Market Timing Update: Note to Congress – You’re Fired!

Market Timing Brief for 7-25-2011

1. The SP500 index (SPX; SPY) index is now slightly below the critical 1344.07 number discussed last week. It did rally back from the lows this morning, but you must realize that these swings are little more than noise until things are resolved with the debt ceiling. Yes, both the Bulls and the Bears face risk here, although I would say the Bulls are a bit more exposed, because the markets are no longer cheap given the slowing of the economy. We must hold these new highs in indices like the NDX (QQQ; tech) to keep the Bull ball in the air. There have been three previous failures to top the February 2011 high for the tech index.

Breakouts become breakdowns at times when investors decide to “sell” the news, which in this case would be a raising of the debt ceiling without doing anything that will help the economy. If significant deficit reduction were achieved, that would in fact SLOW the economy, not help it. Remember that the Fed is on hold with it’s free money policy called “quantitative easing,” especially given the distasteful inflation at the pump and in the grocery store that it single-handedly created. Congress is the economy’s last hope other than its own natural recovery. I’d vote for the latter, and won’t be voting for Congressmen/women who were part of this exhibition of incompetency. If someone does not do their job in the corporate world, in the words of the Donald “They’re fired!”

Practical Investing/Trading Pointers: Buying here carries risk, because of the uncertainty. I would not recommend buying the SP500 Index without a close over 1344.07 that sticks. And there could be trouble at the last top. Aggressive traders could enter given a move back above that level and use a stop to exit if it fails to hold. I admit that this market shows signs of wanting a relief rally.

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2. Gold (GLD, IAU) and silver (SLV): Gold and silver are both still above their recent breakouts (See prior posts), and as long as they hold those levels, the rallies are OK. The gains from today have slipped away somewhat, because a debt ceiling settlement in Congress would be viewed as removing risk. Gold and silver will likely sell-off reversing the recent breakout unless Europe proceeds to worsen. If Europe’s picture worsens, the US dollar, gold and silver will all rally farther. Stocks would sell off more around the world. If both Europe clears up or at least temporizes its problems and the US debt ceiling is raised, gold and silver may correct substantially vs. the US dollar. For now, the US dollar index (USDX; UUP) is still falling, having broken the ascending triangle I pointed out recently, but could go to the June low at least.

Practical Investing/Trading Pointers: You can hold gold if it stays above the latest breakout point (see link below for the numbers). I recommend having a long term postion in gold, but trading positions will require stops here.

Silver (SLV) looks more vulnerable than does gold as it has gone to the July 18th high and failed to make it through (39.69). The silver ETF, SLV, could be sold using a stop at 38.31, the 7-22-2011 close or 37.90, the 5-10-2011 high (NOTE: do not place the stop “in the market” because the market makers and/or their computers may pick off your stops along with many others if they see what your “thinking” is). The lowest SLV went during the current consolidation was 37.23, which was 5.68% below the 7-18 close. I doubt the SLV rally would survive if it tests that low again.

See my GLDTracker ™ here: GLD Tracker™

Practical Investing/Trading Pointers:

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