A Market Timing Report based on the 3-17-2017 Close, published Sunday March 19, 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 Federal Reserve did indeed raise rates at their FOMC meeting by 0.25% on Wednesday.  They expect to raise rates at least 2 more times in 2017 (probably June and December) and 3 times in 2018 according to their current anemic growth projections of about 2%. How did the markets react?  Stocks were up, though large caps fell over the last two trading days of the week, while small caps started to catch up to large caps, but did NOT make it over my trigger threshold that will tell me the market is certain that Trump policy stimulated growth will show up any time soon.  Market timing signals are at a crossroads now as I’ll explain, but be sure to read to the end or you’ll be unprepared for the next big pivot in the markets, up or down.

Continue to follow my 3 signals defined in early February HERE.  Don’t bother investing more near the top of the current trading range.  Either 1) Buy more at the lower end of the range if we get a pullback next week OR 2) Buy more on pullbacks from a breakout.

You can use market timing to buy some ON a breakout just in case the market does not come back to you, but don’t add too much on any “chase purchase.”  Chasing costs more than buying pullbacks in a Bull market.  Buying pullbacks and selling some when the market is stretched (and/or writing call options against parts of positions) is how I manage to beat the SP500 Index. 

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

Market is ahead since Fed decision, but not !00% convinced of Trump Growth prospects.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of  -7.53% up from -16.5% the prior week.  Bearishness is still inappropriately high for a stock market near its all time highs. There is plenty of room for further Bullishness to develop.

My view is that even if growth remains at 2% as the Federal Reserve expects, the stock market will move still higher.  Being underweight stocks here is a market timing mistake in my opinion.

2.  U.S. Small Caps: We’re getting close to a stock signal conversion to the UPSIDE, but the other two signals are not cooperating yet.  Realize that these market timing parameters are not fixed tools I use over and over.  These are tools intuited  by me that will predict the market’s belief in the “Trump Growth with Inflation” thesis, and the next leg up in the Trump Rally, or lack thereof.

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

Small caps on the verge of triggering the stock component of the three signal system to a BUY.

3. Gold:  If you read the blog last week, as a market timing trader you knew to buy gold the minute rates plunged (see extra chart in last week’s gold post if you have not seen it…).  At least that was the trade, if you buy into the rising inflation hypothesis.  I personally prefer to own stocks as long as the Trump Growth thesis remains intact. 

I believe the Fed will be on the case of inflation, despite their marginal dovishness this past week, while still raising rates.  Dovishness in their terms means they expect the same slow growth under Trump as we saw under Obama.  If growth wins without sparking inflation the Fed does not handle, gold cannot rally. 

The action post Fed says our economy is going to slow down further and negative rates are going to be the concern. 

Any other way out for gold?  Yes, if there is inflation that far exceeds the Fed’s ability to control it.  Then gold shoots up, because it’s a good inflation hedge.  Take your pick.  If you don’t believe in “Trump Growth,” stick with gold.  Or if you believe that Trump Growth comes with the cost of inflation the Fed cannot tame, then stick with your gold trade. 

Until the Trump Growth thesis is disproven, we continue to hold gold as a hedge against Central Banking lunacy worldwide and currently remain OUT of any gold market timing trade.  I typically hold 5% of total investable assets in gold (excluding any real estate) when I’m just using it for insurance against fiat currencies. When I enter a market timing trade of gold on top of that, I have added up to about 5-7% more exposure.

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

4. U.S. 10 Year Treasury Note Yield (TNX): We have a test of the prior 2.489% breakout going on.  A move below there is a strong vote by the debt markets against “Trump Growth with Inflation.”  A bounce above 2.621% is a solid vote for “Trump Growth with Inflation.”  Or call it “Trump GrowFlation.”

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

Rates say “low growth” especially if they cut decisively below 2.489% again.

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