A Market Timing Report based on the 2-01-2013 Close published Sunday February 3rd, 2012
UPDATE 2-6-2013 after the close: The VIX volatility index is straddling a critical support level of 13.30, which tells you the market is not quite sure whether to sell off or rally more before the next correction. The close today was above that level, but you can see from the chart that the index is really just waffling and could pivot either way. The fact that the market seems to be having a hard time breaking down is in favor of the Bulls, but not by a lot.
UPDATE 2-04-2013 after the close: Are stocks still in? Investors sold stocks today, but the numbers don’t yet define this as more than a pullback in a rally. The signals may materialize of course, and I’ll tell you on Twitter, market by market when I see sell signals. During pullbacks it is a good practice to watch what is holding up better than the general market. Intel is one example as the chart below shows:
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
INTC has been holding up better than the rest of the big tech market over the past few days. It’s a clue. This does not mean that INTC won’t go down if today’s pullback turns into a correction, but it will likely do better than the rest of the tech market. NOTE on 2-6-13: This Intel advantage over the NDX disappeared today, so it may not be a leader should the rally extend itself.
Now for this week’s issue. I begin by discussing the possible shift of investors out of bonds and into stocks…
Heidi Klum is best at saying the “in” vs. “out” thing in the fashion world. Buffett says it better in the investment world and in Buffet’s world, bonds are “out”! The Buffett Bond sell-off is here again, at least for a while. Whether it sticks is a long term issue. Yields failed initially to break out and now have re-challenged the prior high and won. This will create some long faces among bond fund investors when they get their March 31st statements back. Meanwhile, their friends who favor stocks will be crowing about their gains. You know how that works.
Are stocks really a great buy here? The SP500 (SPX, SPY), small caps and large caps are probably already fairly valued, but rallies don’t always stop where they should. The other complicating factor is the GDP number which was minus 0.1%. That is an annualized, seasonally adjusted rate, which means they take the change from the prior quarter and multiply it by four and adjust it for the number of days in the quarter and make other seasonal adjustments.
The details underlying the report showed that the President moved spending forward to boost the economy before the election and then had to rein in spending after the election. I’d guess that is something that every President has done, but it does make the economy look like it is shrinking. This means the economy is likely stronger than that number would imply, so the SP500 Index rallied instead of selling off (see chart link below). The red line in the SP500 chart is my next upside target.
Market Timing Charts for Sunday’s Issue (opens separate window so you can access all the charts at once)
AAII Individual Investor Sentiment eased back a bit entirely because some Bulls turned to “neutral,” which likely just means there are more confused investors. That is actually bullish. The Bulls are at 48.04% down from 52.34% and the Bears are at 24.30% essentially unchanged from 24.27% the prior week. The Bull-Bear spread went from 28.1% to 23.7% this week. That gives the market room to run still.
I bought big tech (QQQ, NDX) including Intel (INTC) at the end of the week in anticipation of a tech rally (NOTE ADDED 2-4-2013: the early signs of a rally were squashed, but the market is now back at the base of the consolidation and needs to break that to generate a sell signal.) Intel was looked at unfavorably when it announced earnings as it’s making a massive $2 billion investment in its own growth. Wall Street is short sighted. It means Intel will continue to dominate the chip space for years to come. I was looking to invest in big tech in general, because tech has not “come along” for the current rally and is behind. Either it catches up or we’ll see a further correction in the overall stock market in my opinion.
There is always a relative choice being made between stocks, bonds, metals, and cash. Bonds are “out” for now. The bond selling (TNX, TBT) is shown via the above link to the Bonus Chart of the Week.
Gold (GLD, GDX) buying is about to begin again I believe. Gold action has been sluggish because investors are beginning to believe the worst is behind us and that the Fed has some sort of super power to avoid over-stimulating the economy. They have rarely been able to do that. Even the great Chairman Greenspan failed to avoid over-stimulating and thereby helped to create the housing bubble. He spoke of over-exuberance and then he fueled it. Chairman Bernanke will do the same. He will continually claim to have control over inflation, but remember that the last time he promised that, there were food riots around the world. Let’s hold that no riots need occur, but believing in “Fed magic” is not a very good bet!
Here again is one key to gold investing expressed in a slightly different way. Gold will rise as long as inflation rises faster than rates, thereby keeping real rates negative. BUT when the economy slows enough due to rising rates, the dynamics will oppose gold price appreciation. Then real rates will be positive because interest rates will be high and the slowing economy will cause a drop in the inflation rate. Then so-called real interest rates will be positive. This is the time you would want to potentially eliminate your gold position or at least pare it back. The gold picture can be seen via the link above.
I still predict that gold will at least one last big “inflation celebration” rally followed by a crushing sell-off. Supporting that notion is that commodity prices are again rising in US dollar terms. Gold will likely move up soon on that strength should it continue.
The VIX volatility index almost rose above our key 30.30 number again, but on Friday, the VIX dropped well below that level. That is bullish for the SP500 Index.
Also bullish is that my prediction of further strength in the banking sector is already coming to fruition. We have a nice new breakout in the BKX banking index.
My sense that housing may have come too far too fast was showing up in the market on Friday. It’s just a hint, but rates are moving up again and the HGX (ITB) housing index moved down while the SP500 index moved up on Friday. Realtors stand to make good money in the next few months as rates ratchet up to 2.4% quickly, scaring buyers into getting deals done sooner rather than later.
Enjoy your week and remember to invest consciously! Note that the long term chart signals have been updated (subscribe for free to see them).
Standard Disclaimer: It’s your money and your decision as to how to invest it.
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