A Market Timing Report based on the 8-01-2014 Close, published Saturday August 3rd, 2014

Did earnings or the Fed bring small caps back down so dramatically? Both.  Small cap (RUT, IWM) valuations were stretched, and the bounce back was not warranted.  Add in the Fed lowering QE another notch with strong employment suggesting that rates will go up sooner rather than later and the market believes valuations could drop.  That’s done in two ways: earnings go up or stock prices go down.  With slower growth over the 1^st half of the year, the prospects for rapidly growing earnings are low, so a falling stock market is the alternative.

Small cap rally was cut short early after further QE tapering and strong employment.

You’ll note in the chart above that the small caps still have a 1-3 days of falling to do in order to reach obvious support. That lower red line is like a magnet for stock prices, although at times one index does find support before another and helps to rally the entire market.  There is a long term sell signal among the small caps that just emerged on a closing basis for the month of July.  Not good.

In the chart below, you can see that this could happen for the SP500 Index in just a day or two, or even be completed on one fine Monday morning in August.  Either the red support line shown or the yellow up channel line could provide support for a bounce.  We nibbled on Thursday’s fall, but may have been a bit early…

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Here’s the SP500 Index Chart (SPX, SPY; click to enlarge):

SP500 Index failed at first support.

The Gold ETF Chart (GLD; click to enlarge the chart):

Gold is in a downward wedge, which is Bullish.

The 10 Year Treasury interest rate (TNX, tracked by TLT if Bullish; TBT if Bearish): Rates are still low despite the Fed’s tapering of QE.

Here’s the chart (click to enlarge):

Rates land near the bottom of their range.

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