A Market Timing Report based on the 1-27-2017 Close, published Sunday January 29, 2017.
I deliver focused comments on market timing once or twice a week. These are supplemented with daily “Tweets/StockTwits” (see links below).
UPDATE 1-31-2017 on Interest Rates, the US Dollar and Gold:
GLD is up 1.44% today because the dollar is down 0.81% (UUP) and the interest rates on the the 10 Year Treasury Note is down to 2.437%. This happened due to remarks by Peter Navarro, Trump’s trade advisor, to the Germans that they were taking advantage of the Euro’s low valuation to dump their goods in the US. Those were the comments and these are the market timing signals that matter – rates fell, the dollar fell and gold rose. It must continue down and violate the green trend line shown below to send gold to new heights:
Remember that the market does NOT expect the Federal Reserve to raise rates again on Wednesday. I don’t either based on the odds, but IF they do, gold will head down again and the dollar will soar…
Now please review this week’s market timing signals so you are prepared for the week….
1. SP500 Index: The Trump Rally is continuing for the SP500 Index, but it has not continued for the small caps as you’ll see below. I believe the market is waiting for further confirmation of Trump’s promises. GDP was OK but not surprisingly great for the 4th Quarter of 2016, coming in at 1.9% vs. 2.2% consensus and 3.5% prior. Remember the headline number I am quoting is a seasonally adjusted annualized rate. This means that growth weakened into the 4th quarter, and we’ll have to watch its trajectory. Business activity should strengthen after the lull of the Presidential Election period.
If you are market timing the next move, watch the small caps, and if they confirm the large cap strength with a new breakout, we may well see another sizable leg up in the U.S. stock market. If you invest simply based upon valuations, you’ll miss many big market moves. Given the strong domestic equity fund outflows we’ve seen, there is plenty of room for buyers to come back into this market.
Also watch the Fed, with their decision on rates out on Weds. Feb. 1st after a two day meeting (no “Fed show” afterwards). The Federal Reserve is not expected to hike rates further until June or July. That is when the CME says the odds of a hike approach 50% (June) and then exceed it (July).
Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 23, 726 people are joining in…
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SP500 Large Cap Index (click chart to enlarge; SPX, SPY):
Survey Says! Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -1.91% down a bit from +4.33% last week.
|Thurs. 12 am close to poll||Bulls 31.58%||Neutrals 34.93%||Bears 33.49%|
This sentiment weakness is not dramatic and is poorly predictive of future results. All it says is that there is plenty of room for recruitment of new Bulls from the Neutral and Bear camps.
2. U.S. Small Caps: Last week I said: “I would not add to positions without either:
- Another small cap breakout.
- A pullback worth buying percentage-wise.”
The same market timing signals apply for this week. Stay away without a greater discount or a new breakout.
Russell 2000 U.S. Small Cap Index (click chart to enlarge; RUT, IWM):
3. Gold: Gold failed the key breakout range of 115.00-115.20 and this must be reversed on a market timing basis quickly or the Bears will extract far more blood. The Bulls actually have a shot at bouncing from this support level, which nearly coincides with the 50 day moving average. The fact that rates are falling again this week says this is not an impossibility. Lower rates are good for gold.
Gold ETF (click chart to enlarge the chart; GLD):
4. U.S. 10 Year Treasury Note Yield (TNX): We’re back below the 2.489% market timing resistance level. As said last week, the reversal in Treasuries should be watched for a RE-breakout to new highs above the recent high of 2.621%.
Market timing practitioners should follow these key numbers and trade in the direction of the next move, which remains to be seen. A double failure of a breakout could be seen as decisive, but I’d like to see follow through on it. Furthermore, that green trend line must be quickly violated to the downside by the Bond Bulls.
U.S. 10 Year Treasury Note Yield (click chart to enlarge; TNX,TYX,TLT,TBF):
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