A Market Timing Report based on the 2-15-2013 Close published Sunday February 17th, 2012

I’ll get to the subject of the this week’s Brief title in a minute, but first I want to review the damage in gold and gold stocks for the week.  As regular readers know, we’ve been out of trading gold positions during most of this decline.  Getting out when our rally thesis failed was the key.

One of the big reasons gold is doing so badly is that interest rates are rising (TNX, TLT, TBT).  This means that the market must believe that real inflation is here in excess of the rise in interest rates.  That gives us positive rather than negative real interest rates.  Gold performs best when real interest rates are negative as they’ve been in the Bernanke Bubble.

When Dr. B. was sounding a bit too happy about the state of the economy this week, interest rates shot up, bonds went down and so did gold, under the presumption perhaps that rates were rising faster than inflation.  If inflation were to rise rapidly and the Fed were to fall behind, gold would soar, because that would equate to negative real interest rates, rates higher than the inflation rate.  Raising rates enough to prevent inflation is the mission for Dr. B.  If the Fed stays ahead of inflation, the Fed wins this game and gold loses.  History tells us that the Fed has rarely succeeded in keeping on top of inflation in the end.  The Fed is skating close to the edge.  Notice gas and oil prices climbing again?

Understanding the complex equation of inflation vs. gold prices is a fine sport, but realistically, I find it more useful to let the economists make their divergent predictions and follow the gold (GLD) and gold miners (HUI, GDX) charts.  If you did as well, you do not have a trading position in gold at the present time.  Longer term positions can be held with wider stops, at least in my investment practice.  If you did not allow gold room to fall occasionally over the past 10 years, you’ve given up a lot of gains.  And some of you will never sell your entire position just as you would not sell all your US dollars.  That is fine.  Just realize what you are doing of course.  Be conscious about it.

The Bonus Chart of the Week shows the rise of interest rates. Open it at the following link:  Market Timing Charts for Sunday’s Issue (opens separate window so you can access all the charts)

And gold itself can clearly fall even more as this week’s chart indicates at the above link.

Please also click on the gold miner page if you are following the miners (see blue bar on the main site).  The gold miners continue to follow gold down and are between two support levels at the moment.  There is likely a bit more downside.  At least a bit, though gold stocks are cheap in PE and even yield more than cash in US banks.

What about stocks (SPX, SPY)?  You’ve been doing better in stocks than gold lately if you are in both.  The market edged up a bit after the last breakout and this slow creep up can continue.  Sentiment supports that view too with the Bull Bear spread only moving from 13.2% to 13.5% this week with the Bull and Bear percentages each moving up a tiny amount and reducing the neutrals by 2.66% according to the American Association of Individual Investors.

I think the S&P 500 can continue to creep up to 1553 or even the 2007 high as shown on this week’s chart at the above link.  Is this the best place to scramble into the market?  No, but you could increase your exposure slowly and exit with a stop if needed.  That is about all you can say to the “late comers.”  The market is not as cheap as it was, but it can get more expensive as Warren Buffett showed by taking Heinz ketchup off the market at a PE of 22!  But going back to the charts, sometimes, as in 2007, the market retops at an obvious place and falls, while at other times the market does not retop, but just keeps moving through resistance levels.  Moving out in steps when the market breaks down is important and changing your mind is as well.  The VIX is challenging the recent low of 12.30 and needs to cut through there soon.

Look at the charts below, because they pose the all important question you have to ask yourself if you are a buy and hold investor: Will I hold all my stocks again and ride them back down toward the 2009 low potentially or do I have a place I am planning to get out?  I call that “Passive Shorting™.”  It’s explained on the main website.  One of my favorite sayings in teaching other investors what I’ve learned is that “The market is not a pony ride up the side of the Grand Canyon.  Don’t just ride it back down once you reach the top!”  I guess they may use horses or donkeys on those Grand Canyon Trails, but you get the point!  Leave some wiggle room on your stops of course, but don’t just give it all back!  Study the charts on the next page to “get the big picture.”

Here are the two massive highs and the 2013 rally:

Is this 2007 all over again or do we now move to brand new highs?

All Charts are courtesy of the Worden Brothers TC2000 Charting system, which I love and have used since April 19^th, 2001: My Charting System

Here’s the weekly chart which shows you how far we have to go to get back to the 2007 high (compare it to the daily at the link above) Hand notice the length of this bull leg to the last uptrend that started in June 2012 and ended in Sept. 2012:

Weekly SP500 Chart showing the distance in price from the 2007 high.

I hope this has helped you see where we are as well as the potential long term implications of such a move, especially if it does not lead to new highs above 2000 and 2007.  If you appreciate this effort on my part, would you please like the various pages via the Facebook buttons when you visit them?  This is one of the ways you can reciprocate in our relationship via these newsletters, and I greatly appreciate the feedback.  I devote my time based on what the feedback indicates is useful to you.

I’ve put a lot of comments in the MTT table (see this week’s free issue) this week in order to update the other markets.

Have a great week investing and/or trading!

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