A Market Timing Report based on the 11-10-2017 Close, published Sunday, November 12th, 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: Market timing-wise the chart looks OK still.  We tested below the up trend line, but held it by the Friday close.  Sentiment is getting a little richer and allows for a pullback, but this won’t be the end of this Bull, so I’ll be adding more exposure back, lower or higher.  There is clearly room for a deeper pullback in a one down wave, two sideways move, and three second down wave, but it’s not a given.  Investors were feeling things were getting a bit rich with multiple huge stocks up more than 5-10 or more percent after their strong earnings.  We should still be looking for places to add exposure back, not run for the hills, exactly because those earnings are strong and the economy is still humming along.

What a mismatch!  The Jolts Jobs report said there are 6.093 million jobs available in the US.  You can read more on Bloomberg, but the point is there are an equal number of jobs vs. those looking for jobs!

And even given those numbers, our President and GOP Congress want to create deficits in order to drive the economy harder, which will cause interest rates and inflation to spike further together (inflation is already in the system in inflated prices of equities, bonds, property once again etc. and now prices will rise).  This means Trump and the GOP are about to drive us to recession earlier than would otherwise have been the case.  Jim Paulson echoed my views earlier in the week on CNBC. The Trump and GOP taxcut may accelerate our move into recession.

Instead of creating a recession, why not balance the budget at least somewhat better and reduce taxes on the middle class to the extent we cut spending.  Don’t raise taxes on ANYONE. How about that?  If you agree with me for golly gosh sakes to say it nicely,  ; ) or even if you don’t, please call your Representative in the House and your two Senators.  They DO listen to those who bother calling, because many do not bother.  Bother to call.  Yes, let’s have a new Twitter rule that if you don’t call your reps in Congress, you cannot tweet about politics any longer.  Same for non-voters.  Tough stance for sure. 😉

And why not improve retraining programs and provide incentives for them to create a MATCH between available jobs and those prepared for them.  Getting people off food stamps (about half the country) would cut expenses and raise tax revenue.

In the meantime, the economy is still strong with an overshoot in employment to the downside (4.1% below the standard Federal Reserve target of 5.0%), although the official measure of inflation the Fed Chair prefers PCE Price Index has been tame recently, last reported at 1.3% far from the 2% sought after.

Reflation is occurring despite the low PCE data.  Look at your pump prices (oh, that’s all temporary per Dr. Yellen!).  It seems the oil cartel got their act together along with increased demand to drive up oil prices.  I’m already adding back the prior oil positions I ditched earlier this year.  I’ll be adding slowly and you can follow my moves by clicking on the links just below here…

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 32,071 people are joining in…

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

Up Trend still intact.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of  +22.02 vs +16.48 vs. last week or incrementally less Bearish.  Not more Bullish however, as Bears decreased and Neutrals increased, but Bulls barely budged (45.10% vs. 45.05% last week).

Sentiment is positive enough to allow for a pullback, given the low Bear number, but it’s still not at an extreme.  A pullback is a market timing Buy per the sentiment data.  It is until it isn’t, so move in stages in and out of the market.  At least, I find that works much better for me.

2.  U.S. Small Caps: Small caps are not helping.  Breadth has been poor lately, meaning since early October in market timing terms.  The “Up Flag” I showed you last week generally resolves to the upside, but the odds diminish the lower the dip goes.  The fact that interest rates were rising again on Friday is promising as long as inflation does not get out of control.  That’s the Fed’s job in raising short rates, to prevent that from happening.  I’m watching…  A flush in IWM to retest the 144.25 breakout market timing high could do it for this particular decline.

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

Still an Up Flag, but a sagging one.

3. Gold: We are staying out of gold trades (insurance only) due to rising interest rates. Follow the 10 Year Treasury Yield below if you want to know what gold is going to do…  Hint: it’s an inverse market timing correlation when rates are running ahead of inflation. Note the play off that orange “Trigger Line” I defined months ago.  No coincidence. Gold may hold up OK, but it will likely do it within a range, and we are descending from the top of the range right now.

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

Gold in still above market timing trend, but subject to rising interest rates.

4. U.S. 10 Year Treasury Note Yield (TNX): Because of the bounce in rates Friday, I started adding my Canary back (a big bank).  See last week’s issue for the link to my first comments about this market timing “Canary Signal.”  Rates should continue to rise if this recovery is real.  If rates fall once again in a meaningful way, it’s “watch out below” for the stock market.  Why? Because recovery will have turned into recession.

I’m not expecting a recession soon, but I am telling you what needs to be happening in a continued strong recovery – rising rates.  In a weak recovery, rates can slosh around in a low range.  Finally, the punch line is: a weakened recovery will not sustain stock prices at these levels.

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 retesting a resistance area. They should keep rising.

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” but weak due to a drag among small caps particularly. Mid caps have held up much better vs. large, which is exactly why I sold IWM recently (see social media links above). I still have plenty of equity exposure (see social media the % exposure).

Gold Signal ON (GLD is below the “Trigger line” which is negative for gold, positive for stocks). But GLD is on market timing support.  I would still follow the move either way if you are trading.  I am OUT except to hold gold as currency insurance.

Rate Signal ON (10 Year Yield above the “Trigger Line,” good for stocks, not bonds).  Rates back to rising, but at resistance.

NOTE: I have decided to separate my comments on Bitcoin and limit them to my social media feed for now (or in separate posts perhaps, but no promises there).  I expressed my doubts about buying this particular dip (update #3 of last week’s post),  because of utility issues of the Bitcoin blockchain.  Transactions are both too slow and still too expensive vs. the potential at any rate.  Until these issues are clarified, I will not include Bitcoin updates on this regular blog.  The “attack” on BTC by BCH this weekend raises too many questions about the poor management of the bitcoin network and it’s lack of suitability for routine transactions.  Why is it happening?  Perhaps it’s been engineered by Central Banks so they can keep control.  Perhaps it’s simply spontaneous disorder.  Either way, bitcoin cannot be accepted worldwide in a meaningful way until the network shows real leadership!  It remains a speculation suitable for only a very small percentage of total assets in my view. I am not telling you what to do yourself, but I am telling you what I’m doing – keeping my position size small.

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