A Market Timing Report based on the 3-22-2013 Close published Sunday March 24th, 2013
UPDATE for 3-25-2013 @ 8:09 pm: The SP500 Index closed today in the middle of the current consolidation band, meaning we’re still going sideways in the US markets.
And now for this week’s text…
The emerging markets (VWO, EEM) rose with our markets after the low was hit in March 2009, but have failed to keep up recently. On January 3, 2013, the emerging markets started a sell-off that has continued with small rises in the down trend, while our market has continued to move up from the November low. This won’t persist. Either the emerging markets need to make the turn upward or the SP500 will sell off. Access the chart which is listed as the Bonus Chart of the Week:
Market Timing Charts for Sunday’s Issue (opens separate window)
You could claim the SP500 Index (SPX, SPY) has been consolidating (moving sideways in market timing terms) over the past 10 market days, but really the chart looks like a consolidation, followed by a false breakout to new highs, and then another consolidation back down at the lower level. So there is some weakness that has appeared in the failure to maintain the new recent high, which amounted to a failed minor breakout as the chart shows at the above link.
The VIX (volatility index) is back above “my number” of 13.30. You’ll note that my numbers are the numbers around which the market will play very often. That is, at least, when I know I have the market’s number. It plays around it or hesitates at it. It must dive below 13.30 again to allow any significant SP500 rally. Housing stocks are an indicator for the financial system and just failed a breakout. They might pull it off this next week, but the reversal this week was negative.
The strength in the 10 Year Treasury and corporate bonds off their lows is a negative for stocks. It means that the “Great Rotation” referred to last week from bonds to stocks may be delayed yet again!
My sentiment analysis from last week still stands. The AAII Survey of investor sentiment saw the Bull – Bear Spread contract from 13.4% to 5.6% this week. Bulls dropped to 38.94% from 45.2% and Bears increased only slightly from 32.03% to 33.33%. At the moment, this supports only a mild correction at best.
The technical formation by itself could resolve upward with a breakout as back in August 2012 when that was the case (compare this chart to that at the above link):
I thank Worden Brothers for the charting system. If you want to know more about the charting system I use every day, go to my “Other Resources” page here:
My Chart Source
Longer term, the market corrected fairly substantially after the breakout however.
The US dollar index (UUP, USDX) has been rounding off a top and may continue correcting for a bit. This is of course helpful to commodities and precious metals including gold (GLD). The gold ETF has still not risen above the blip up induced by Bernanke’s words back on 2-26-13 as the chart reveals at the link above.
That, by the way, is part of the value of this newsletter. There is no point in buying at a top unless you are ignoring the chart and relying solely on valuation to make your buying decision. Why not wait to see prices above resistance, especially on a close, before adding to positions? So that is one benefit of understanding the charts. You don’t buy at really bad chart points. This is one such point for the SP500 Index. Why buy here when we just failed a breakout? One could buy if the prior recent high is exceeded. I don’t expect that right away, but that would be the point to buy. The other place you could buy is off a low within the current consolidation. That is a bit riskier, because the consolidation may break, giving rise to lower lows, but if you set a stop just below the consolidation, it would not be ridiculous to buy at its base.
It could be that gold finally gets the break it needs. The gold mining stocks (GDX) look like this (download the PDF and open it in Acrobat if you see a bunch of wavy lines; the chart will be clear):
GDX Chart Hints:
- Intermediate trend is down.
- The short term trend is up, because there is now both:
- A higher high since the high of 3-12-2013 and
- There has been a reversal back above the 2-20-2013 low.
- However, the price has pulled back below the 3-12-2013 high, which is negative.
Based on points 2 and 3, GDX will be a buy on a short term basis at least when it climbs back above the 3-23-2013 high of 38.58.
So what are the “takeaways” this week? The SP500 Index failed a minor breakout just over a week ago and there is no point in buying more until we see a new recent high (by new recent high, I mean a high higher than recent prices; the all time high was back in 2007). Emerging markets are signaling a US stock market sell off unless VWO quickly rallies. A VIX volatility index value below 13.30 is probably a MUST for a further SP500 Index rally. Gold and gold stocks are looking like they have a chance, but if they fail this opportunity, I expect major damage to gold and gold stocks.
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Have a great week investing and/or trading!
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