A Market Timing Report based on the 5-05-2017 Close, published Sunday, May 7, 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 French election came out as a big win for Macron (received >65% of the vote), who now needs to find legislators to support his new party. The French Parliamentary elections are in June. Our markets may rally a bit more given this result, although it was widely anticipated. In fact, I saw it as a plus for US markets had the radical (read that racist) candidate won. It would have destroyed the EU as a trading block. Yes, it would have also created a near term mess, but the U.S. would have benefited. Of course, it’s better for European unity that he won.
US Employment was stronger than expected for April at 211,000 vs. the 185,000 consensus (@Bloomberg). This is enough for the Bulls to move forward with the expected acceleration in GDP through the end of 2017. In fact, for Q2, the Atlanta Fed expects 4.2% GDP growth (seasonally adjusted Q/Q annualized growth rate, also adjusted for inflation) vs. a puny 1.8% for the Federal Reserve Bank of New York. This is absurd isn’t it? That two Federal Reserve Banks can differ so much in their estimates of GDP is remarkable. In any case, it will be a big acceleration from Q1 GDP which was at just 0.7%.
Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 26,922 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 +8.12% vs. +6.34% last week. This is a joke in terms of Bullishness! The reluctance of investors to embrace the stock market near all time highs is remarkable and says there is more ahead for the Bulls.
|Thurs. 12 am close to poll||Bulls 38.07%||Neutrals 31.98%||Bears 29.95%|
2. U.S. Small Caps: My latest small cap trade is back to green. It was a fairly shallow fall as you see on the chart below. The small cap stock signal is also back to GREEN (see below for the other 2 signals).
Remember that if you have a long term outlook, it’s important to keep your long exposure long enough to avoid taxes if that is an issue. It’s also important to avoid being out of the market when it’s rising rapidly, as if you miss those gains, being in the market late raises the risk level of holding stocks. At the same time, I like to trade out of part of my long equity exposure near highs and go back in near lows, generally when the near-term outlook is cloudy. This is why I coined the term “Passive Shorting” HERE.
I added back my recent small cap trading position (IWM) and also added more exposure to my midcap position (IJH; which accrue about the same gains as small caps over time with lower risk since they are larger companies). See the social media links for my current exposure to equities.
Note that being just above the 138.82 signal means the signal COULD reverse. Climbing back above that level is just the first step in proving the market believes in “Trump Growth.”
Russell 2000 U.S. Small Cap Index (click chart to enlarge; IWM, RUT):
3. Gold: This is a continuation of the prior selling. I’ve explained why this is happening, so go to prior issues to review the situation. For now, growth wins over gold. The markets are expecting further economic expansion.
Gold ETF (click chart to enlarge the chart; GLD): Chart is of the 5-05-2017 CLOSE NOT 5-7 obviously…
4. U.S. 10 Year Treasury Note Yield (TNX): Short of further fears based on North Korean craziness from Kim or a Russian US confrontation in Syria, or as we’ve been hearing, along the Alaskan border, I expect the current up trend to continue. Please note the trigger number in the chart. Below that line, the “Trump Rally” comes back into question.
MY SIGNAL SUMMARY for a Further Trump Stock Market Rally is:
Stock Signal ON, Gold signal ON, Rate Signal ON.
Again, these signals are close to their switch points and this means the rally must be born out, by having stocks, gold, and interest rates all continue to trend in their current respective directions. All three must be confirmed.
U.S. 10 Year Treasury Note Yield (click chart to enlarge; TNX, IEF, TYX,TLT,TBF):
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