Market Timing Brief™
for 10-25-2011: Euro Fever for Stocks
Given the lack of perceived adult behavior on the part of Euro leaders, all stock market indices showed weakness today. The REITs (Real Estate Investment Trusts) had what is referred to as an inside day. Since they have been particularly volatile lately, the fact that they remained within the range of trading for the previous day (hence, “inside day”) means that the market has not yet decided to sell off seriously, even though the percentage drop of 1.87% would seem like a bit much.
Commodities (CRB Index) held up today and gold and silver both scored breakouts, which would indicate that we are not simply slipping back into the “sell everything” mode of either 1) Emergency liquidity needs or 2) the sense that we are headed back into a deflationary period with a dying economy. Oil goes down, not up when the economy goes into recession during a non-inflationary period. It goes up when the economy is booming and demand is rising and it also goes up when the dollar is being degraded by overprinting by the Fed.
That is exactly what happened the last time the Fed shot it’s QE bullets. The economy did not seem to get much better, no significant job creation resulted and we ended up with inflation. That is good example of Fed generated stagflation. So fortunately there is no QE3 in sight, because the Fed knows it was not worth the suffering they inflicted worldwide in higher food and energy prices.
Continue to add to commodity, gold (GLD) and silver (SLV) positions as they go up. If you don’t have time to “watch” your silver position, gold may be the better choice for you as silver is very volatile.
In the meantime, the pullbacks today were all largely reversals of part or much of the gains attained on Monday. There was no bloodbath sell-off. At least not yet. If the Europeans do not get their act together and come up with trillions of Euros to throw at their debt issues, we could be in for more of a correction. On the other hand, if they do the right things that the market is now expecting, the market could easily rebound quickly.
The SP500 Index (SPX) dropped down below the intraday high on 9-01-2011 of 1229.29 but not below the prior closing high of 1218.89. That is fine for a retest. A close below the closing high would be one step closer to a more severe correction. For now, it’s just a dip. The NDX did the exact same thing. It has pulled below the intraday high of 9-20, but is above the closing high of 9-19.
The VIX is not cooperating with the Bulls. The fear index was up today and rose above 30.16, which means the prior market timing progress was obliterated. If it promptly moves back below there, the rally can resume, but if you see it shoot up above the 50 day moving average the sell-off could continue. Actually if it moved up to that point, we’d need to be watching for a reversal and then a potential breakdown. So we’ll see what Euro madness or sanity tomorrow brings
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I posted an important Update on the Stock Market Here: This Weeks Video Chart Update
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Gold’s Next Move: GLD Gold ETF Market Timing Update
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And for some fun with the latest Fed Statement: Fun with the Federal Reserve Statement
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