A Market Timing Report based on the 11-02-2012 Close published Sunday November 4th, 2012
UPDATE 11-06-2012: So what did the four Election Indices say today?
GLD (gold ETF): strongly to Obama (based on reaction today)
OIL: strongly to Obama (based on reaction today)
BKX (banking stocks): Marginally to Romney
DRG (drug stocks): Marginally to Romney
I’d say the net result is an Obama win based on the above 4 markets. I was also impressed by the pop in the SP500 Index today but it stopped just below the 50 day moving average. I suspect it will move higher on an Obama win and lower with a Romney win at least as an initial reaction. Why? Because Romney is more “pro-US dollar.” Loose money inflates stocks. Gold and silver will rally hard if Obama wins and sell off if Romney does for just that reason.
The Small Caps pretty much summed up the stock markets this week with the failing of the breakout that was attempted on Thursday. We went right up to resistance of the 50 day moving average and “kissed it,” and then failed. That is a typical retracement in a declining market and throws off both Bulls and Bears as shown in this week’s bonus chart.
The Russell 2000 Index (RUT,IWM): http://www.sunandstorminvesting.com/
My SP500 Index (SPX,SPY) target of 1396.56 is now in play again. We are right back in the consolidation (sideways move) we left off with last week. On Wednesday, the market stood at about pre-Sandy levels and jumped up on Thursday based on marginally better employment news. That’s what the headlines may have said, but maybe it was the election tilting a bit toward Pres. Obama. The real truth was perhaps that it jumped up for no good reason as the next day it gave it all back as the chart shows:
In the meantime, gold (GLD) looked like it had support, but even slight improvement in the new jobs number sent it down through support on Friday. The thought is that the Fed will be sidelined as the economy improves, so gold sold off and broke the daily up trend line that it had previously established. It also broke the daily up trend line that has been in place since the summer. Ouch! Fortunately we only have a 25% trading position on at the moment. Longer term I believe gold has more room to run.
But for now, gold could now fall to the 200 day moving average before reversing as shown: http://www.sunandstorminvesting.com/gld-etf-gold-market-timing.html
It is a bit stretched to the downside due to Friday’s move and may bounce back to retest the up trend line and then turn down again. Is it really believable that the economy is recovering in a sustainable way? Will it all work out if Pres. Obama is re-elected and the House stays Republican? Do you think they’ll be happy to help him after the election? The point is that the future is uncertain regardless of the political party elected. The fiscal cliff could get scarier if Pres. Obama wins. The possibility of too much fiscal constraint may be an issue if Romney is elected, although the tax cuts he has planned may take care of that. Remember that Reagan did not keep his promise to balance the budget. Romney is unlikely to do that either despite his intention to do so.
Where is individual investor sentiment this week according to AAII? The Survey Says the Bulls are up from 29.25% at 35.74%, Bears are down to 41.01% from 43.08% and the spread is now only -5.1% vs. -13.8%. This is not helpful to the Bulls, because sentiment never got low enough to allow for a turn from a washed out market. The fact that the market pulled back on Friday, quickly giving up big gains from the prior day shows that there is still work to be done on the downside, at least to the base of the recent consolidation.
Without indicating whom I favor, I’d say my drug stock index (DRG) Election Signal is flashing a warning on Pres. Obama’s re-election (Biotech (BTK) is taking it on the chin as well by the way). The index just fell into a Bear 2 status, which may be significant occurring right before the election. The polls are too close to call, so I’ll give tomorrow’s close the nod. If the signal changes back by Tuesday to a Bull 3, it’s Obama. If it stays a Bear 2 or worse, Romney is going to give the pharmaceutical industry a shock on Tuesday. The Oil Signal (XOIL) is also flashing a possible Romney win. Oil has been dropping steadily since September. Remember that Romney will drill drill drill and kill kill kill the Saudi economy and oil prices in the process. The Treasury market also favors Romney with its Bear 3 signal for both the 10 Year Note (TNX) and the 30 year bond (TYX), but it could shift back to Obama bullish by Election Day. The Banking Signal (BKX,XLF) is also flashing Romney at the moment. The banks are hoping for a repeal of Dodd-Frank. So in summary, at the moment and this could change by Election Day, four critical markets favor a Romney win on Tuesday. If this changes by Tuesday’s close, I’ll let you know at the top of this blog as an update.
Meanwhile most polls give President Obama the edge.
Vote according to your own heart on this one!
Have a great week!
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