A Market Timing Report based on the 1-04-2013 Close published Sunday January 6th, 2012
UPDATE 1-07-2013 after the close: Today’s little pullback was “noise.” The market stayed within the market timing price range of the prior two days as shown on the chart below. In fact, it can retest the breakout at the top aqua line and then rally. The real issue is whether earnings will turn this into a temporary top in the market or allow for a breakout. More aggressive traders could sell some or all of their positions as close to the recent high as possible and rebuy a higher close above the overhead resistance line shown below.
I personally will be protecting a good percentage of the accrued profits during this last run up, while maintaining a smaller core position should the market sell off significantly. All my stops are written down, and I suggest that you consider doing the same. Where you set them is personal to your plan. Having a plan is very effective in battling the emotions we may feel when we’re “in the clutch.”
And now this week’s issue…
After the cliff comes the debt ceiling debate. Don’t be fooled by that debate either. The issue is not whether or not we are going to pay our bills. Anyone messing with Mother Global Bond Market will have hell to pay. Congress would not dare to default on our debts, but they will grandstand a lot and even Obama will be shamed into some degree of compromise. The issue behind this that Rick Santelli regularly rants about on CNBC is that we have far too much debt and to not deal with it even in the face of a slowing economy will cause even more pain later. That is what Rick thinks. What do you think? Tweet me a comment on Twitter!
The SP500 Index (SPX, SPY) is set up now for a retest of the autumn highs as shown in this week’s chart:
Market Timing Charts for Sunday’s Issue are Here (opens separate window so you can access all the charts at once)
The thing to watch every earnings season is how stocks react to the current earnings AND to the projections. If they are both a bit soft and the market rallies, the Bulls will win. Markets do not like big surprises though, so if there are a series of big misses the Bears will have their day. I do not believe that this will be the case, except for some retailers who are still hiding their results prior to the quarterly report.
The next issue on the table is familiar to many of you, but could be the source of the next Bull leg in the markets. Bonds are the basis for that next leg, if they continue to sell off as they have recently. I go over the details here and show you the chart at the link above (Bonus Chart of the Week link).
The other consequence of the rise of the 10 Year Treasury Note to which many mortgages are tied is that housing sales could be artificially stimulated via a further rise in rates. For that to happen, the Fed will have to sit on its hands and stop buying Treasuries as much as they’ve been doing.
Gold (GLD) investors are tiring a bit after little progress for the past year and half. The down trend line that could not be broken to the upside remains the nearby resistance as the chart shows (see above link)
The fact that the gold mining stocks (GDX) held on by a thread last week in the presence of gold weakness was impressive. Perhaps the end of the selling is in sight. If not, the 2012 lows look like a reasonable next downside target.
How are investors feeling lately sentiment-wise? The AAII survey shows that the Bull Bear spread dropped to 2.5% from 14.2% the prior week. Now the data matches that of 8-30-2012. We could still have a rally lasting 1-2 market weeks followed by a significant decline. When the spread falls to MINUS 15 – 20%, the correction will be under way. Before that there could be a few weeks of forming a top by easing back a bit, rallying and then easing back. The first or second retest of the top would then fail. The October 2012 decline was preceded by a -15.9% spread (Bear % outnumbering Bull % by that margin).
Volatility (VIX) has collapsed back to the numerous 2012 lows, so we need a VIX breakout to the downside (further big drop in volatility) for the SP500 Index to rally back to the 2007 high.
I’ve updated the so called long term signals in the MTT below, which is done on a monthly basis.
In summary, watch the response of investors to upcoming earnings and be prepared to take some profits within a week or two if you prefer to market time at least part of your holdings as I do. However, if there is a new breakout of the SP500, you may want to see if that holds before selling.
Standard Disclaimer: It’s your money and your decision as to how to invest it.
The above is the text from this week’s free report. To receive future reports ahead of publication of the text shown above AND much more market timing information, please subscribe for free here:
All Charts are courtesy of the Worden Brothers TC2000 Charting system, which I love and have used since April 19th, 2001 and it’s continually improving: My Charting System
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