Market Timing Brief for the 10-31-2014 Close: Markets Get Latest Monetary Cocaine Fix via Japan. The U.S. Will Now Import Deflation.

A Market Timing Report based on the 10-31-2014 Close, published Sunday November 2, 2014

The SP500 Index has risen off a V bottom and has yet to retest lower.
This week it was Japan that provided the funny money for the worldwide rally to continue by pursuing an easy money policy.  At least until the economic recovery falters.  We are invested 95% long but are watching the exit.  Remember as I Tweeted this week, cheap Japanese goods are NOT good for U.S. multinationals.  That makes us less competitive, which means lower sales and even lower profits due to the need to lower pricing in U.S. dollar terms to keep up with the Japanese devaluation.  When Japan prints money, the U.S. imports DEFLATION, which means falling U.S. corporate earnings.  It helps U.S. consumers, but hurts pricing and profits.

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SP500 Index (SPX, SPY; click the chart to enlarge it): We’re back to the top!  Things are stretched for sure and even a mild pullback would be healthy even if it’s just to the 50 day moving average (or just below to scare out a few more weak hands).  ISM manufacturing index is out tomorrow at 10 am ET.  That could motivate the market to choose its next move.  There is plenty of room for a pullback now.  Even if we get yet another high, we may see a retest after that.


Will the V bottom be tested?

Sentiment stayed at a persistently positive moving from a Bull minus Bear percentage spread of 27.2% to 28.3%. See the NEW UPDATE HERE: AAII Survey Says!  (IT WAS UPDATED again on 11-06-2014!)

The U.S. Small Caps (RUT, IWM):  Russell 2000 U.S. Small Cap Chart (click the chart to enlarge it): See the potential island reversal set-up in the chart below?  An island reversal means there is a gap up, then a gap down, so a price “island” is left hanging in the “air.”


Above the down trend line, but a bit too much too soon.

Gold failed at support and is in danger of a further drop.  Because there is rising deflation now, real interest rates are rising, not falling and that hurts gold.  Money printing should help it, but only in the currencies being printed.  If the Fed does not rejoin the money printing game along with the ECB, Japan, and China, gold will go up in terms of each of those currencies and by the sheer demand increase gold prices could be somewhat supported.  But a stronger dollar brings gold prices down in the U.S. and leads to more selling here.  That is the balance being struck and the result is the spot price.  For now, dollar strength is winning over gold purchases in the rest of the world.  (see my website for a further explanation of gold pricing in various currencies here: Gold Priced in Currencies).

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


Gold broke major support.

The 10 Year Treasury interest rate (TNX, tracked by TLT if Bullish; TBT if Bearish): rates are testing above what was resistance.  Rates cannot rise too high when the rest of the world is printing money.  If they do, the dollar will crush U.S. corporate earnings. 

Please Click the TNX Chart to enlarge it:


The 10 Year Treasury Yield rose above nearby resistance after the Fed statement.

What would be the perfect Bearish scenario?  If gold reverses UP hard with a falling U.S. dollar and falling Treasury yields, and the stock market falls from Friday’s highs.  That would produce island reversals in many indices simultaneously and be very Bearish short term.

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I thank Worden Brothers for the charting 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.  It’s a great investment to have an excellent charting system.  Check it out with a free trial at the link above.

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