A Market Timing Report based on the 3-11-2016 Close, published Sunday March 13th, 2016

I deliver focused comments on the markets.  These are supplemented with “Tweets/StockTwits” (see links below).

1.  SP500 Index: I said last week that the Bulls could bring the market up to 2020ish and it did, with a close Friday in SPX of 2022.19.  Earnings are likely to come in light this next quarter and bring stocks down if they are not already hit by a Fed rate hike this next Weds. (unlikely as it would shock the markets) or more likely if they telegraph via their “dot plots” that a June hike is likely, now considered by the futures markets to be at a 43% probability.

Sentiment is leaning somewhat Bullish among individual investors (AAII.com) with the Bull minus Bear spread at about 0 this week (+13.0%).  We’ve only had the single “Sentiment Shock” I pointed out weeks ago. In terms of the timing of the next Sentiment Shock, we are 51 days from the last one in January as I discussed HERE.  A delay between Sentiment Shocks, a term I recently coined, is not unusual as the data at the prior link prove.

Bulls still in charge, but market is stretched now.

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2. U.S. Small caps are both above the 1040.47 level that for me defines a Bear market transition point, but also above 1080.61. Bear market rallies can be incredibly strong, but violating the prior break points must be respected for now.   A reversal back below these two levels will induce big downside moves in my opinion.  My working hypothesis is that the slowing process has not yet reversed and that a retest of the prior lows (or worse) will occur by the end of June.

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

Small caps are above Bear market territory, but any reversal will be deadly.

3. Gold:  The same advice applies as last week:  “The gold rally is solid, but it’s extended, so buy pullbacks, not the “rips” UP.”  The dollar moved down this week post-Draghi, supposedly because he told the markets that he would not move rates lower any further after this (see last week’s dollar vs. gold chart).   

Note the moves UP in GLD have been accompanied by increased volume and the dips by falling volume.  This is a perfect pattern for a continued rally in gold.  Preserve profits if that is wrong!  If the economy DOES recover sooner rather than later, gold will likely suffer.  Be prepared with a plan for where you will preserve profits.

Gold ETF (click chart to enlarge; GLD):

Gold rally still strong.

4. U.S. 10 Year Treasury Note Yield (click chart to enlarge; TNX,TYX,TLT,TBF): Rates are moving up, and, in fact, went right past significant resistance at 1.90%ish and have retraced about 50% of the range from the lows.  This magnitude of a rate spike must be accompanied by a resurgence in corporate profits, or we’ll have stagflation on our hands.  The Fed concludes a meeting this Weds. where they will likely point to further hikes by June at the latest.  This Wednesday the Federal Reserve will update their infamously (wrong) dot plots, which nevertheless indicate how many times they foresee hiking rates this year.  Potential danger is just a couple of days away.

Rates are about mid-range now with the Fed FOMC meeting ending Weds.

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