A Market Timing Report based on the 4-28-2017 Close, published Sunday April 30, 2017
I deliver focused comments on market timing once or twice a week. These are supplemented with daily “Tweets/StockTwits” (see links below).
Signal Update 4-30-2017: The Stock Signal is still ON but barely after the pullback on Friday. Gold and 10 Year Treasury Yield Market Timing Signals are also ON provided they don’t break through specified levels to the upside and downside, respectively. Remember that a gold rally or interest rate decline is a NEGATIVE market timing signal for a further Trump stock market rally, which is the point of the “Three Signals” I am following. Please see the revisions to Gold and Bond/Treasury Signals (blue paragraphs near top): HERE
1. SP500 Index: Consensus for US GDP (quarter over quarter growth seaonally adjusted and projected forward 1 year) per Bloomberg was 1.1% with a range of 0.7 -1.7%. The actual number was 0.7% though the year over year growth was better at 1.9%. The number was not seen as a disaster, because the markets believe things will improve into the second quarter and beyond into year end. They see the softness projected forward by the Q1 data as temporary. You can review the data for GDP headline results HERE.
In the meantime, the SP500 Index market timing breakout is still intact as the chart below shows. Small caps had a harder day on Friday, during which I took profits out early on. Yet, the stock market timing signal remains, just barely, in the ON position.
Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 26,733 people are joining in…
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 +6.34% vs -12.99% last week. Still, this is very weak net Bullish sentiment near market highs and suggests there is more to come in this rally.
|Thurs. 12 am close to poll||Bulls 38.05%||Neutrals 33.24%||Bears 31.71%|
2. U.S. Small Caps: I was early buying back the small caps after taking a prior trading profit, but it turned into a profit anyway (see social media for actual results). You don’t always have to pick the exactly perfect entry point to make a profitable trade. I’ll wait now to add further exposure in either 1. A deeper pullback OR 2. A run higher and buy on the first pullback in that run.
In other words, I don’t in general like to “chase” and instead look for the market direction and then buy the pullbacks to get on board or expand exposure. Sure there is a risk of “missing” a few percentage points, but remember that my exposure is already high, and I’m simply trading around it to pick up some additional profits and lowering risk a bit when I drop my exposure level.
If that sort of trading at the margin doesn’t suit you, don’t do it! Find a plan that works for you and then STICK TO IT! If you freeze when you PLAN to sell, you have no plan. If you don’t have a plan, you’ll never improve your investing and trading except by bumbling into success. I choose and teach a conscious investing and trading path…
The small cap market timing signal is still ON for a “further Trump Rally” as long as it’s above the key level noted on the chart in the upper left (top red line). The failure to achieve a brand new high above 140.86 is already a sign of some weakness however temporary.
Russell 2000 U.S. Small Cap Index (click chart to enlarge; IWM, RUT):
3. Gold: Gold pulled back as rates rose and stocks broke out. The market timing dance is working as advertised. Gold can rise either because Trump’s tax “reform” giveaways cause inflation that exceeds the Fed’s efforts to contain it OR because growth is lousy and real returns in the stock market go flat with mild inflation. The latter combo still gives you negative real rates, which gold LOVES. If real rates of return in either stocks or bonds are high, gold tends to do relatively badly, sometimes over very extended periods of time (e.g., 1990’s).
Gold ETF (click chart to enlarge the chart; GLD):
4. U.S. 10 Year Treasury Note Yield (TNX): Rates rose as stocks rose, which is the expected market timing dance around another successful UP leg in the Trump rally, but at the end of the week, rates slipped and gold caught a bid with small caps retesting their key breakout…so the Trump Rally market timing signals are right on the edge… There is more information about the economy due out this week (ISM manufacturing and services as well as the “Employment Situation” jobs numbers on Friday May 5th) and a Fed meeting ending Wednesday May 3rd (statement release only after the meeting; no dog and pony show until June meeting; no rate hike expected by the market per the CME Group). Nevertheless, the Fed Statement or the data could push the market into its next significant move. Stay tuned on social media at the links above…
Finally, remember geopolitical risk is not gone yet. North Korea tried to launch another missile which failed, but called into question China President Xi’s ability to twist Kim’s arm. Trump seems to enjoy saber rattling, although I’m sure the troops on the DMZ and the South Koreans don’t appreciate it much. They are on the line here if there is any crazy military action taken. As I laid out in prior issues, there are NO military options because they all end in human disasters.
If the North Koreans were to misfire a missile into Japan (they hit the Sea of Japan not long ago) or fire a rocket into South Korea, the 10 Year Treasury will rally hard, stocks will plunge (5-10% in days) and gold will fly. There is always a risk, although close to zero, of “totally crazy” manifesting. The lifting of this cloud should help the markets as will a defeat of the right wing candidate (it does not deserve to have its name mentioned – too lacking in humanity for that) in the French election next Sunday.
U.S. 10 Year Treasury Note Yield (click chart to enlarge; TNX, IEF, TYX,TLT,TBF):
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