There were lots of big bad breaks in markets this week. The market timing bells were going off all over the world and in every area of investment. Stocks down, bonds down, gold down, and one thing up, the US dollar (UUP, USDX). The reason is that the 10 Year Treasury (TNX, TBT) went up in yield above my 1st target of 2.4% in yield (see Bonus Chart post link to upper right to catch up).
Suddenly the liquidity is being shut off is what the market thinks despite the protestations of “not quite yet,” by Dr. B. “Not quite yet” is not “sometime in the distant future” in market speak, so the markets did the opposite of what they have done over the past few years which was previously to INFLATE.
Deflation of all assets is what you saw this week, which I have to add to my prior PDF as the “Sell everything Panic Scenario.” Previously bonds were still a “safe place,” or so the market thought. But that was AFTER 2008. Bonds crashed in 2008, which many have forgotten. This is a 2008-style “sell everything” panic.
Yes, it’s just the beginning, but the drop of bonds since this started has been dramatic. Gold has been collapsing in stages as you know. Now stocks are coming along for the ride down the hill. Set your mental stops. Preserve your profits and be prepared to buy everything back at lower prices. That’s my take on it.
US Large Caps Broken (SP500 Index below support):
US Mid Caps Broken:
US Small Cap Stocks Down and Just Below the Break Point
Gold (GLD) Broken:
We may actually see gold start to find a true bottom before stocks. And in 2008 bonds bottomed before gold. The bottoming order was bonds, gold, and then stocks in 2008.
Bonds (LQD) had three separate big declines in 2008 with a failure of the first reversal attempt above the first low. Go back and review the 2011 summer carnage in the markets. It could get as bad this time too. It’s not likely to get as bad as 2008, because the central banks have too many tricks up their sleeves.
But once again, if you sell, you must be prepared to re-buy either lower or higher or do not bother selling. We must have the fortitude to re-buy lower when others don’t want to buy, even if we risk capital to find the bottom at times. If that happens, we simply sell and take our losses like grown-ups and re-enter still lower or wait for higher highs.
I was forced to do this when the market did a head fake and failed a breakout this past week. My thesis was that the new high would not have occurred ahead of the Fed unless the market had already decided what the outcome of the Fed meeting was going to be. I was wrong. Fortunately, I quickly saw that the slight breakout was becoming a pivot point (see my Twitter posts to see the flow of my thoughts), and exited in two steps.
I think in this case, a one step exit was justified, because the buys were based on my breakout thesis which was proven wrong. Hedging that failure did not serve me.
Getting out quickly following the Japan tsunami, which we did, was very effective for example, because at times the market falls slowly before falling faster. We could be moving into a “falling faster” phase in the current sell-off going this week.
It’s also important to recognize that we won’t always catch the bottoms and must have the strength to admit we’re wrong and re-buy higher if that is the case.
The later you sell, the greater the risk of a bounce. I saw this decline lining up several weeks ago, as my posts show. The markets provided excellent examples of massive stretching in many markets, especially the REITs that are interest rate sensitive. They plummeted after I highlighted them in previous Market Timing Briefs.
In the SP500 Index, a bounce could take us somewhat above the 50 day moving average, although I favor a further fall within the next few days, even if Monday goes sideways. Sometimes a market will rise back to the break point such as the prior lows or the 50 day moving average and then fail again.
If a bounce occurs early this next week on anything but an interest rate reversal BELOW the 2.4% level, it will be suspect. Be careful of buying small bounces, as I bit too early as prices rose above the prior high on 6-18-2013, the day before the Fed announcement, and had to book losses on that early bite as mentioned. Fortunately I was buying in stages, so the bite back was not that horrible, but it isn’t fun! Remember that I was buying back after selling much more at higher prices, so I am still well ahead in this sell-off over the buy and hold strategy.
As a reminder of where this 3rd wave of stock selling could take us, the post is here: My Stock Market Timing Target with the 10 Year Rate Above 2.4% It is possible that a bounce may occur at the retest of the breakout point at the 2007 high of 1576.09, but I believe the low will much lower than that.
Follow me on Twitter here: Follow Me on Twitter
I thank Worden Brothers for the chart system I use to post these charts. If you want to know more about the charting system I use every day, go to my “Other Resources” page here: Other Resources It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer, so it’s a great investment to have an excellent charting system.
To receive future reports and reminders that charts are ready to be viewed, subscribe for free here:
The next full issue will be out on Sunday, 6-30-2013 for free subscribers. Look for updates on the main chart tracking pages this week as I feel they are needed and comments via Twitter.
Copyright © 2013 By Wall Street Sun and Storm Report, LLC All rights reserved.