A Market Timing Report based on the 9-09-2016 Close, published Monday September 11th, 2016

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

Ground Zero Memorial, Worth A Visit

First, let’s pause and remember the many, including scores of financial workers at Cantor Fitzgerald who were above the area of the North Tower hit directly by the first plane. The company lost 658 of 960 employees working in the North Tower of the World Trade Center. 

They were on the 101-105th floors, 2-6 floors above where the first plane hit.  The fire that resulted was so large that fire fighters were unable to put it out.  Everyone above the spot the plane hit died that morning according to the Commissioner of the NYC Fire Department at the time (FoxNews.com). 

More were murdered by the terrorists at Cantor Fitzgerald than NYC firefighters who died by running into the towers to save lives, many never getting out after their last trip back into the building. 

There was true valor at Ground Zero.  One court security officer who volunteered to help in the crisis was told by his boss to get out of the building, and he said “I can’t. There are more people who need help.”  The 20-something young man died in the building trying to save more lives.  RIP.  (from an interview of his uncle on Fox News).  Pay a visit to the site if you have a chance.  The views from the new tower are spectacular and seeing the thousands of names around the huge fountain is very moving. 

Now back to the markets….

1.  SP500 Index: The U.S. markets reacted negatively to three things this past week.  First, the ISM Non-manufacturing number was a big miss at only 51.4 vs. a consensus of 55.0 per Bloomberg.com.  Secondly, Dr. Draghi indicated he was not going to do anything more in the monetary realm to push toward the 2% inflation target of the ECB and told Germany to get off it’s duff and engage in fiscal stimulus, because it was in the position to do so.  So much for being a sovereign nation!  

This means “market timing wise” that the U.S. Federal Reserve is being given more room to hike if they get nervous about inflation.  With a slowing economy (which the market liked seeing with the release of the weak ISM Non-manufacturing number noted), they would be hard pressed to raise rates in September, but they seem to see more growth in the U.S. economy than some other observers do. 

The third tremor came on Friday with Fed President Rosengren’s comments about a possible Sept. rate hike as I noted: HERE.  He said that if the Fed waits too long, they may have to raise rates quickly which could then push the economy into a recession.

In support of the idea that the Federal Reserve is more Bullish than some other economists, the Atlanta Fed still expects 3.3% for Q3 GDP growth as of Sept. 9th.  If that number is attained, the Fed could well consider it sufficient to allow another rate hike.  A further tantrum in the markets could lead to a full market timing correction (7-10%), but growth at that level likely won’t lead to a recession any time soon.  We bought a bit on Friday into the huge rise in volatility (the VIX volatility index was up 39.9% in just one day).  Sometimes we will be a day or two early or late and some buys will even sit at losses for weeks, which is why we always buy in increments.  

SP500 Large Cap Index (click chart to enlarge; SPX, SPY):

Big spike in volatility.

Survey Says!  Sentiment this week among individual investors (AAII.com) showed a Bull minus Bear percentage spread that was barely tilted toward the Bulls at +1.27%.  The percentage of “Neutrals” is back over 40% (above 40% Neutrals is Bullish for higher prices out 6 months from today per AAII studies of their statistics).  The poll closes at midnight on Weds. night, so it did not take Friday’s swoon into account.

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2.  U.S. Small Caps: Small caps were down disproportionately vs. large as they should have been.  That’s called “beta.”  If you want to do market timing on your “beta exposure” and diminish your risk and not be “out of the market,” then shift a bit between large caps and small caps, selling some of the former and buying some of the latter at the bottoms and selling some large caps and buying some small caps at the tops when the market looks stretched. 

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

Small Caps swoon on Friday.

3. Gold:  Gold pulled back due to Federal Reserve rate hike fears and the lack of added monetary stimulus coming from the ECB (see above).  Read my post on when gold does well and when it suffers called “When Does Gold Shine and When Does It Decline?”: CLICK HERE   So far though, we still have a gold bounce.  If the Fed raises rates into a slowdown, the economy could go into recession and then the steep decline in rates will help gold once again.

Gold ETF (click chart to enlarge the chart; GLD):

Fear of rate hike pushes back on the gold rally a bit.

4. U.S. 10 Year Treasury Note Yield (TNX): The Rosengren comments seemed to rule the markets on Friday (see above).  The next Treasury triangle “lid” will now be challenged (upper downward slanting yellow line).

U.S. 10 Year Treasury Note Yield (click chart to enlarge; TNX,TYX,TLT,TBF):

Rates spike on Fed’s Rosengren’s comments.

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