A Market Timing Report based on the 11-03-2017 Close, published Sunday, November 5th, 2017

I deliver focused comments on market timing once or twice a week.  These are supplemented with daily “Tweets/StockTwits” (see links below).

Update 11-11-2017: Bitcoin Had Better Get Its Act Together:

You cannot use market timing to enter a “mess.”  The averaging in point for Bitcoin (BTC) I wrote about has become more muddied than before, particularly if you do not own Bitcoin Cash (BCC) from the fork prior to the Bitcoin Gold Fork.  Confused yet?  😉  (Note that StockTwits uses BCH.X for Bitcoin Cash; I’m using the Bittrex choice here.) 

The issue is whether BCC will be used for smaller transactions to make up for the slow speed of Bitcoin transactions currently.  This would move more “hash power” from BTC to BCC.  That devalues Bitcoin, as the hash power is a major parameter that determines the value of the network. In fact, Coinbase stated they would award the name of Bitcoin to the fork that had the greater hash power after a certain period following the now cancelled Segwit2x Fork.  You win if you’ve “got the power.”  “Hash power” that is.

Speed and transaction costs were the reasons the Segwit2x Fork had been planned until it was cancelled due to fears it could cause havoc in the BTC market.  Bitcoin Gold is non-competitive to Bitcoin, so they say, so when it is finally released to those who owned BTC prior to the Gold fork, it should not cause BTC to dive unless there are those who want to buy it and use BTC to do so.  That’s not the talk in the marketplace from what I understand.  Bitcoin Gold’s release (finally) should not disrupt Bitcoin is the thinking.

If BTC could solve it’s transaction issues of cost and speed more quickly, it will avoid this BCC challenge, but if not, it could lose momentum vs. BCC and give up market share essentially.  I cannot tell you whether the BTC group will act quickly and thereby drive BCC back down to where it started. It was born at $200, rocketed to 1470 and crashed to 325ish, then rose to 600ish, until it shot up 38% over the past 24 hours to the present to about $1400 until it backed down now to about 1290ish.  You could end up buying equal amounts of both and see one of them plummet, at least for a few weeks. 

As you can see, this uncertainty is what prevents BTC from being a serious player in the world currency markets at the moment, but it’s also what scares away those unwilling to tolerate risk and uncertainty.  Possibly for good reason though – that’s the catch.  They (BTC) had better get their act together quickly.  This decentralized, democratic process that gives rise to multiple forks, some of which can become competitive is destructive and frankly stupid.  It defeats the purpose of Bitcoin as it cannot be taken seriously as a currency without stability.  In the meantime, I continue to hold a small percentage of my total assets in Bitcoin and event less of a couple of alt coins as potential moon shots. 

Utility is clearly one big driver of a successful Bitcoin, and with the utility in question this week, and no immediate solution, you will have to decide for yourself whether you average into BCC AND BTC or just go more slowly into BTC to avoid investing too quickly before some of these issues are resolved or at least have stated solutions and a time frame.   Until then, BTC will be vulnerable, but a winner will emerge one way or another…

Update 11-10-2017: Bitcoin Falls within Up Trend

I’ll revisit bitcoin market timing this weekend, but for now, let’s just say there is some readjustment within the uptrend that is occurring after the controversial Segwit2x fork was cancelled.  That fork could have ruined Bitcoin by creating massive uncertainty.  That was avoided and IF you understand the utility of Bitcoin, you are getting one possible entry/averaging in point.  But if you don’t understand it, don’t invest.  In any case, limit the exposure you have to it to what you could lose without being heavily impacted. Even Bill Miller whose hedge fund has 30% of assets in it and he’s up 70% in his fund this year says “I believe there is still a nontrivial chance bitcoin goes to zero, but each day it does not, that chance declines as more venture capital flows into the bitcoin ecosystem and more people become familiar with bitcoin and buy it.” (source HERE)

Is there risk? Of course there is. Look at the chart and you’ll see it could fall to $4250 and still be in an uptrend.  But I believe demand would kick in before then, because there are still many who have not entered the market.  Belief is not certainty of course, so buy at your own pace or ignore it, your choice. 

Swoon creates one possible entry point for those who understand Bitcoin.

Update 11-06-2017: Bitcoin Chart Update and One Way to Enter this Market

Bitcoin is headed to a hard fork between the legacy Bitcoin and Segwit2x (SEE UPDATE ABOVE-They Called off the Fork].  While the last Segwit fork did not generate a new coin (Bitcoin Gold did but was not a “competitive fork”), this one will and the winner will be the fork with the “most difficulty.”  You can visit the links on my social media pages (StockTwits and Twitter – see below) for the political and practical details of the upcoming fork.

The fork could lead to some fear, which means selling, which means better prices for those looking to enter the market for the first time using market timing signals.  Make sure you don’t commit too much capital to it, other than that which you are willing to lose.  That way you’ll have no regrets.  This is not a pessimistic view of cryptocurrency as I sense it will survive, in particular Bitcoin, Ethereum, and a few other CCs with growing usage and utility.  Many others will go to zero just as the dot.coms did.

Try not to add as much at the top of the range (see chart below) and instead wait for the pullbacks.  Mid-trend would be at about 6000 per Bitcoin.  It may or may not get there.  After the fork, the winning coin will likely move to even higher levels.  Realize though that Tom Lee of FundStrat said recently BTC was becoming overvalued based on the network size (I have a link to his statement on social media or Google it).  For this reason, bitcoin may need to consolidate further before making more upside progress.  Nevertheless, I like the idea of owning bitcoin prior to the fork.  Enter the market in the way you are comfortable entering.  The risk is a big drop due to confusion over which the winner of the fork will be. The sum total of the values of both coins will probably still be decently priced I sense.

Today there has been a substantial decline vs. the price 24 hrs ago – about 8% lower.  Averaging into this fear could pay off.  Go more slowly (smaller buys don’t generally hurt much in the way of fees) if you want to be more conservative, but realize you may have to buy more higher as well.  Don’t chase the market at the highs.  Buy some on the first pullback, a bit more on the next, etc.  If you intend to be in this market (your choice as there are alternatives!), buy mostly when others are fearful…while bitcoin is in a market timing UPtrend. You can see that the trend is still up despite the decline today.  The best real time (or close to real time) charts I’ve found for free are on Bittrex. If you have a better source, please leave a comment below.

Bitcoin pulling back from the upper trend line.

And now back to this week’s issue.

1.  SP500 Index: Market timing unknown events is always a challenge.  It’s best when a known entity takes over at the Federal Reserve as in this case “he” apparently will.  Jerome Powell is slated to be the next Fed Chair if approved by the Senate.  Wikipedia explains that “The nominees for chair and vice-chair may be chosen by the President from among the sitting Governors for four-year terms; these appointments are also subject to Senate confirmation.”

Powell is likely to be somewhat more hawkish than Dr. Yellen, but much less so than Taylor of the Taylor Rule at Stanford who was also under consideration. Powell served under Bush II in the Treasury Department and is trained as a lawyer and has investment banking experience, explaining his wealth.  No PhD in ecnomics though unlike the recent Chairs.  He is the richest sitting member of the Fed with a reported net worth of between “$19.7 million and $55″ by his own account.

This is Powell’s history with the Fed (per the Fed itself): “Jerome H. Powell took office as a member of the Board of Governors of the Federal Reserve System on May 25, 2012, to fill an unexpired term. He was reappointed and sworn in on June 16, 2014, for a term ending January 31, 2028.”  This tells you that Powell was appointed twice by President Obama, so he is clearly a bipartisan pick.

President Trump likely wanted to avoid trouble with the Democrats over this selection and in any case, Trump is the “King of Debt” and has said “I love debt.”  He used it as leverage in the real estate market, which came back to bite his casino investors, but according to him, he made out well.  President Trump does not want an interest rate hawk to ruin his chances of a second term by leading the economy into recession.  And he doesn’t want high rates to interfere with his own businesses and his sons’ success.

The Treasury market reacted by having rates fall slightly as you’ll see on the interest rate chart of the 10 Year Treasury from this week (4th Chart).  This is NOT what we want in fact.  We want gradually RISING rates corresponding to a continued recovery.  Keep an eye on the 10 Year Yield with me on social media (links below) this week.  It could impact banks and other financials as well as the overall market.

The jobs numbers were OK on Friday and you can review my comments on the social media links below…

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 31,836 people are joining in…

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

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

Stocks still near all time highs. Rally is still OK.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of  +16.48 vs. +6.61% vs. last week.  This number is not yet at an extreme, but it’s high enough to allow for a pullback.  Still it’s not a sell signal in sentiment market timing terms!

2.  U.S. Small Caps: Small caps must continue in their rally or it’s going to be off.  Rallies need to be broad based to sustain themselves.  Furthermore, the heavy weighting of financials in the small cap index means that if interest rates don’t rise as they should now, the recovery is off or impaired and small caps will be punished. 

Right now there is roughly speaking a market timing pattern called an “Up Flag” as shown in the chart below.  That sort of flag generally resolves to the upside.  Watch for and trade the direction of its resolution if you like.

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

Market timing pattern known as an Up Flag must resolve to the UPSIDE soon.

3. Gold: Gold is weak still, below my Trigger Line for the Trump Growth Recovery phase, but on a market timing trend line as you see below.  The reaction to this line (breaking it or rising) will drive the gold trade this week.  Some of gold’s luster has been stolen by the cryptocurrency market (CCM).  You can follow my comments on it at the links above.  This week through the 16th or so could produce turmoil in the CCM.  This could either hurt or benefit the gold trade.

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

Gold is weak still but on trend.

4. U.S. 10 Year Treasury Note Yield (TNX): Rates fell a bit after the Powell decision for Federal Reserve Chair by Trump, but not by much, so there is no definite market timing signal we can use just yet; however, I set the aqua line as a necessary target for rates, and you can see, it turned into a false breakout at least for now.  In other words, rates are back below that aqua line in the chart below.  This is a note of caution for us.  Rates rise during a continuing recovery, especially at the current levels of employment. If rates don’t rise, we have to question the strength of the economy. See last week’s issue HERE on how to handle your bond and bond-like holdings during a period of rising interest rates.

There is a catch to raising rates when inflation is low (PCE Price Index of 1.3% last check, which the Fed follows), which is that they could end up flattening the yield curve, by slowing economic growth enough by raising rates, and driving down longer term rates as a result.  Longer rates fall and short rates rise, meaning the yield curve goes flat.  And the worry is “the economy goes splat!”  The Fed has been known to cause recessions through excessive tightening of rates.

Which is why…the minimum we need to see now is a higher low in the 10 Year Yield.  The stock market will likely sell off if the 10 Year runs hard and fast down toward that orange line in the sand (orange line in the chart below).

Now, as usual, we need to review our three market timing signals (below the chart after you review it…)

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

Rates must rise or the economic recovery will be in question.

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

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

Stock Signal ON (Small Caps above “Trigger Line”; a broad rally including small and mid cap stocks as well as large caps is a positive for stocks).  BUT we need a small cap breakout still.  That’s the same as last couple of weeks.

Gold Signal ON (GLD is below the “Trigger line” which is negative for gold, positive for stocks). But on trend market timing support.  A decision point.  Follow the move!

Rate Signal ON (10 Year Yield above the “Trigger Line,” good for stocks, not bonds).  The stock market rally will be muted if rates stop rising too soon (AND if they go up way too far; yes, it’s a tricky business ; )).

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