A Market Timing Report based on the 4-01-2016 Close, published Saturday April 2nd, 2016
I deliver focused comments on the markets. These are supplemented with “Tweets/StockTwits” (see links below).
1. SP500 Index: Dr. Yellen was hyper-dovish on rate hikes in her speech this week, suggesting the Fed can wait, just after some Fed governors said the opposite. The stock markets liked that. However, the Atlanta Fed lowered their GDP estimate for the first quarter from 1.4% to 0.6% on March 28th and then to 0.7% on Friday. The data is HERE. What good is that sort of information? Their numbers are too erratic to be of use. I believe it’s misleading to investors and they should not bother publishing it!
The market did not seem to mind that the U.S.employment numbers met the consensus, beating it by only 5,000 jobs at 215,000 jobs for March. The number is not too hot and not to cold for the stock market.
On a technical basis, the market could go as far as making a new marginal high without a correction, but my opinion is that the earnings season may stop the fun. If you disagree with me, stay fully invested in stocks, whatever that means to you and your risk parameters.
SP500 Large Cap Index (click chart to enlarge; SPX, SPY):
Sentiment is slightly LESS Bullish this week among individual investors (AAII.com), though definitely STILL not at an extreme, with the Bull minus Bear spread at 1.4% this week (Bulls 27.2% and Bears 25.8% with Neutrals a Bullish 47.1%). See comments from two weeks ago on why that Neutral number is Bullish.
2. U.S. Small caps are STILL both above the 1040.47 level that for me defines a Bear market transition point, AND after this week’s enthusiasm about Fed Chair Yellen’s comments are now back ABOVE 1080.61. But get this: the trailing one year GAAP earnings of the Russell 2000 are NOT “Nil” but instead are actually negative! They are negative because of all the special charges that must be taken when reporting GAAP earnings results. Non-GAAP earnings are a big cheating opportunity that companies love. “We would have had great earnings, except Da-da-da-da-da.” Sounds like “My dog ate my homework” to me. I am staying clear of small caps for this reason.
See “Nil” in the PE Ratio table HERE and note the verbiage just above the table with the PE ratios!
Russell 2000 U.S. Small Cap Index Going Up on “Nothing” (no earnings) (click chart to enlarge; RUT, IWM):
3. Gold: Last week I said US Dollar strength could be a problem for gold. “I’d say GLD has downside risk to at least 113.99 as a test of both the prior breakout conviction as well as the 50 day moving average for technical traders.” GLD tested the 50 day moving average (curved aqua line) and could go lower if the US dollar firms.
Gold ETF (click chart to enlarge the chart; GLD):
4. U.S. 10 Year Treasury Note Yield (click chart to enlarge; TNX,TYX,TLT,TBF): Rates keep grinding down lower and lower on predictions of worldwide economic slowing. The Fed members can’t have it both ways. One side is right, the other wrong, and given the results (a dive in GDP and hurting earnings), I expect rates to ease further. A yield of 1.651% should hold this move for at least a small bounce. Consider where rates are elsewhere in the world and you’ll understand why they could move still lower!
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