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Market Timing Brief™ for 01-04-2012: The Year of the Living Dead

Risk is back on in the New Year.  Banks and housing which had already started rallying prior to the New Year moved up strongly today having technically died last year.  Biotech, which had been in a major slump badly lagging the market, is beginning to move again.

One negative sign for the S&P500 Index I saw today was the VIX.  It did not move down as it should have in a very positive rally.  Why?  Because traders were NOT taking off their hedges.  That is what the VIX is based upon.  It can and must still move down more.  It was only down 1.84% today.

Gold (GLD) and silver (SLV) had a great day having made important reversals that should propel more gains.  Follow my comments on Twitter to keep up with the latest (link below; I bookmark links of the Twitter pages I follow so I can dial them up fast).  We’ll have to see if the gold rally fails at higher resistance which looms above.  But that is true for any pullback.  The key question is whether the gains will be held or lost once more.  The long term signal has turned at least temporarily negative for GLD and what concerns me is that there is a case for the dollar index (USDX UUP) continuing to rally up to around 87ish which would pressure gold significantly. 

Commodities (CRB index) are stretched at this point so despite the tempting strength, it’s been a bit too much too fast.  That is not to say commodities (CRB) do not have more upside after a bit of a pullback.

It is not so clear what will happen this year.  There are mixed economic signals.  Today’s manufacturing data was improved both in China as well as in the US.  Europe is slowing still.  This means that being nimble and not giving up profits may be the game for 2012 as well as 2011 when the market was barely up for the year.  Things are still unstable in Europe we have to remember despite the bursts of enthusiasm.  The earlier bursts died and now we have this jump for joy.

However, the point for traders is that charts such as that of Europe (VGK) and Germany (EWG), as I pointed out on Twitter today, are improving.  The living dead are back in play at least for the time being.  It would be nice if there were only two shoes to drop – one in the US and one for Europe, but the closet is more like that of Imelda Marcos (a famous shoe fanatic most of you still recall).  Even Japan has something like 3 trillion dollars of debt maturing this year alone.  Risk still lurks despite even as we trade and invest in these markets.

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