A Market Timing Report based on the 12-11-2015 Close, published Sunday December 13th, 2015
I deliver focused comments on the markets. These are supplemented with “Tweets/StockTwits” (see links below).
1. SP500 Index: I hope you followed my Tweets on Friday and if you agreed, took off at least a bit of exposure. Why? Because the VIX spiked above the level I had warned about: HERE It closed at 24.39, well above my target for a more serious sell-off. Is it a lock? Of course not. That’s why I simply reduced exposure a bit to raise some cash. The higher risk I perceived in the market this year also has me well below my prior equity exposure high of 135% vs my usual maximum level (that was reached with excess cash; you’ll need to determine your number based on multiple factors including age, need for cash etc. That’s why I only speak in relative terms; so you can tailor your exposure according to 1) whether you believe in what I’m suggesting in the first place and 2) your personal financial situation.).
Come Monday and Tuesday, the market could reverse course and rally leaving me behind in exposure. That’s the risk of leaning too far one way or another. My sense is that some Bulls are underestimating the damage that higher Fed rates could do with commodity prices (CRB index) falling to a SUB-1992 level (you read that right!). The other bad prognostic sign in that the Dow Transports are almost back to the August low already (see second chart below).
If the Fed ignores crashing commodities and calls the decline “transitory,” we are in BIG trouble and the markets could dive to brand new lows for 2015. Stay tuned for the “dog and pony show” at 2:30 pm ET on Wednesday Dec. 16th, after the release of the Federal Reserve’s FOMC statement.
What’s the Bear Crushing Option the Fed has? If the Fed raises 0.50% and says it’s done until proven otherwise, the stock market will rally hard.
SP500 Index Chart (click to enlarge; SPX, SPY):
Dow Transports in major decline back to August low (DJT, IYT; click to enlarge):
2. U.S. Small caps are headed back to the August low. They are not far from there at this point.
Russell 2000 U.S. Small Cap Index (RUT, IWM; click to enlarge):
3. Gold is still hanging out BELOW prior major support DESPITE the fall in interest rates over the past week. The gold reversal UP was washed out, but gold has yet to signal the next move. We may be entering a “sell everything” period of raising liquidity. We’ll likely find out the next move in gold by the Weds. Fed announcement and news conference. If the Fed says “one and done” or something hinting at that, gold may spike as will equities.
Gold ETF (GLD; click to enlarge):
4. U.S. 10 Year Treasury Note Yield (click chart to enlarge; TNX,TYX,TLT,TBF): Rates are falling as the Fed is about to hike their rates. Although over the longer term. long rates can stay low or even fall with Fed rate hikes, the fall in yields is ominous at this point, given the crash in commodities. This may in part also represent a “flight to safety” from stocks.
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