A Market Timing Report based on the 11-09-2012 Close published Sunday November 11th, 2012
UPDATE 11-15-2012 @ 11:00 am: The SP500 Index must stop falling right at this new low established yesterday, or it will likely head to the June 2012 low as the next target. In this last move, there was a consolidation without a bounce, which does not unequivocally predict a repeat of that, but it does raise the risk. When markets drop, go sideways and drop rather than bounce in between, it means sentiment has become more negative.
What about sentiment? The Bull-Bear spread has finally dropped to -20.0% which is bad enough to allow for a bounce in the market. BUT, the probability of at least a retest of some kind of the current low is very likely given the degree of damage that has been done as well as the degree of uncertainty on the political landscape.
If you buy to trade a bounce (realizing we could certainly have 1-2 more jerks down in the market without any bounce – so you’ll need a stop if you buy here), you may have to exit at overhead resistance or risk giving it all back.
What about Gold (GLD)? Gold has weakened today placing our trade at risk. It has the chance to form a reverse head and shoulders and bounce from around 164.50. It has moved up from that area today, but may retest it soon. When stocks sell off dramatically, gold often moves down too, as valuation is relative.
Gold also has had a stronger US dollar fighting it, so a dollar reversal would help a lot. It is not likely however in the midst of a stock market fall, because money moves to safety and the US dollar benefits. So the gold trade is now a crap shoot short term. Longer term, Bernanke’s easy money should support gold for some time to come unless interest rates spike dramatically for US debt.
Now for my weekend report…
The markets are in turmoil following the US Presidential election. Pres. Obama reads the results as a mandate for taxing the rich. He’ll have to compromise of course, but the rich are going to have to pay for this election loss by Romney, that much is clear. Warren Buffett has won! He finally can pay more taxes. Others had suggested he simply directly donate to the federal government. Did you know some people do that in their wills? Perhaps the dividend tax breaks will go bye-bye for them for example. And for that reason, not to mention the storm damage, utilities got clocked this past week. Other dividend paying stocks will no longer provide the benefits they once did for the wealthy, if President Obama has his way, so the wealthy will redistribute their wealth accordingly. We could see big losses still in utility stocks (UTY,XLU).
For my friends in NYC, I would like to agree that $250K in NYC ain’t 250K in OKC! They really need to adjust things further to be fair. But, oh well, who said it was going to be fair!
Presumably the impression that Obama is angry with the rich is a distortion of the fact that he is angry toward Republicans for not passing all of his programs. If he were angry toward the rich, he’d have to yell at himself in the mirror, since he himself admits that he is among the 1% “rich folks.” Let’s all get along and solve the problems of this great nation, OK people? Can we pretend that parties don’t matter for at least long enough to avoid veering off the fiscal cliff? We may be headed off a cliff but at least we don’t have to hear political ads playing in the background! lol
Read the blurb on my blog from last week (11-02-2012) if you want to know how the four market signals worked out on Tuesday. It turned out that the behavior of the markets on the day of the election predicted an Obama win. Among the weakest markets was the small cap index as shown:
The Russell 2000 Index (RUT,IWM): http://www.sunandstorminvesting.com/
Major support has been broken and there is much more damage possible. Fortunately, the SP500 Index may provide the leadership that the small caps need. As I pointed out at the link above, markets don’t all fall to the same technical positions on a big decline like this. Some go much lower than others in terms of key targets/support levels.
The SP500 Index (SPX,SPY) is attempting to find support, ALTHOUGH it is just below, not above that support on the close Friday.
The Tech sector is even worse in terms of the lost gains. Apple stock itself is in its own Bear market (AAPL).
Regardless, if the lows of the past few days are held, we have a chance for a bounce from here. That is why selling everything at this point makes little sense. If the market breaks down further, the next SP 500 Index target to the downside is indicated on the chart at the above link.
My prediction for the gold correction proved correct. Because a Romney win was possible up until Election Day, gold (GLD) could not rally. But on Election Day, the market seemed to know that “Bernanke is safe” and so is completely loose monetary policy, so gold had a hefty rally. Prior to this, gold did indeed fall to around the 200 day moving average, before bouncing as shown:
Where is individual investor sentiment this week? The AAII says that the Bulls were up further from 35.74% to 38.50% and the Bears are down to 39.91% from 41.01% and the spread is now only -1.4% vs. -5.1% last week. Once again, this is even less helpful to the Bulls. The situation is that the market is falling and sentiment has not bottomed, which means there is risk that the SP500 Index bounce that I am expecting may not pan out. I predicted this week’s downside action based on last week’s sentiment. I’d say we’re still in a danger zone as far as sentiment is concerned. Don’t bet the farm as they say.
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