A Market Timing Report based on the 9-28-2012 Close published Sunday Sept. 30th, 2012

The Weekly Wall Street Sun and Storm Report™

UPDATE for 10-04-2012 @ 9:55 pm: The SP500 Index has found support after a brief and shallow correction.  It has the ability to at least retop as the chart shows below. 

There is a lot of skepticism about this rally as sentiment revealed this week  (Google AAII Survey and my post on it should be about 4th from the top at sunandstorminvesting.com.  It is the top ranked independent review of AAII sentiment on Google. )   My analysis is the same for this weeks’ data out at midnight CT on Weds.  The Bull-Bear spread is only +0.6%, because Bears went down and Bulls went down too.

Note that the small caps must rejoin the rally with greater strength and the SP500 Index must break out again to keep this Bull running.  Otherwise we simply retop or come close to it and fall after earnings start disappointing the market next week.  That is what the Bears would say. 

Check out the steady progress of the SP500 Index on the chart below as it climbs further above the April 2012 high:

The SP500 Index looks ready to re-challenge the last high.

NOW for my comments from this past Sunday, when things were a bit bleaker!

You don’t see that sort of line in the news.  But keep reading and you’ll see the market timing evidence.  Not all the stars are aligned yet with a big sell-off, but they are starting to stack up.  For one, the NASDAQ and other important indices have broken down as explained later.

The 10 Year Treasury Note (TNX) has hit the same spot it reached at the end of August, just under the 50 day moving average.  If it continues down in yield from here, stocks will be selling off some more, so it’s worth following.

10 Year Treasury Note: The Bonus Chart of the Week: http://www.sunandstorminvesting.com/index.html

The SP500 Index (SPX, SPY) has been correcting for the past four days nearly wiping out all the the Bernanke pop after the QE3 announcement.  I doubt the correction is over.  The 50 day moving average looks like the closest target, which will soon coincide with the April 2012 high.  The next target would be the 9-04-2012 low.

Here’s the SP500 Index Chart:

http://www.sunandstorminvesting.com/sp500-index-sp500tracker.html

The VIX volatility index (VIX, VXX) has held a low and is now back above the 5 day moving average, able to move up easily now with the market correcting further.

The Dow (DJI, DIA) dropped to within 29 points of the May 2012 high, but will likely test lower than that.  The Dow Transports (DJI, IYT) breached both the July and August lows will likely attack the June low next.  The banking index (BKX, XLF) has broken down below the last breakout but could simply correct back to its 50 day moving average or slightly lower and continue the up trend.  Big tech (NDX, QQQ) is testing the April 2012 high as well, so there are multiple indices that are flirting with major breakdowns that could lead to at least a very significant correction.  The NASDAQ is in fact below its March 2012 high.   There is a significant banking component in the NASDAQ which is likely the culprit.  The midcaps (MID, MDY) and small caps (IWM, IWO, IWN, RUT, RUO, RUJ) have broken down below their prior 2012 highs.  Newsflash: We are in a correction now.

How low we go depends on many things, some of which are complete unknowns.  That is why I do not choose to ride out these corrections with a fully loaded stock portfolio.  I currently am at about 40% of my “100% level of stocks.”  For some, the 100% level should be 90-100%, while for others in late retirement 30% might be all they would want in equity exposure.  If you are a shrewd value investor like Warren Buffett, you could have a huge percentage of your assets in stocks and be fine.   You had better understand value well to do that.  That said, I was able to make good money trading Buffett’s stock (BRKA/BRKB) up and down last summer and have held it since the bottom.  It is the one position I have not traded since.  I am using a wide stop on it.

Commodities (CRB Index, DBC (watch out for tax consequences in IRAs), DJP) have made a dip below the 50 day moving average and now are just above.  The currency we call gold has been having trouble scaling immediate overhead resistance.  If it makes it over there, I’ll have to re-enter, but for now, my trading position is zero and my long position is around 10% of total assets while my trading position was about 5%.  Some say you should only have 5% of assets in gold.  Unfortunately they often don’t state whether they are talking about liquid assets or total assets.  I heard Cramer talking about 20% a while back, again without specifying his terms.  If you have a lot of other hard assets like real estate, you probably don’t need as much gold exposure, but real estate is not as liquid as gold of course.  Make your own judgment as usual.

The near month US dollar index futures (USDX, UUP) broke out slightly again maintaining the steady up trend.  This is the biggest headwind for both stocks and for gold. 

Catch up with the GLD Gold ETF Chart: http://www.sunandstorminvesting.com/gld-etf-gold-market-timing.html

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

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