A Market Timing Report based on the 3-27-2015 Close, published Sunday March 29nd, 2015

I keep my comments reasonably brief to honor both my time and yours.  The rest is on Twitter®/StockTwits®.

UPDATE 5-1 1-2015: Just 9 days ago, the 10 year Treasury was at a yield of 1.977% and now it’s at 2.269%, which is a BIG move to happen that quickly.  A close above 2.259% is a trend changer, but sometimes there are “fake-outs” just above resistance, so be careful not to switch teams too dramatically at these breakout points.  IF this new breakout in yields sticks, my “Best Buy Idea” will have been shot!

Let’s see how I did with…

MY CONCLUSIONS FROM LAST WEEK

PREDICTION for U.S. stocks: “Next stop for the SPX [SP500 index]?  We will likely match the prior high, but I’m guessing we’ll get to a new high [meaning go even higher].  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.”

We got the bump DOWN rather than a further rally.  My Bullish outlook was wrong short term.  On the positive side, we have a higher low to work with IF it holds up.  I say stay long and over the term of say, a few weeks, you’ll still be ahead.  Individual stocks could be another thing as those guiding down on future earnings will be hit badly.  Stick with indices unless you know your companies’ earnings are a lock.

If you have not yet read my market scenario for the next few months, it’s a must read here:

The Scenario That Will Unfold

Continuing with the recap of last week’s predictions…

PREDICTION: “Small caps suggest a bounce, while large caps are lagging, still below the prior breakout.”

Small caps remain ahead.  I predict that big and small stocks will now rally into earnings that begin with Alcoa (AA) on April 8th.  If some earnings and guidance comes in under expectations, market shocks will occur with some retracement of the indices.  A rally is not a given, but I would say you could add some SPY here if you are underexposed to large cap stocks.  Save some powder to add more lower if the markets tumble on earnings.  Due to the higher volatility with small caps, I would not buy those here unless you apply stops carefully.

PREDICTION: “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. “

1. Rates? Wrong short term.  Rates DID initially break below 19.30 but then rallied above it.  I believe this week rates could break through that 19.30 level on the 10 Year Treasury Note (Treasuries will rally; higher TLT).

2. Gold?  My prediction is/was that gold will not be a big loser and could bob up and down depending on the forces for or against it.  In other words, I’m not a big fan of gold except as insurance at the moment.  The rally held up, but eased on Friday.  GDX is doing worse, and we were out near the top.  I say the dollar will rise this week, and gold will fall (GLD).

3. U.S. Dollar?  On that I was right.  It went down.  It now appears set up to rally after a correction.  Truthfully, all we know is that we are at a pivot point.  Trade the next move UP or down.  But I’ll go on record that I’m betting on DOLLAR UP for this week (UUP).

And now for the charts for the week:

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

Note that we are both below the Dec. high and below the lower yellow channel line.  The latter is a BROKEN wedge that leads back to the October low, which is my outside Bearish scenario (see below).  We need to recover quickly above that lower yellow trend line on the daily chart.

SPX eases a bit.

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My greater concern is over the intermediate term (weekly) chart:

Follow the pink line up from the October low in the chart above from 2011.  Note that the pink weekly trend line was violated to the downside in October.  There was a recovery above it into the end of 2014, but in 2015, we’ve never gotten above it (look 2 charts down for higher magnification of this).  Before that, we had gone about TWO years without violating that line, so things have changed.

SP500 Index losing steam on weekly chart.

We are now back below the end of December 2014 high as shown in the chart below. 

SP500 Index lost momentum since 12-2014.

All of this means that we must rally quickly or we risk revisiting the December or Jan-Feb. lows.  If things get much sloppier during earnings season, we could hit the October low again, but I’m not betting on that.  If earnings are not that bad, we’ll stay above the Dec. low.

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

Small caps still resilient vs. large based on greater exposure of large caps to dollar strength.

The Gold ETF Chart (GLD; click to enlarge the chart): (see above and below for predictions)

Gold rises, but the dollar must fall another notch to sustain the gold rally.

Please Click the TNX Chart to enlarge it (see related ETFs, TLT, UBT and TBT): 

Rates should head lower now in the face of worldwide deflationary pressure.

CONCLUSIONS:  The U.S. stock market is tired.  Earnings warnings by Intel and other companies have slowed the rise of the SP500 Index a bit.  The Fed WILL raise rates to 0.5% by September at the latest they say, but long rates will head lower as described in detail in my prior post (see link above to “The Scenario That Will Unfold”).  A higher SP500 Index low has been formed as of this week, which allows for a rally, IF the Bulls want to retake the reigns.  I believe the U.S. markets will be higher for this year, but the short term is up for grabs.  As said, if earnings are not that bad, we’ll stay above the Dec. low.  Otherwise the October low comes into play.

I’ll go out on a limb to say that:

– stocks (SPY, SPX) will rise a bit this week off the higher low formed at the end of this past week along witha

– stronger U.S. dollar

– weaker gold

– falling interest rates (rallying Treasuries and bonds).

Of all of those predictions, I’d say that lower interest rates is the most likely for the week.  That means sticking with TLT (or UBT using 2X leverage) and municipal bonds.

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