possible on social media (links above).

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

Stock Signal BULLISH for a further U.S. stock market rally with a short term NEUTRAL and longer term Bullish SP500 Index trend.   The immediate trend break is the issue here.  The small caps determine the stock signal in this section of the report.  If they are strong/weak, generally the SPX is strong/weak too.

Gold Signal GREEN for a further U.S. stock market rally.  The Gold Trend is  short term Bearish and longer term Bearish.   It is still in its down trend channel.  “Longer term” may only be for a few more months or much longer.  No one can tell you how long it will continue to decline.  Economic glitches that arise will help gold.  Unconstrained fiscal spending will help as well over time, but not while the economy is recovering at a reasonable pace.  

Kept for Reference: “Gold can RISE with stocks when real rates are FALLING, and the dollar is falling.  Gold has recently been falling with rising real rates, despite US dollar weakness, because the stock market is made more attractive by the combination of 1. Rising real rates and 2. Economic recovery with higher corporate earnings. 

In liquidity crunches (which the Fed is supposed to prevent) gold can drop with everything else but the US dollar.” 

What gold does mostly as I’ve written HERE is follow real interest rates around the world (if you own “gold in dollar terms” you care about U.S. rates most of all).  The rest of the world does matter however, including massive buying by central banks. 

GUIDE: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise again, it means the market believes real rates are going to fall or stay negative for a period of time.  Investors tend to stay out of gold particularly when stocks are doing well as they provide a higher real return. 

Rate Signal: As long as rates stay within a relatively low range, the stock market can cope with the rise in rates. That said rates are still RISING and that hurts interest rate sensitive stock sectors like utilities.  The rate signal is Bullish for a further stock market rally with a short term Bullish, and an intermediate term BULLISH 10 Year Yield Trend.  Rates have to bust that lid of 1.266% on the chart above to change the intermediate to longer term trend unequivocally to UP.  (Remember: higher rates mean lower bond and Treasury prices and vice versa).

Thank you for reading.  Would you please leave your comments below where it says “Leave a reply”… or ask a question if you like…

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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 for any questions, or click HERE.  Please use that link when you sign up as I am an affiliate (I don’t make much, but it may help to pay for some of my website expenses).  It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.

Note: I’ve updated my criteria for the equity signal for a further U.S. stock market rally to the following: GREEN = Bullish, YELLOW = Neutral, RED = Bearish.  In other words, the colors tell you whether the signal supports the stock rally or not, while the Bullish, Neutral, and Bearish designations are about the trend. 

A BEARISH trend signal does not mean we should not buy.  A BULLISH trend signal does not mean you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold or bought, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL trend signal does not mean the end of the Bull or Bear. It means to wait and look for possible subsequent entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the IWM and GLD charts for now as reference points only; they have historical value for us from the post-2016 election period.

Copyright © 2021 By Wall Street Sun and Storm Report, LLC All rights reserved.

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

Market Timing Brief™ for the 12-24-2020 Close: “The Risks to 2021 Stock Market Setup. Two Risks are Solved, One Fake and Three Real! P.S. Gold Is Sliding.”

A Market Timing Report based on the December 24, 2020 close…

First some orientation to what you’ll see here going forward in terms of market timing.  I’m going to reduce my view of the markets to short simple statements.  There are plenty of writers who bloviate about the markets, which is not really that helpful.  Although I’ve kept my analysis reasonably brief, it will be briefer yet this year.

MY FINAL COMMENTARY ON THE TRUMP PRESIDENCY is at the base of this report. We are moving on to a new administration and will be focused there.  I’ll be equally tough on Biden and his plans (as I have recently on the proposed vaccine program changes proposed) and discuss their market impact… 

All economic and political analysis will be conducted in a similar reasonably brief format, as usual focusing on how it could impact the financial markets.  Mainly we’ll look at the key market timing charts…  

There will always be more that I share on social media in terms of the variety of market timing charts I follow and refer to including foreign markets and major cryptocurrencies.  I won’t always post the charts and will leave you to use your favorite chart source to follow what I’m saying.  Time is precious.

Enjoy and be sure to share the blog with others.  My goal is to have an impact to help the world, so I’ll be putting my efforts behind that which serves the greatest number of people as much as I appreciate all of my followers here and on social media.  Happy New Year to you by the way!  Thanks for reading, and now…to the markets…

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

Let’s look at where we are first, and then discuss where we’re going…

The trend for all U.S. market caps, small, mid, and large is UP (see 1st chart below).  Stay invested. 

What Are the Risks to the Recovery?

1. COVID-19 Infection Rates forcing more partial shutdowns of businesses.  We’ll see soon how bad the Christmas and New Years bumps will be. My advice? Stick to your “bubbles” over the holidays unless everyone has quarantined for 10-14 days in advance.  Testing is not enough as proven by the White House’s experiment that caused numerous people to become ill with COVID-19.  Shutdowns are only required, as I’ve said repeatedly, IF healthcare systems would otherwise be overwhelmed.  If not, you don’t need to shut down.  It’s not a political decision; it’s a healthcare decision.  More shutdowns, even if partial, would hurt the speed of the recovery and secondarily the stock market, but NOT IF vaccination continues to speed up, and the market looks forward to recovery despite the holiday infection bumps.  We are in a different place with now THREE vaccines on the way. (AZN-Oxford’s is expected to be approved as the 3rd very soon.)

UPDATE 12-29-2020: Coronavirus Active Case Stats in the U.S. 

Only negative Day Over Day numbers on the chart below, which show you the direction and rate of change of Day Over Day Active Cases, can help take the pressure off of hospitals.  As long as that number is positive (and the 5 day moving average is a better test of the trend), hospitals are filling up more and more.  The rate of change improvement (the orange line is dropping) shows some of us are trying hard to keep the virus under control, but the rest of us have to pitch in, or hospitals in LA for example will be forced to turn away patients due to healthcare system overwhelm.

Imagine your loved one needing to be transported an extra half hour with a heart attack or stroke because your local hospital was chock-full of COVID-19 patients.  That’s what we’re talking about here.

2020-12-29-US COVID19 D-Over-D Inc Active Case %-Recent-5 Day MAV

Improvement in the rate of increase, but it must go NEGATIVE to take pressure off of hospitals. Data analyzed are from Worldometer.com.

It’s not political as said; it’s practical, so again, please help out by NOT mixing your home’s bubble with other bubbles unless those in it have quarantined for 10-14 days prior to mixing.  If that is too much, at least wear a mask (correctly over the nose) when you are out and don’t socialize with anyone outside your home prior to visiting your family, or you may literally be the “death of them.”  It would be foolish for us to kill our relatives and friends by getting careless just a few months (more or less) prior to vaccination.  Be safe and have a very Happy New Year! 

Let’s now look at other risks to the recovery and the markets….

2. TWO SOLVED RISKS: The stimulus bill was just signed by Trump Sunday night along with general spending that will keep the government open.  Closing the government during COVID-19 would have been definitionally insane, so it’s good Trump capitulated.  He capitulated to Democrats, but also to his own party that negotiated this package with Sec. Mnuchin for many long months.

3. Election Risk?  None.  It’s over rover.  It’s a “fake news” risk.  There is no legal recourse for Trump now despite the massive disinformation on Twitter and Facebook.  The Constitution requires the House agree with the Senate on a Jan. 6th coup, and they won’t.  Mitch McConnell told GOP Senators to NOT rock the boat with BS claims of widespread election fraud.  The courts have ruled against Trump’s claims, including the Supreme Court with Trump’s 3 appointees.  There was no significant election fraud or the courts would have ruled otherwise.  There is ZERO election risk remaining.

4. A double GOP Loss in Georgia.  The GOP needs to keep only one Senate seat to maintain Senate control on the big bills.  Some moderate GOP members could flip sides on some legislation with a one vote majority however.  If Mitch is taken out by a double GOP loss in GA, tax legislation rollbacks will hurt corporate earnings over the short term and lead to a 7-20% correction/Mini-Bear Market in my view (See New Rules for my cutoffs for dips/corrections/Bears).  That’s because earnings would be adjusted back down to pre-taxcut levels based on the tax increases that would ensue.  Income Taxes: Those making less than $400,000 as an individual, $622,050 for couples would not be affected.

5. Rate Shock: When rates rise slowly during a recovery, that is fine.  When they shoot up too fast, the stock market usually takes a hit.  If rates rise above the current lid you see on the chart below, they could start rising too quickly and shock the stock market.  Bonds take money from the stock market when real rates are FALLING.  They are RISING of late.

SP500 Large Cap Index (click chart to enlarge; SPX, SPY): NOTE: the date placed on the chart is wrong. It should say 12-24-20 Close!)

spx-sp500-index-market-timing-2020-12-24-Close-3

The Trend Is Up.

Follow me on StockTwits/Twitter and you’ll see when and what I buy and sell…

Now let’s go on to look at investor sentiment…

Keep up-to-date and read my comments on the current setup during the week at Twitter and StockTwits (links below) where a combined 34,571 investors are following the markets with me…

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

Join the Conversation in the StockTwits “MarketTiming” Room  (I’ll publish comments in the room periodically.)

Now let’s review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +21.58% on 10-14-20, which was 10th week of positive sentiment spread after 34 weeks of negative sentiment spread!  As my prior study showed (published earlier on this blog), such a long negative sentiment spread has historically resulted in a strong rally in the stock market.  I’ve bought both before and after the election and increased my exposure to close to 100% of my “usual maximum for a Bull market.” Adjust to taste!  I report my exposure level regularly on social media as I change it (see links above).

Bulls Neutrals Bears
43.57% 34.44% 21.99%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing – Russell 2000 U.S. Small Cap Index  (click chart to enlarge; IWM, RUT)   

The trend is up!  Stay with it. And stay with ALL caps including mid caps as well. 

iwm-russell-2000-market-timing-chart-2020-12-24-close

That’s called an Up Trend!

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

I’m fully out of my trading position as stated a while back on social media.  I only have “gold insurance” for protection from the dying U.S. dollar at this point.  The typical “insurance” recommendation is 5% of investable net worth (although many never tell you if you should include real estate or not).  Some like Cramer have said to own a 10% gold exposure.  Gold does not work well with rising real rates, as I’ve discussed numerous times (ref. link is at the bottom of this report).

gld-gold-etf-market-timing-chart-2020-12-24-close

Down trend is obvious.

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

4. Interest Rate Market Timing (10 Year Treasury Yield; click chart to enlarge; TNX, IEF, TLT): Rates are poised to head higher still.  The formation is an ascending triangle on the chart below.  A breach above the obvious current range will be required.  That could make the market nervous about Fed action despite their reassurances to let inflation rise a bit higher than they previously allowed. “Rate Shock” is a stock market risk I’ve covered for years here.  

The rate of rise is the key, not the level in a strong recovery until we reach 4.5-5% some say, but regardless of the precise level that spells “trouble,” it’s MUCH higher than we are now. 

NOTE: the date placed on the chart is wrong. It should say 12-24-20 Close!)

tnx-10-year-treasury-note-market-timing-chart-2020-12-24-close

tnx-10-year-treasury-note-market-timing-chart-2020-12-24-close

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

Do not use these signals as a trading plan.  They are rough guidelines.  I currently share my actual BUYS and SELLS in as timely a way as possible on social media (links above).

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

Stock Signal BULLISH for a further U.S. stock market rally with a short term BULLISH and longer term Bullish SP500 Index trend.   The small caps determine the stock signal in this section of the report.  If they are strong/weak, generally the SPX is strong/weak too.

Gold Signal GREEN for a further U.S. stock market rally.  The Gold Trend is  short term Bearish and longer term Bearish.   “Longer term” may only be for a few more months or much longer.  No one can tell you how long it will continue to decline.  Economic glitches that arise will help gold.  Unconstrained fiscal spending will help as well over time, but not while the economy is recovering at a reasonable pace.  

Kept for Reference: “Gold can RISE with stocks when real rates are falling, and the dollar is falling.  Gold has recently been falling with rising real rates, despite US dollar weakness, because the stock market is made more attractive by the combination of 1. Rising real rates and 2. Economic recovery with higher corporate earnings. 

In liquidity crunches (which the Fed is supposed to prevent) gold can drop with everything else but the US dollar.” 

What gold does mostly as I’ve written HERE is follow real interest rates around the world (if you own “gold in dollar terms” you care about U.S. rates most of all).  The rest of the world does matter however, including massive buying by central banks. 

GUIDE: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise again, it means the market believes real rates are going to fall or stay negative for a period of time.  Investors tend to stay out of gold particularly when stocks are doing well as they provide a higher real return. 

Rate Signal: As long as rates stay within a relatively low range, the signals are not as valuable when the Fed is manipulating them.  The Rate signal on a non-manipulated basis would be Bullish for a further stock market rally with a short term Bullish, but now an intermediate term NEUTRAL 10 Year Yield Trend.  Rates have to bust that lid on the chart above to change the intermediate to longer term trend.  (Remember: higher rates mean lower bond and Treasury prices and vice versa).

***START OF COMMENTARY***

MY FINAL COMMENTS ON THE TRUMP PRESIDENCY AND DEMOCRACY

This will be my final comment on Trump here, as he will shortly be irrelevant except how he influences others in the GOP.  I laid out the possibilities for Trump this week, because we need to be informed of how politics can intersect with the markets.  If you read my pre-election post and actually made the trades I made both prior to and after the election  (all timestamped here), you’ve made big money by now.

I don’t hold grudges. I don’t condemn Trump as a human being, as we’re all flawed in some ways, but I do have to make a judgment about his fitness to lead and have done so.  What he did both as an “Election denier” and in calling for a march on the Capitol Building was anti-Democratic IMO.  

BTW, I never said “Trump did not win the 2016 election,” because those who did are as misguided IMO as those who believe Trump’s distortions as I’ll call them about the election of 2020. Biden won the election by the rules the states decided upon. States rights are a fundamental pillar of Republicans, at least that used to be the case. The Constitution placed the authority with the States to decide on how to run their elections. They did so in 2020 in the midst of a pandemic.  They sent out more mail in ballots to avoid spreading the virus.  That was their sincere intention and it was right IMMedicalO.

Al Gore actually won in 2000 based on some recounts and not on others when they went back and recounted votes in Florida after the fact. (I didn’t vote for him. I’m a proven Independent as I’ve said; I vote for the better leader, per my beliefs at the time I vote.)  But the courts are the FINAL arbiters of elections even if the laws concerning elections are changed after the fact. The results of the preceding elections are not changed.

After the 2000 election was decided, they did not tell Bush to leave based on the recounts that found Gore won, or say there had to be another election. Some here were likely not very focused on politics when that was going on, and others were, but the point is, when the COURTS say “Game over,” it is done. The Supreme Court ruled and Al Gore conceded.  He said he didn’t like it, but he accepted it (you can find the video).  He did not then carry on in public to taunt Bush saying “I actually won!”  He conceded, and it ended there.  That’s Democracy in motion.  There is no going back. No whining.

In sports, refs make bad calls. They challenge some bad decisions by refs, but they never get to go back and “challenge the results of the Super Bowl.”  “It was a corrupt Super Bowl!”  That does not fly.  Some of those supporting the losing Super Bowl team do continue to object to “who actually won,” but you and I know those people are ultimately poor losers.  Few elections are perfectly clean except those for dog catcher, and there was no widespread fraud in the 2020 Election. Even Bill Barr (who searched for dirt on Biden for months) said so and Trump still forced him out or made him feel he had to leave to support Democracy.

To conclude my comments on the Trump Presidency, Democracy in the US per the Constitution is about 1) Voter rights (the vast majority of those who voted cast legal ballots despite all the noise) 2) States’ rights, and 3) Court Decisions (the 3rd branch).  All those say Biden won, so he won. I would suggest that if that makes no sense to you still, you go read more from sources other than Fox News. Study the Constitution directly. Read contrary opinions to Rush Limbaugh’s. If you feel hurt by the results of the 2020 election still, act like you care to know the truth and investigate it like a true reporter would rather than someone on a sports team that cannot admit the team lost. Then our country will return to a more reasonable state in which things are discussed civilly and compromises are reached to move our country forward.

Let’s solve our nations challenges together.  Contribute in a positive way if you can vs. getting bogged down in past grievances, and make our country and the world a better place.  Per a recent Gallup Poll, as of Dec. 2020 41% are Independents, 31% Democrats, and 25% Republicans.  That means most people land in the middle as I do.  Don’t use the liberal Democrats’ or radical Republican behavior as an excuse to behave as they do.  Be far better than the worst elements of our society whether on the right or left, and we will succeed as a nation.

***END OF COMMENTARY***

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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 for any questions, or click HERE.  Please use that link when you sign up as I am an affiliate (I don’t make much, but it may help to pay for some of my website expenses).  It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.

Note: I’ve updated my criteria for the equity signal for a further U.S. stock market rally to the following: GREEN = Bullish, YELLOW = Neutral, RED = Bearish.  In other words, the colors tell you whether the signal supports the stock rally or not, while the Bullish, Neutral, and Bearish designations are about the trend. 

A BEARISH trend signal does not mean we should not buy.  A BULLISH trend signal does not mean you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold or bought, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL trend signal does not mean the end of the Bull or Bear. It means to wait and look for possible subsequent entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the IWM and GLD charts for now as reference points only; they have historical value for us from the post-2016 election period.

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