A Market Timing Report based on the 9-30-2016 Close, published Sunday October 2nd, 2016

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

UPDATE: 10-04-2016 Gold Breaks Immediate Support

GLD, the gold ETF, broke immediate support this morning, but now is testing the prior breakout.  That has washed out some gains of course, but IF earnings come in and are unimpressive and IF employment underwhelms, gold may resume its rise.  I consider the main threat to gold to be the economy (see link below by second GLD chart below). Follow the economic recovery or the lack thereof.

Gold testing prior breakout after a break of immediate support.

And now back to this week’s market timing issue…

1.  SP500 Index: You’ll see in the chart below that the SP500 Index is now just above the “Vibrational Range” that it was fighting with, and now is playing with the 50 day moving average. More progress is possible, but there are landmines ahead in the next 36 days.

I don’t expect great things until the election is over or when the market is sure of the winner, which looks like it will not be until November 8th, with a nuance I’ll get to momentarily.  Like it or not, the market expects and wants a Clinton win that represents the status quo and fears the trade restrictions Trump may impose on the U.S.  economy.  I expect the market to continue upward if the election appears to be going Clinton’s way.  At this point, she has a sizable Electoral Collage lead, and a Trump win would be a major upset.  You can make your own predictions HERE.

Earnings season, which will be on weak side begins with Alcoa (AA) on 10/10/2016 after market close just 8 calendar days away.  “Weakish” results are OK for the overall results as long as guidance is sufficiently optimistic for Q4.  Too weak and recession fears arise.  Make sure you exit any positions that are failing to make the revenue and earnings grade.  Consider re-deploying the exposure to an equivalent index fund if you want to keep your overall exposure to the market the same.

U.S. Employment numbers come out this Friday and could move the market down if they are too high.  The Bloomberg consensus is 168,000 jobs for September.  ADP Employment comes out Wednesday, and could inflect things early if too high.

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

Above prior vibrational range now fighting 50 day moving average.

Survey Says!  Sentiment this week among individual investors (AAII.com) showed a Bull minus Bear percentage spread that was -13.11%, in other words tilted toward Bearishness, but little changed from last week.  The percentage of “Neutrals” is now just below 40% (above 40% Neutrals is Bullish on a market timing basis for higher prices out 6 months from today per AAII studies of their statistics).

From last week as nothing changed meaningfully: This is again not an extreme.  Extremes occur at spreads of 20-30% toward Bearishness or more. Stay flexible, but above all, “Buy Fear, not Greed” as is one of our mottoes.

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2.  U.S. Small Caps: Be sure to follow the advice above and jettison small cap stocks that won’t measure up this earnings season.

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

Small caps still holding up despite poor earnings over the past year, but we’ll see new results soon. Get ready. (see text)

3. Gold:  Gold is still holding above an important base.  I’ve covered this before, but the economy is a major key to gold’s near term success.  A hot economy means trouble for gold as the Federal Reserve will be raising rates to prevent inflation and if they are ahead of the curve, gold will fall. 

If the market starts to fear multiple rate hikes, despite softness of the economy, gold will suffer.  If the economy actually DOES pick up substantially and the Fed raises rates slowly, gold will also suffer. You can read more here if you have not: When Gold Shines

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

Gold holding above a base, which must continue to hold!

4. U.S. 10 Year Treasury Note Yield (TNX): Rates have endured some upward pressure of late, but are still contained below the yellow triangle shown.  If employment disappoints this week, they will drop once again.

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

Rates moved up a bit, but are still below the triangle.

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