Market Timing Brief™ for the 11-10-2017 Close: Large Cap Stocks Slip But Stay In Up Trend. Small Caps Remain Weak. Gold Trembling On Trend Line. Rates Rise Again.

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…

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-2017-11-10-close

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.

Thurs. 12 am close to poll Bulls               45.10% Neutrals 31.82% Bears      23.08%

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):

iwm-russell-2000-etf-market-timing-chart-2017-11-10-close

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):

gld-gold-etf-market-timing-chart-2017-11-10-close

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):

tnx-10-year-treasury-note-market-timing-chart-2017-11-10-close

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.

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question…  Pay it forward too by sending the link to MarketTiming.Blog to a relative or friend.  Thanks for doing that.

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I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, go to my “Other Resources” page here:  Other Resources   It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.  Check it out with a free trial at the link above.

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2 Responses to Market Timing Brief™ for the 11-10-2017 Close: Large Cap Stocks Slip But Stay In Up Trend. Small Caps Remain Weak. Gold Trembling On Trend Line. Rates Rise Again.

  1. Charles says:

    Good day David,

    I agree with your call for us to call Congress and yes it works! I do it all the time as part of my everyday work! Likewise I agree with the vote/Twitter comments. What a shame the Congress and or State Governments have not focused on retraining the American workers for jobs of today. Two dead parties and a zombie voting population divided regarding social issues that’s not going to change very much if at all. Thank you for your information and because of it, we are doing very well with our investments.

    Charles

    • David Durand says:

      Hi Charles,

      Let’s hold in mind we can change things for the better despite the outer picture! I agree there is a LOT of room for improvement. They are not focusing on economic solutions (e.g., retraining) that would actually work and be a positive contribution to productivity and wages as a result. To think that the GOP is selling what I lovingly refer to as “Tinkle Down Economics” for a third time is an insult to our intelligence. Creating jobs with a balanced budget – now there’s a better idea to strive for and they aren’t even trying.

      And most importantly for the central purpose of this site, I’m glad you are benefitting from my investment strategy!

      Best regards,
      David

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