A Market Timing Report based on the 12-12-2014 Close, published Saturday December 13, 2014

12-18-2014 UPDATE ON OIL STOCKS VS. OIL (XOI vs. XOIL [WTI OIL])

Note that oil is dropping much faster than the stocks.  That means one or the other must converge.  If you are buying oil stocks here, you need oil to rally very soon.

Oil stocks OR oil will have to meet at some point again. My guess? Oil will decline some more and drag down oil stocks.

12-16-2014 UPDATE ON SMALL CAP CHART (RUT, IWM):

Small caps seek support.

And now for this past week’s issue:

The SP500 Index will fall to about 1908-1950ish if this level of support does not hold.  Monday could bring one more “flush” lower followed by a bounce.  That final bit of selling dislodges those that see the 50 day “moving monkey average” as some disdainfully call it as a hugely important support level.  Markets almost always test at least a bit below important support and any attempt to set tight stops around them most often fails.  I was correct that the small cap weakness I saw and reported to you last week predicted the doom of the large cap rally.

SP500 Index (SPX, SPY; click the chart to enlarge it): 

Where Will the Pullback Stop?

I am not showing the chart this week, but it turned out that the resistance level I plotted (see last week’s post) for the Chinese ETF FXI did hold back a further rally. 

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What about small caps?  They failed at the same resistance level they tested  three times.  The only support below the yellow up trend line and 200 day moving average is the 50 day moving average.  If the small caps break support, watch for the SP500 Index to break as well.

The U.S. Small Caps (RUT, IWM):  Russell 2000 U.S. Small Cap Chart (click the chart to enlarge it):

Small cap stocks fail where they were expected to fail.

Gold is still rallying.  What’s very encouraging is the increase in volume with each price increase.  Lower and lower rates are good for gold, because there is still some inflation and if rates head lower much faster than the world deflates, real interest rates can turn negative.  There is nothing better than that for gold and other precious metal pricing.

What’s the risk?  The opposite.  If rates move up because the U.S. Fed raises rates in March let’s say, that would help to ward off inflation while raising returns resulting in positive real interest rates, bad for gold.  Remember gold makes us nothing.  The other factor that could help would be having the dollar weaken and it has been doing so.  Still, it’s hard to see how the dollar could become that weak giving how moribund the Eurozone and Japanese economies are.

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

Gold Rally is Intact

The 10 Year Treasury interest rate (TNX, tracked by TLT if Bullish; TBT if Bearish): Rates are indeed plumbing the prior lows which was my original thesis.  Despite that, I exited prematurely it turns out, but I think there is risk now with the Fed statement coming out this next week on Wednesday followed by a live news conference.  Dr. Yellen has an opportunity to speak a lot, which could get her and the markets in trouble.  The world is slowing dramatically, which gives her cover though.  If she fails to take cover, however, rates will rise fast and TLT will sell off hard.

Please Click the TNX Chart to enlarge it:

Rates fall, but will they re-bottom completely?

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