Market Timing Brief™ for the 3-10-2017 Close: Stock Signal OFF. Gold and Rate Signals ON.

A Market Timing Report based on the 3-10-2017 Close, published Sunday March 12, 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: The coming rate hike this week (at the Tues-Weds. Federal Reserve FOMC Meeting) is a bigger “lock” than last week, with the CME Group odds at 88.6%.  For that reason and the strong employment report on Friday, the Federal Reserve can easily justify hiking rates.  The 10 Year Treasury broke above my trigger point and it now testing around the next higher trigger.  I’ll reveal below what will happen to interest rates if that target is exceeded.  It will send ripples through the markets if it does.  It will wake up a lot of market timing folks for sure!

However, the promised Trump growth has to show up within a reasonable period of time to make the recent gains stick.  The Atlanta Fed lowered their estimate of Q1 GDP to just 1.2% which is far below their guesstimate of 2.7% on Feb. 1oth.  If growth disappoints sufficiently particularly by Q2, the market will correct to compensate for that.  So far the data has been strong enough in both manufacturing and services to allow the market to be patient.

Growth must continue to compensate investors for owning stocks.  Growth, cash used to buy back shares and debt, and cash dividends are the only 3 ways investors are compensated for ownership.  A company’s value must increase over time through growth of the business for it to be worth more.  There you have “Stock Investing 101” in a nutshell.

If a company’s growth slows too much, all that is left is positive cash flow to pay out through stock and debt buybacks and in the form of dividends, which without growth, cannot rise.  That means that a non-growing business will be valued on a now stagnant sale price and the “Shareholder yield” on the stock (based on cash flow).    A stock is judged very harshly vs. corporate and government bonds at that point.

If rates are going up, which they have, bonds become a better value than stocks if their yield is better and the companies behind the stocks are not growing at all.  This is why rising interest rates ONLY work when there is economic growth, which means both revenue and earnings growth! 

If the Federal Reserve raises rates against slow growth that could slow even further, they could kill the Bull market.  Yes, there are risks in market timing from the long side!  Weakness of that sort is not in the data now, but that is the scenario under which Bears would be right.  Without data to confirm their view other than “high valuation,” I intent to stay long until the data change.

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 24,533 people are joining in…

Twitter® Follow Me on Twitter®.  Follow Me on StockTwits®.

I remain long (with more exposure than usual; access my exposure numbers via the social media links), although I did trim a few percentage points of my equity exposure (see the links above to see what I did). 

This week the stock signal is OFF, the gold and interest rate signals are ON (signals that I believe will determine whether another leg up will occur in the stock market).  Review the “Three Signals” that will mean another big stock market up leg: HERE

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


So far, just a minor dip.

Survey Says!  Sentiment of individual investors ( showed a Bull minus Bear percentage spread of  -16.5% way down from +2.29%Bearishness is not at an extreme, but still a bit high given that small to large caps are pretty close to their all time highs.

Humans by nature like a “deal,” and they don’t believe the stock market is a deal right now.  But that has not been proven out historically; instead, Bull markets tend to extend much farther than investors expect and the pullbacks along the way just make room for more powerful rallies to follow.

Could we see a few percent dip or a 7-10% correction in the SP500 Index?  Of course, but market timing traders should be ready to buy any such dip or correction in my view.  Growth may not be rip roaring going forward, but this long and very slow recovery from the 2009 bottom has room to continue.

Thurs. 12 am close to poll Bulls               30.00% Neutrals 23.50% Bears      46.50%

2.  U.S. Small Caps: The performance of small caps determines the “Stock Signal” I started looking for weeks ago.  It has not confirmed, but then there is Monday!  If the small caps continue upward, we’ll know that the market is expecting growth.  If not, “not so much…”  Watch for this key market timing signal in the coming week.

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


Small caps pulled off the signal and will likely determine the fate of the overall market.

3. Gold:  I told you what to look for last week. Review it HERE.  I outlined the intimate relationship gold is currently having with interest rates.  Market timing aficionados should know about this negative correlation.  If small caps take off this week, which remains to be seen and rates continue to rise, gold will sell off further.  The range you see highlighted in the chart below is in play.  This could just be a test below support, but the Bulls have lost a significant landmark by falling below it.

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


Gold fell below the prior breakout area on rising rates.

4. U.S. 10 Year Treasury Note Yield (TNX): Game on for “TrumpFlation” with or without growth.  Rates have risen past my target to the upside.  I currently favor continued growth based on the economic numbers.  When they change, so does my opinion!  If you plan to trade on “But what if the Trump Growth doesn’t come through” then go right ahead, but I think it’s foolish unless you have access to data that I don’t. 

Do you see the top yellow line?  That represents a yield of 3.036%.  That will be the next target for the market above this level.  It first needs to make it through 2.621% and then on to 3%ish.  If this happens very fast, it could spook the markets, particularly the interest rate sensitive ones!

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


Rates still above that 2.489% line but need to challenge the 2.621% line to get to 3%.

Thanks for reading.  Please leave your comments below where it says “Leave a Reply”… just scroll down and comment or ask a question…

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I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, go to my “Other Resources” page here:  Other Resources   It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.  Check it out with a free trial at the link above.

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This entry was posted in Bonds, federal reserve, gold, investment, investor sentiment, large cap stocks, mid-cap stocks, S&P 500 Index, small cap stocks, Treasuries and tagged , , , , , , , , , , , , , . Bookmark the permalink.

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