A Market Timing Report based on the 3-20-2015 Close, published Sunday March 22nd, 2015
I keep my comments reasonably brief to honor both my time and yours. The rest is on Twitter®/StockTwits®.
Let’s see how I did with:
CONCLUSIONS FROM LAST WEEK
U.S. stocks may be at a pivot point, where a bounce will occur.
Small caps suggest a bounce, while large caps are lagging, still below the prior breakout.
Right. Small caps led the bounce too.
Follow interest rates, and you’ll know where stocks will go, because you’ll know where the U.S. dollar is going.
Right. The dollar jerked around but has fallen from the last high.
Gold must hold support, or we’ll have another free fall.
Gold did hold. Free fall avoided for now.
I should claim victory, as we were overexposed to the stock markets of the world prior to the most recent rally back. The thing is, the direction of the market changes often, so there is an opportunity to be right and wrong within any extended period of time. What HAS been right is STAYING IN THE STOCK MARKET and U.S. TREASURIES.
(If you have not yet read what will happen IF the Fed raises rates, you’ve just got to read this: It’s Not What You Think)
Most individual investors are incapable of sitting still and letting stocks do their thing. They jerk their money in and out, often at the exact wrong times. If you have been doing this for most of your life, there is still hope. NOW STOP IT! Did you hear that? STOP SCREWING UP YOUR INVESTMENT RESULTS BY OVERTRADING! Post that on your office wall, and you’ll make a fortune investing from here on.
There is no recession in view and the Fed this week did what I thought they would. They removed the word patient and then said they’d have to be patient! The exact wording did not matter. They simply needed the market do know that they were not on some stupid Fed autopilot that said they HAVE to raise rates in June. They re-calculated their incorrect projections for our economy and lowered them. I’ll show you the charts now.
SP500 Index (SPX, SPY; click the chart to enlarge it):
Next stop for the SPX? The orange, majenta, or yellow trend lines shown in the above chart. We will likely match the prior high, but I’m guessing we’ll get to a new high. Earnings are due to fall this quarter, so there could be bumps along the way, but as long as the Fed is out of the way, rates are under control, and growth continues, albeit at a slower pace, stocks will do OK.
Small caps are stronger once again. Valuations are now worse that a year ago according to L. Birinyi and the Wall St. Journal: Small Cap Valuations Too High Once Again
You can buy small caps despite higher valuations and stay with them for a while, but they will fall harder during pullbacks. Buy low, sell high. I’m using a different strategy, however, which is to leverage my large cap exposure. I am not using margin, just deploying more cash than usual. This may NOT be appropriate for you depending on your situation.
Russell 2000 U.S. Small Cap Chart (RUT, IWM; click the chart to enlarge it):
Gold: GLD survived support at 109.67. Gold still has the headwind of the U.S. dollar, which has been whipping around since the Fed statement and pony show. But now rates are moving lower again, so the dollar may pull back as well.
What’s the cleaner bet that may be better than gold here? Investing in Treasuries as shown in the 2nd chart below.
The Gold ETF Chart (GLD; click to enlarge the chart):
The U.S. 10 Year Treasury Note: Keep buying every rise in rates (fall in Treasuries/TLT). The only thing we can be certain of is that the 10 Year Treasury is going to keep falling to catch up to the rest of the world. Either that or the Fed kills the U.S. economy. Now what do you really think they will do??? Buy TLT on every pullback until this changes (inflation rears its head).
Please Click the TNX Chart to enlarge it (see related ETFs, TLT, UBT and TBT; NOTE THIS IS A WEEKLY Chart):
CONCLUSIONS: The SP500 will move still higher. The Fed will ensure that by keep interest rates low for a long time.
Our rates are still higher than the rest of the developed world. They must head lower. It has nothing to do with that being “good” or “right.” It has to do with what is going to happen. Rates will head still lower. That will keep gold from breaking support, but the U.S. dollar must keep falling from here to have gold rally in a much more substantial way.
Some think the U.S. is not willing to join Europe in easing with a U.S. QE 4, so the dollar will stay relatively strong, even if the Fed does not RAISE rates. That, if true, is a headwind for gold, which needs negative real rates (meaning inflation exceeding interest rates on Treasuries) and a stable to falling dollar to flourish.
My prediction in the short term is different from that. I say in the next week, rates will break the support shown in the above chart (below prior low), the dollar will trade lower, and gold (and the SP500) will move higher. We’ll check back next week to see if that was right.
In the meantime, due what is a GIVEN almost over the intermediate term, LOWER U.S. RATES will cause Treasuries to rally from here (think TLT). This interest rate bet is even better than the bet on U.S. stocks, because soft Q1 earnings could cause stocks to thrash around in a few weeks.
Remember that if you did not buy when we bought, this is not the ideal time to buy. Your risk is higher now. If you must, buy some here and wait for the next pullback in stocks and Treasuries to buy more.
I cover foreign markets on social media (see links above) and in my monthly newsletter. Note that the newsletter is now closed again to new subscriptions: Join the Wait List to Join the Newsletter as a Loyal Subscriber, Opening again for the April. 4th issue. If you join and don’t read the newsletter, you will be deleted. I don’t publish to non-readers as other newsletters do. Stay tuned here in the meantime and follow all the action via the Twitter® and StockTwits® links above.
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Standard Disclaimer: It’s your money and your decision as to how to invest it.
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