A Market Timing Report based on the 3-4-2016 Close, published Sunday March 6th, 2016
I deliver focused comments on the markets. These are supplemented with “Tweets/StockTwits” (see links below).
1. SP500 Index: The overall US stock market is now OUT of Bear market territory by the criterion I am using (see prior issues), but if we are headed into a recession as I went over last week OR if earnings continue to fall in Q1 as many expect, these recent gains will not survive. There is no particular reason why the SP500 cannot move higher before earnings warnings strike. SPX 2019.39 is the next upside goal for the Bulls. I believe earnings will be the impetus to drive the markets up or down, and my suspicion is that we move down again.
Sentiment is about split among individual investors (AAII.com) with the Bull minus Bear spread at about 0 this week (+2.8%). We’ve only had the single “Sentiment Shock” I pointed out weeks ago.
2. U.S. Small caps are above the Oct. 2014 low, but are now testing just above another major low (see below). A reversal here could induce strong selling. There has been an approximate 50% retracement from the recent low from the prior all time high. That is not atypical after a decline of the magnitude seen.
Russell 2000 U.S. Small Cap Index (click chart to enlarge; RUT, IWM):
3. Gold: The gold rally is solid, but it’s extended, so buy pullbacks, not the “rips” UP. Gold has rallied hard on every U.S. dollar decline of significance as the second chart below shows. Follow the U.S. dollar to follow where to enter this gold rally.
Gold ETF (click chart to enlarge; GLD):
Relationship of Gold Rally to Dollar Weakness:
4. U.S. 10 Year Treasury Note Yield (click chart to enlarge; TNX,TYX,TLT,TBF): We hit the 1.902% yield level, and the yield fell. Rates must decline further or the Fed will be raising rates very soon. Read my Twitter/StockTwits feeds from this week. There is a risk that IS NOT in the market that the Fed raises rates again. Perhaps they won’t do it in March due to fears in the markets, but oil is rising and core inflation is up 2.2% year over year and that is what the Fed follows. Those two facts may end up driving a Fed rate hike.
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