Market Timing Tells on the Markets (with 11-11-11 update at base)

1. Follow the bond market.  The last time the stock market moved down briskly, bonds were rallying hard.  Unfortunately the bond people are off on Veterans Day, so we won’t have this “tell” on Friday.

2. The action on 11-10-2011 was not that helpful.  Most indices made very little progress against significant overhead resistance.

3. The US dollar is still in rally mode (UUP).  It barely slipped today, so the dollar rally is still intact.  The Europeans are still floundering, which will fuel the dollar rally further.

4. That makes it harder for gold to make progress.  Although gold (GLD ETF) did hold up at the daily uptrend line (see my gold tracking page on the main site for two GLD charts; see publishing schedule for link), it appears that it is being pulled back to at least the 50 day moving average for a test,  which may not hold.  I explained how to manage a market timing entry on support in the article from today on the gold tracking page.

5. The stock indices including the SP500 Index can all continue to recover as long as the VIX (fear or volatility index) does not blast off through overhead resistance.  I put up the VIX chart on the main site today (go to the “Read My Feed” page to see it).  As long as we stay below immediate overhead market timing resistance, the rally will survive another day.

11-11-11 Market Timing Update:

1. Italian 10 year notes fell well below 7% today, as Italy moved to initiate the demanded austerity measures. This has calmed the world’s markets substantially. The VIX, or volatility index, collapsed below 30.16 at open now 29.61. 30.16 was key support before and now we’ve moved below that. That means fear has dropped and the rally can proceed more easily. Remember of course that fear can come back in a day as it did earlier this week, so following the VIX is not enough. We have to pay attention to whether Europe is truly solving its problems.

2. Dollar breakout was broken.  UUP is now below the mid-Oct. high and Nov. 1 high. This supports stocks in that earnings of multinationals become more competitive. It also results in inflation of stock prices, one of the Fed’s stated goals.

3. The GLD (gold ETF) has held up at the uptrend line on the daily chart and could continue to rally from here.  I would not rule out a bit more correction as stated above, but it does not have to happen. The issue for individual investors is that you cannot trade gold in the overnight market, at least not most of us.

Currency traders do that every day. Since gold is reflecting the strength of the dollar most days now even more than it reflects endogenous buying and selling of gold, the price can whip around overnight entirely based on moves in the dollar. And most of us are buying gold in dollars.

I advocate holding a long term gold position, but have been trading a second position. It may be smarter now to wait for a move over the Nov. 8th high to buy back that trading position. Buying the rise back above the uptrend line was another such point that I mentioned yesterday when it was happening.

Just be aware that today, you are selling the US dollar more so than you are buying gold. As reported by Kitco.com, gold is up 0.64% due to a dollar decline, while gold buying only amounts to 0.25% of the move in gold for a total of 0.89%. So actually you are more of a currency trader today, shorting the US dollar than a gold buyer if you buy the GLD gold ETF. See my “Read My Feed” page and scroll down to my article on “Gold Trading Signals: Market Timing Gold and GLD Update” to learn more about this concept.

4. The SP500 Index is now above 1249.05 resistance and is rising to challenge the 200 day moving average.  It won’t take long to find out if it has further momentum as the 200 day moving average  is at 1272.24 at the moment, and the SP500 Index is at 1257.37

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