A Market Timing Report based on the 2-03-2017 Close, published Sunday February 5, 2017
I deliver focused comments on market timing once or twice a week. These are supplemented with daily “Tweets/StockTwits” (see links below).
1. SP500 Index: I did not realize how important the current market timing signals were until I saw how clearly they are laid out. Please don’t leave here until you understand all three signals that will confirm or deny the next leg of the Trump Rally on a near term basis…
What’s the economic backdrop? The Federal Reserve left rates alone on Wednesday and said they expected inflation “will rise to 2%,” which is their target. My message showing the changes in their statement from December’s meeting to the meeting ending this past Wednesday is HERE.
The U.S. jobs report number on Friday was 227K while only 175K were expected with a consensus range of 155K to 195K. One would think the job increases plus the bias of the Fed stated this week should keep rate hikes in the picture, yet wage increases were disappointing and rates moved back up to test ABOVE the key resistance level. That means that the Treasury market does not believe the Federal Reserve, when it says it will raise rates 3 times in 2017.
On Wednesday, Feb. 1st, the Atlanta Federal Reserve branch upped their estimate of Q1 GDP to 3.4% up from 2.3% just a day earlier (Their Statement). This would support further Fed rate increases as well, and yet the facts are the facts in terms of market timing behavior. Thus far, we are only testing back above my target level for the 10 Year yield, small caps are still lagging, and gold is still fighting for a new breakout as I will get to…
I promised to reveal the “3rd Signal” that we needed to have another leg up in the stock market rally.
Let’s review all three “super important” market timing signals required for the next UP leg of the post-election rally in stocks:
- 10 Year Treasury Yield rises above 2.489% and then breaks out to new recent highs above 2.621% (see 10 Year Treasury Yield chart below). NOTE: Signal updated (See blue paragraphs: HERE)
- Gold sinks back below the 115.00-115.20 range and continues downward (see GLD chart below). NOTE: Signal updated (See blue paragraphs: HERE)
- Small cap stocks break out to new highs along with large cap stocks that have already done just that. The “3rd Signal” is small cap confirmation of the large cap breakout (see small cap chart below for my “number”). Look at the chart please, but it’s 138.82.
If we see all these signals kick in, the stock market will be moving up another leg in my view. And vice versa…
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Take a look at the chart now. The backtest and bounce of the SP500 Index is very promising in market timing terms. But we need other signals to kick in for corroboration of this move…
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 -1.37% barely up from -1.91% last week.
|Thurs. 12 am close to poll||Bulls 32.80%||Neutrals 33.03%||Bears 34.17%|
This is Bullish, as we are near all time highs in the SP500 Index with slightly BEARISH sentiment! The Bulls should be tripping over each other to buy at a real top, and they are no where to be seen. This means that there are plenty of skeptics, both Bears and Neutrals who can be converted to Bullishness.
2. U.S. Small Caps: I’ve been clear. Look for market timing signal #3 this week (stated above) and corroboration by the other two.
Russell 2000 U.S. Small Cap Index (click chart to enlarge; RUT, IWM):
3. Gold: If you have ever doubted the validity of spotting pivot points in the market, the play around my target range of 115.00-115.20 must have awakened you to their significance. There has been a dance around that red line (second from bottom in chart below). It’s possible to locate these targets by applying intuition to charts and then observing the market’s actual behavior around those intuitively identified numbers. That’s when I broadcast on Twitter and StockTwits that the market has locked onto “my number,” or that it is “playing with my number” as it trades above and below it.
There is still an unresolved conflict between gold and the 10 Year Treasury Yield. In my view, either gold will break down as rates rise, OR gold will continue its breakout and the Treasury yield will fall. Follow the direction of the resolution of this market timing conflict if you are trading this.
Gold ETF (click chart to enlarge the chart; GLD):
4. U.S. 10 Year Treasury Note Yield (TNX): We’re now just ABOVE the 2.489% market timing resistance level I locked on some time ago. Just look at the dance around “my number.” As Mobius said to Trinity in the Matrix in regard to her skepticism about Neo’s potential, “Now do you believe?” Seeing is believing.
One’s initial intuition is not always right, but when confirmed, it deserves one’s attention. This is true for you, so develop your own intuition. Look for a second breakout to above the recent high of 2.621%. That should turn gold to the downside if it happens. By that I don’t mean that gold is “done for,” but I do mean it will trade down and away from current levels. Inflation and the financial burden of U.S. debt are reasons to still hold “gold insurance.” But our trading position is “off,” until the signal conflict I described is resolved. Here’s the 10 Year Yield chart…
U.S. 10 Year Treasury Note Yield (click chart to enlarge; TNX,TYX,TLT,TBF):
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