Market Timing Brief for 09-14-2012: Money Here, Money There, Monetary Easing Everywhere!

Based on the 9-14-2012 Close published Sunday Sept. 16th, 2012

UPDATE for 9-19-2012: Today the 10 Year Treasury Note has reverted back to Bear 2 from Bear 3 market timing status, and that is occurring at the prior August low.  The turn could be an important one.  Now here is the issue: Are rates falling because the market is moving back to fear or because it now believes that the Fed will rule over rates?  Did the Fed buy some more Treasuries to create the illusion of cooperation by the bond market or did investors accomplish this? 

We’ll never know the latter most likely, but the key finding is that the VIX is down 2.47% while the 10 Year Treasury yield is down 2.43% (Treasuries are rallying).  The VIX decline means that fear is actually falling, not rising as it did before when Treasuries are rallying.  In summary,  I would interpret the data to mean that the market believes in the Fed and that, my friends, is supportive of a further rally in stocks.

Bad news for Dr. B.  Treasuries (TNX, TYX) have broken down into a Bear 3 status.  (Read about my Bull-Bear market timing system here: My System)  They are selling off once again.  It happened before with QE2 and it’s happening again.  The question is whether the slowing economy will prevent the hoarders from driving up the prices of all commodities relentlessly forcing the Fed to its knees due to inflation?  The last time the Fed acted without the European Central Bank (ECB), there were food riots in India.  Remember?  Be careful to preserve profits in your bond positions.  I know that a big bond sell-off could be many quarters away, but it will come.

Have a look here at where Treasuries are headed: The Bonus Chart of the Week:

The bond sell-off will come eventually because the laws of the Universe have not been repealed.  Printing funny money will come home to roost.  All the Fed is doing is moving money from the bank accounts of retired savers to those of under water house owners.  He tells the savers that they are better off with higher stocks and higher housing prices.  You can decide what you believe to be the truth.

In the meantime, stay away from bonds, except junk bonds per the trend up (now stretched and only a hold), but be prepared to buy some municipal bonds when they are discounted heavily.

Fiscal constraint is no where in sight.  Pres. Obama and Pres. Possibility Romney BOTH will spend big wads of cash; it’s just that they’ll spend it on different things and in the end there will still be huge deficits.  Gold and other metals should continue on up as long as these characters are all we have to choose from.

The SP500 Index made another big breakout this past Thursday.  There has been one breakout per Central Bank Chairman.  Fair is fair.  Money is money, so it doesn’t matter whether the Europeans, Bernanke, or the Chinese are spraying money around.  It all drives up asset prices.

The chart of the SP500 Index (SPX, SPY) shows the big jump here:

Last week I said: “A VIX volatility index (VIX, VXX) move below 13.30 will verify a further rally of the SP500 Index to the 2007 highs.  There are only about 1 to 3 more days left for the VIX to move down before testing the support at the August low.”  This week the VIX hit the August low and bounced a bit.  The Bears think this could be the start of a pullback, but the market is not giving way yet.  The VIX could break 13.30 and head toward the 2005-2007 lows.  The SP500 would retop at the 2007 highs in that case.  This is fascinating because the market really has to get more complacent for that retopping to occur for stocks.  But it CAN happen.

In fact, sentiment still supports a further rally.  Investor sentiment by AAII shows the Bulls and Bears are at a spread (subtracting Bears from Bulls) of +3.5%.  Last week I said: “The Bulls reached 45.61% back in March 2012 before the market finally started selling off from the 4-2-2012 high, so there is room to the upside for sentiment and the markets.”  The Bulls are only at 36.46% this week and have plenty of room to run.

My metal recommendation to buy gold (GLD) has continued to be correct for a third straight week.  Silver has been shooting up as well.  Stay in gold (I decided to switch out of my silver to gold to contain risk – silver won in the end, but gold did too).  Do protect profits with a stop at a certain point and just get back in if you need to.  Set your stops where you feel comfortable.

Gold broke out in again on Thursday along with silver (SLV), which was a gift from the Fed to you as shown:

GLD Gold ETF Chart:

Gold is not as good of a buy this week as last, because there is overhead resistance as the chart shows.  That is not to say it won’t go through those levels, but it would explain a pullback or hesitation there.

The US Dollar Index was clobbered last week of course (UUP, USDX, EUR/USD).   The October 2011 lows are in sight.  I expect the dollar to drop to those levels and further support the rallies in the precious metal and commodity markets.  I do not expect a single move there however.  The dollar index is nearing some support as discussed in the MTT below, so there is the risk of a bounce.  Realize that the Fed does have to be careful here, as commodities are already more than half way back to the prior high!

Standard Disclaimer: It’s your money and your decision as to how to invest it.

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This entry was posted in gold, gold etf, investment, Market timing, S&P 500 Index, silver, silver ETF, trading, Treasuries, US Dollar Index, volatility index and tagged , , , , , , , , , . Bookmark the permalink.

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