Market Timing Brief™ for the 7-07-2017 Close: Stocks Recover from Dip. Gold Diving as Rates Climb.

A Market Timing Report based on the 7-07-2017 Close, published Sunday, July 9th, 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: North Korea launched what appeared to be an ICBM with a trajectory that could have brought it to Alaska, which unnerved the markets. I pointed out on StockTwits and Twitter that there is no military solution to the situation, so none was likely. They all involve catastrophe as the South Koreans as well as our 28,000 troops on the DMZ would be imperiled. Kim is crazy, but not completely insane. Trump has insisted that North Korea will never be allowed to have the ability to launch a nuclear missile toward the U.S. The North Koreans have not yet put together all the ingredients to make that happen, so there is time to work out an agreement with them. This is not something that can stop the stock market on an immediate basis, which is why I was buying the dip this past week (see the social media links below…).

The jobs report was strong enough this week, and earnings are going to be good this season, so I am staying invested until that picture changes. Is there risk? Yes, because some company valuations are already stretched, but they are nowhere near 2000 levels. The key is to maintain a certain level of profits on all your positions as the market climbs. If you don’t do that, you are falling asleep on your prosperity. Not a good idea! Stay aware.

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 28,455 people are joining in…

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

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

sp500-index-spx-market-timing-chart-2017-07-07-close

Survived a dip.

Survey Says! Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -0.28% vs. +2.85% last week. Amazingly sentiment is stuck in neutral, not too hot or cold. This is not how a Bull market ends. There is far too much skepticism for that to happen at this time.

Thurs. 12 am close to poll

Bulls 29.58%

Neutrals 40.56%

Bears 29.86%

2. U.S. Small Caps: Small caps backtested my orange trigger line this week. The way it was trading at that lower level was positive, so I bought back half of my prior trading position and also added QQQ large cap tech exposure for the same reasons. There have been two small cap backtests of the orange trigger line coming up from the last lows. A third test may not be taken as well however. Small caps should move up from here based on earnings, or this may turn out to be yet another false breakout above the trigger line. For now, I’m impressed that the two backtests were passed by the small caps.

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

iwm-russell-2000-etf-market-timing-chart-2017-7-07-close

Backtest succeeded.

3. Gold: Gold is sliding as rates are rising. Read the comments from last week if you are not up to date. Gold is heading lower as long as the current interest rate up trend continues. It may not. As the Fed raises rates, long rates and inflation may be contained. If rates stay within a reasonable range, so will gold, despite these recent ups and downs. For now, gold has broken the recent up trend and will likely trade down to one of the lower support lines noted in the chart below, but should rally in response to the next downturn in interest rates.

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

gld-gold-etf-market-timing-chart-2017-07-07-close

Gold is range bound, but has now broken trend.

4. U.S. 10 Year Treasury Note Yield (TNX): The rate signal for a further stock market rally is also ON. If the economy is indeed strengthening, rates can still go up at a very slow pace, IF inflation stays low. This week the Fed will have more inflation data out with PPI on Thursday and the CPI release Friday. Note how the banks/financials trade with the 10 Year Yield. Rates are up and banks are up. Better spreads mean more profits. If yields pull back again, the financials will also.

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

tnx-10-year-treasury-note-market-timing-chart-2017-7-07-close

Rates are climbing and the signal is ON.

Let’s review the three market timing signals together….

MY SIGNAL SUMMARY for a Further U.S. Stock Market Rally is:

Stock Signal ON, Gold signal ON (good for stocks, not gold), Rate Signal ON (good for stocks, not bonds).

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