A Market Timing Report based on the 06-08-2018 Close, published Sunday, June 10th, 2018…

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 (S&P 500 Index®; SPY, SPX): Let’s check in on two signals we’ve been following:

“Intel-igent Signal”:  Positive. Still above the 54.36 number we’re following with a Friday close at 55.05.  I’m following Intel as a proxy for tech as it is a market timing leader as well as #1 holding of the semiconductor index.  They’ve also warned that although they expect good things for Q2, the second half of the year could disappoint.  The stock market discounts events ahead of time, so these “tells” can be very helpful in addition to the behavior of the overall U.S stock market.

Bank of America signal: Negative. Looks like it is rolling over again at the 50 day moving average.  The stock has formed two consecutive lower double tops since it peaked.  The pattern will be reversed once it makes a higher high on the daily market timing chart.  If interest rates go down further from here, as the rest of the world runs into economic slowing ahead of the U.S., the banks won’t beat the market.

The SP500 Index has made a higher high and is back in an up trend.  This was the 3rd higher high; however, it is also back to the top of the 2017 upward channel, which could mean traders will take some profits.  Things have gotten stretched with the QQQ’s testing back above the prior high of 175.21 and pulling back to 174.44 on Friday.

The Federal Reserve will meet this week and ends their two day meeting on Weds. June 13th.  It intends to raise rates by another 0.25% per the futures markets as I’ve recently discussed.  Inflation data is coming in on Tues. with CPI expected at 2.2% (Y/Y core without food or energy) and PPI-Final Demand on Weds. with the Y/Y core number without food, energy, or trade services at 2.5% consensus (review the data HERE).

I provide LIVE coverage of Fed statements and the dog and pony show that follows (every other meeting) on social media.  Follow me at the links below…

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 33, 521 people are joining in…

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

Back to the top of the 2017 Channel (orange lines).

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +12.21% vs. +8.67% the prior week.  Still room for more Bull recruitment.  We are at the TOP of a range (the channel) and investors are not Bullish, which means we need to continue to buy the dips.  Buy ONLY the strongest indexes and stocks though.  Forget the rest.  Weed your portfolio, and put the money where it can grow.  Make sure the reasons you bought the stock or ETF are still valid. 

2.  U.S. Small Caps Market Timing (IWM): The small cap trade is still working.  They are leading along with the midcaps.

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

Small cap rally is intact.

3. Gold Market Timing (GLD): Rates are rising because inflation is rising and the Fed is reacting by raising short rates.  When investors are paid well vs. inflation, they don’t run to gold for protection.  The rising dollar makes gold cheaper for those with dollars.  The dollar is rising because other currencies are being trashed in the emerging markets.  They are not all running to Bitcoin, which has been in a down trend (though it may create a bottom eventually!). 

So why is gold not breaking even lower?  That is because there was a break in the dollar rally as rates pulled back a bit.  Lower real rates and a weak dollar drive up gold prices.  The lack of a rally here means the market is still undecided about the course of inflation.  The numbers out this week should help break the deadlock.

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

Gold is caught between rising inflation and a vigilant Fed focused mainly on inflation with a strong U.S. dollar due to foreign troubles.

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX): Rates are not likely to get out of control with the rest of the world in a troubled state, but inflation is still rising in the U.S., so the Federal Reserve feels the need to be proactive, and is slowly raising rates.

The Federal Reserve said they’ll tolerate an inflation rate a bit above their target of core PCE Inflation of 2%.  The latest reading in May was 1.8% as noted HERE.  The rising U.S. dollar is a force working against inflation in the U.S. and for anyone holding the USD.  The battle between Ex-U.S. deflationary forces as foreign economic slowing occurs in the midst of currency blowups, vs. rising inflation in the U.S., will sort itself out, but the combination is not likely to yield runaway inflation necessitating aggressive Federal Reserve action in the near future.

First review the rate chart below and then look at the signal updates…

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

Rates are below the 2.943% level, but barely and with warmer inflation data coming out this week.

Now let’s review three key market timing signals together…. 

Do not use these signals as a trading plan.  They are rough guidelines.  I currently share my own moves on social media (links above).

MY SIGNAL AND TREND SUMMARY for a Further U.S. Stock Market Rally with GDP Growth and Low Inflation:

Stock Signal GREEN for a further U.S. stock market rally with a Bullish SP500 Index trend.  The VIX is back to levels below 13.31; a rise back above that could lead to significant selling.  The close was at 12.18 on Friday.

Gold Signal  GREEN for a further U.S. stock market rally with a Bearish Gold Trend. 

Remember GLD is being used as an indicator for the ECONOMY here. 

Rate Signal YELLOW for a further stock market rally with a NEUTRAL 10 Year Yield Trend.  Things have changed due to the recent swoon and then bounce in rates.  A more definitive rise above 3.036% would turn the rate trend back to Bullish (bearish for bonds).  The close Fri. was 2.937%.  A fall below 2.717% would be required to turn the trend back to Bearish.

I have been calling rising rates a “positive” thing for U.S. stock market gains as that is what normally happens in the late stage of recovery, yet the current situation is very abnormal.  For this reason, I will call rates above my 2.676% number, but below 2.943% YELLOW.  “Bullish” for yields is Bearish for bonds and vice versa. There is a twist here.  This level of the 10 Year Treasury Yield, which is too high for current conditions as explained HERE, will eventually slow the economy.  The market will likely be far happier if rates stay within a lower range, while not too low and not too high.

Note: I’ve updated my criteria for the equity signal for a further U.S. stock market rally to the following: GREEN = Bullish, YELLOW = Neutral, RED = Bearish.  In other words, the colors tell you whether the signal supports the stock rally or not, while the Bullish, Neutral, and Bearish designations are about the trend. 

NOTE: A BEARISH trend signal does not mean we should not buy.  A BULLISH signal does not mean you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL signal does not mean the end of the Bull or Bear. It means to wait and look for possible subsequent entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the charts for now as reference points only; they have historical value for us from the post-2016 election period.

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