Based on the 8-24-2012 Close published Sunday, 8-26-2012
UPDATE on 8-31-2012 at 10:36 am: Dr. Ben gave his Jackson Hole speech and said enough to confuse the market which has been since gyrating up and down within a range. He said there will be funny money available still, but that he recognizes the risks associated with too much financial crack.
One telling shift post-speech is in the 10 year Treasury though that continued its move DOWN this am. The issue is whether this is out of fear that the Fed will continue to pummel interest rates lower or on continued fears of a weak economy. The SP500 Index has stayed within the range of yesterday, which is called an inside day. I believe the next move out of that range will give us the immediate direction of the market for the near term, so watch for that.
UPDATE on 8-28-2012 at 10:51 pm: The SP500 Index (SPY, SPX) is still stuck below the prior breakout point. It must break out again or we are in for a significant correction. A Bullish sign is the presence of some tone in the small and midcaps as well as the REITs.
Market Timing Brief for 8-24-2012: Topped Out
The market has topped out for now and is in the process of correcting despite Friday’s rally, which was based entirely on Fed jawboning of the market. Dr. B responded to a congressional inquiry about his plans for further funny money and really said nothing new, but the market liked it. If that announcement leads to a new recent high, I’ll take another look, but not until then. On a new recent high, we’ll be forced to rebuy what we’ve sold (if you in fact have) and rejoin the Bulls.
For now, the Bears have the ball, because the SP500 Index (SPX, SPY) has formed a top and has reversed down through the first level of support below the reversal high. We have officially averaged out using my process of “passive shorting” for which there is a link on my site if you have never read it.
If you have sold nothing, be willing to at least consider selling some to preserve profits, because giving up huge gains by holding onto false beliefs can be deadly to your profits. I am a teacher of raising consciousness in investment and other areas of life and one key to doing that sort of work is that you must have real life checks on your thinking in addition to relying on your analysis and intuition. When we are wrong, we are wrong and the failure to admit being wrong results in the largest of our investment losses. If you’ve been there, and have done that as I have in the past, DO NOT REPEAT the same behavior would be my advice. This perspective is far more valuable than any stock tip.
The fall back from the SP500 Index top is clearly shown here:
The VIX volatility index is retesting the last breakout of volatility and needs to move up Monday to confirm the prior sell-off; otherwise, we’ll at least see a re-topping of the markets.
My suggestion to buy both gold and municipal bonds last week on Twitter has been correct so far. Set some stops and average UP if you need to from this point. Muni returns are fairly low, so you don’t want to go out 25 years to get a yield of less than 4.5% to 5%. Who knows how irresponsible the Fed will be? If you believe we are in a “Japan era” where interest rates will be near zero for the next 10 years, then you may want to take on more risk (by buying bonds that yield less than 4.5% to maturity).
Gold is moving up as shown:
GLD Gold ETF Chart: http://www.sunandstorminvesting.com/gld-etf-gold-market-timing.html
Continue to average UP as gold rises along with silver. Silver can crash if the economy does but does represent a better value than gold. Balance your risk tolerance with your desire to make more and come to a decision to buy or not to buy silver. If the economy goes back into deep recession, neither metal will do well unless there are additional massive free money programs on the part of both the Fed and the Federal government (the Fed is not part of the Federal government by the way, except for the appointment of the Fed Chairman and his/her confirmation by Congress.)
If the Fed keeps the balls in the air through loose monetary policy, the metals will continue to do well even with some economic slowing. A recovering economy and rapidly rising bond yields would damage the metals. The economy is showing signs of mild strength (or mild weakness depending on how you want to look at it) and policy is leaning to the loose side, so in the current environment, the metals are in position to rally further.
The 10 year Treasury Note is still a bearish market signal as discussed last week (see prior issue).
10 Year Treasury Note (TNX) – The Bonus Chart of the Week: http://www.sunandstorminvesting.com/index.html
If you see the 10 year Note (TNX) rallying further, continue to average out of stocks as long as you are willing to get back in. The MTT below gives you a lot of good buying and selling points to consider, which is a major benefit of market timing. Why buy when a market is too stretched, and why buy when there is no evidence that buyers are in the market in reasonable numbers? Be smart. Pay attention to what the markets are saying and act upon it when your set of rules say to do so. If you have no rules, you have no plan. In that case, please get a plan and invest consciously.
Standard Disclaimer: It’s your money and your decision as to how to invest it.
The above is the text from the 8-24-2012 “Weekly Wall Street Sun and Storm Report™. To see the rest of the current issue and this week’s ratings of all 35 markets I follow and receive the newsletter every weekend, subscribe here:
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