Market Timing Brief™ for the 11-04-2016 Close: SP500 Index Slips Even More, Breaking the Base. Gold Gains as Rates Fall on Weak Employment.

A Market Timing Report based on the 11-04-2016 Close, published Sunday November 6th, 2016

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

1. SP500 Index: On Tuesday, the market broke through the prior low of the recent “Vibrational Range” I’ve been pointing out. That is a significant market timing event, though it’s in proximity to the election. Both large and small caps are now flirting with their 200 day moving average. Further gains in the U.S. election polls by Trump has led to more market losses into the end of last week.

Like it or not, the stock market wants Clinton, even with the Clinton email scandal. This too will pass, even if Trump wins, but I believe the markets will sell off in response to a Trump win (correct to 10% from the last high) and then recover as they realize that the GOP House is not going to let Trump run wild and get all he wants. That is why the stock market has fallen for numerous days in a row. Remember there may also be trepidation about a clean Republican sweep. Fiscally however, Congress would block hyper-spending plans by a President Trump. Both Trump and Clinton have big spending plans. Trump has tax cut plans that have never worked to lower deficits. They did not work under Reagan and did not work under G.W. Bush. They stimulate growth, but have a huge cost in deficits, over 3 Trillion in the case of Reagan. Some may not like to hear that, but I strongly favor balancing the budget. Tax cuts for the wealthy, if overdone, don’t help in that regard.

What the market wants least is a clean sweep by Clinton and the Democrats with joint wins of the Presidency AND both the House and the Senate. That won’t happen at least in the House, and it appears that due to further gains by Trump will help Republicans keep the Senate too.

The market will respond positively to a Clinton win if it occurs in the context of a GOP Congress, but still faces economic slowing over the intermediate term (employment weakening again this week), so we may want to lighten up at the next major high.

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

sp500-index-spx-market-timing-chart-2016-11-04-close

Stock slide continues on Trump gains.

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Survey Says! Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -10.68, was little changed from the prior week. The percentage of “Neutrals” is ABOVE 40% this week (above 40% Neutrals is Bullish on a market timing basis for higher prices out 6 months from today per AAII studies of their statistics). The fact that Bearishness did not go up despite the market’s breakdown through the base of the prior consolidation on Tuesday says that investors may be expecting a turnaround from the pre-election jitters.

11-03-16 12 am close to poll

Bulls 23.64%

Neutrals 42.05%

Bears 34.32%

2. U.S. Small Caps: Small caps had signaled a weak market last week when they broke down through the base (aqua line) sending off market timing flares. The slide continued this week. We are staying clear of small cap risk (usually about twice the risk of large caps) for now. They will bounce more should Clinton win however.

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

iwm-russell-2000-etf-market-timing-chart-2016-11-04-close

Small cap stocks testing the 200 day moving average.

3. Gold: We got that market timing breakout above 121.59 and the gains will continue should Trump be elected and there will be a fall on a Clinton win in the U.S. Election initially until the world learns that U.S. interest rates must come down even as the Fed is itching for rate hikes. Intermediate term, I believe gold is a very good hedge. When we see strong economic recovery, that will change things. If you are overexposed to gold, taking some profits ahead of Tuesday’s election results may be reasonable, but it is a hedge against a Trump win over the short term. UPDATE 11-10-2016: It turned out that the “short term” lasted just a few hours in the premarket and in the futures trading the night of the election. See my recent messages on social media to keep up. Strong economic growth under Trump could damage gold further, unless he generates excessive inflation via spending and tax cuts.

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

gld-etf-market-timing-chart-2016-11-04-close

Gold benefits from Trump fears.

4. U.S. 10 Year Treasury Note Yield (TNX): Rates were falling a bit more on Friday after weak employment numbers (see my Twitter/StockTwits comments at the above links). Rates will go still lower if the economy continues to slow. We need to be vigilant in following economic data and not buy into any political rhetoric about how strong or weak it is. We should examine the evidence and the bulk of current data says we are late in the economic cycle. Stay tuned this week via social media (see the links above), and we’ll get through the election together, and beyond..

I would increase in a step-wise fashion should you agree, not decrease, exposure to longer term debt over the near term. Plan on pivoting out of that exposure when we see a real economic recovery out of the current pattern of slowing.

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

tnx-10-year-treasury-note-market-timing-chart-2016-11-04-close

Rates pull back on weak unemployment.

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