A Market Timing Report based on the 03-29-2019 Close, published Saturday, March 30th, 2019…

I deliver focused comments on market timing once a week.  These are supplemented with daily “Tweets/StockTwits” (see links below) and comments in the “markettiming” room on StockTwits.

NOTE: This week’s market brief may be delayed for a day or two [or more; skipping an issue; next issue out this weekend of April 13th] due to an exercise mandated by the U.S. government this time of year.  😉  Please review the brief below and comments on social media for my position changes over the past week.

1.  SP500 Index Market Timing (S&P 500 Index®; SPY, SPX):

The Bulls have started another run for the true Bull Prize – a brand new all time high, which some may claim is required to declare the “Mini Bear Market” as I define it HERE, dead.  How strong are the Bulls?  For one thing, the Advance/Decline % number I follow is once again above a breakout line I’ve been following; however, before you become too excited, I hasten to add that the indicator failed to break out to a new high despite trying and on Friday closed below the highs of both 2-25-2019 and 3-19-2019.  Since it remains in an uptrend, it is possible the Bulls could establish a new high next week.

But what do the charts REALLY say when you step back a bit?  They say we’ve gone virtually nowhere since 2-25-2019.  We are just 0.74% above where we were that day.  And that was accomplished with the A/D indicator unable to make a new high.

Still, the SP500 Index did close above all three prior lower highs we’ve been following for weeks (and I won’t repeat them other than to point out that the highest of these was 2816.94 and the Fri. close was 2843.40).  That’s better than bad, but the Bulls clearly need to prove themselves.  To do that ahead of earnings, whose estimates have steadily deteriorated in the month of February, could be a tough job to pull off.  Of course, once earnings season arrives in earnest in mid-April, they will be saying “earnings are better than the crappy earnings we expected.”  Well, not quite.  They often fail to admit they lowered their earnings estimates, before claiming the companies beat their lowered expectations.

A caveat for the clever ones among you who have been read my blog and take action based upon what I write, a year ago, back in early April 2018 I said:

4. Buy stocks that you know will produce strong earnings growth even in a slowing world economy. Not as easy a task [than simply buying an index], as most companies do worse when the economy is worse.  They must be outperforming the SPX for this to work, and buy them off their lows, not their highs.  If they start to weaken, sell them as close to the highs as you can.

There was another item on that list, namely investing in a certain type of high growth company, which applies to today’s market.  Read all of my tips in “How Do You Beat the Market in this Volatile Period?” HERE.

Will the SP500 Index Bulls keep the charge going all the way up to earnings season and beyond?  No one can say for certain.  I can say the signals are mixed right now.  Another negative signal is that the SP500 Index regained those 3 lower tops in question without a V*IX (* inserted to avoid crawlers extracting my targets!) close below my “Bull Nirvana Number,”  which is 13.31.  The close on Friday was 13.71.

Update 4-01-2019 in blue in this paragraph: What would satisfy me that the Bulls were serious about this advance?  A further rise of the market (above S*PX 2860.31 high) with a move of the VIX below that “Nirvana” number, a higher close of the A/D % indicator (above 16258; now 16,285 at 10:11 am on a delay), and a kick of volume would be nice as well (at least higher than the prior day, but the more the better).

Warning: Your time to review your stocks before their next earnings report is winding down.  Stick with the high growers of both earnings AND revenue (not just earnings, which are manipulated by buybacks and various accounting tricks).  In a time of SLOWER global growth, it’s more important than ever to own companies that are still substantially growing both earnings and revenue.

Here’s a Brief Review of the Market Risks at Hand:

Mexico Border Closing Risk: Trump is again threatening to close the border and sounding more serious about doing so this next week, but it would result in disruption of over $1 B in trade with Mexico per day.  Not a great move in a slowing economy.  It may also be unconstitutional, given the daily movement of many Americans back and forth across the border every day and our trade agreement with Mexico (per National Security expert Samantha Vinograd whose comments you can read toward the end of the article HERE in the part labeled “Secure, don’t close, the southern border”). 

China Deal Risk:  There is going to be a “big, beautiful deal.”  And indeed it has the potential to be a positive development IF the Chinese decide to grow up and play fair (eliminating forced tech transfers, patent violations, and overt piracy).  The news media reported last week that Trump and Xi could meet next month, and this week they said the same thing and the market seemed to respond despite the repetitiveness of it- the Chinese market responded more than ours with both A (mainland) and H (Hong Kong listed) shares rising significantly.  I will be adding further exposure in China if the move is sustained.

Mueller Report Risk: Diminished, barring (get it? Barr-ing ;)) revelations when the report is released supposedly in April, particularly involving anything related to obstruction of justice by Trump and associates.  I covered this HERE (under “Market Risks at Hand”).  Trump is still vulnerable in the other lawsuits against him as well as for obstruction of justice for which Barr admits he was not cleared, despite the president’s false statements.

What I would agree with is the likelihood that the Democrats will be able to make obstruction charges stick when Mueller found it a hard call to even overtly accuse (if not indict due to D.O.J. rules) Trump with it is low. Mueller merely suggested Trump did things that were borderline in regard to the obstruction charges, and it’s up to Congress to decide whether they are impeachable offenses that can lead to a conviction in the Senate.  That’s their job under Article I of the U.S. Constitution that you, I, and every other U.S. citizen are also sworn to protect.

2020 Election Risk:  Read my comments on this HERE.  The first Democrat primary debate is in June.  If the Democrats want to fix Obamacare and expand it, as well as reverse the tax cuts for the “rich” and for corporations, they’ll have to take the Senate along with the House and Presidency.  That will be a tall order if the economy is still in good shape, and the stock market is doing well.

A reversal of the Trump corporate tax cuts would cause a major stock market decline.  A reversal of the tax cuts for the “rich,” would not likely cause such a decline.  It would help balance the budget.  I understand that “rich” the way politicians define it, is, of course, not always “real life rich,” especially when you are paying hundreds of thousands for your kids’ education, spiraling healthcare costs etc.

Fed Rate Hike Risk: Gone for the intermediate term. As said last week, “The Fed will remain on inflation watch with oil still in an uptrend, but for now, there is zero rate hike risk. The market thinks there is a ‘risk’ of a cut by later in 2019.”

Now take a look at the SP500 chart.  The orange lines are the 2017 up channel.

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

New high coming or a place to fail before earnings?

Now let’s check in on two “Canary Signals” we’ve been following:

“Intel-igent Market Timing Signal” (Intel; INTC):  No change this week. Neutral short term. Chart is still Bullish.  Can fall to 51-ish and still be in an uptrend.

Bank of America (BAC) Market Timing Signal:  Bearish.  Two weeks ago I said, “Vulnerable to lower rates.”   Rates are still front and center for the financial sector.  Note the slight lift in shares on Friday when rates finally rose a bit. 

Now let’s go on to review investor sentiment…

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Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of + 6.0% vs. +13.89 vs. last week.  The neutrals are essentially at 40%, which is highly correlated with an UP market 6 months later.  The odds per AAII research are above 80%.  The sentiment spread is too low for this to be a significant high in the market.  At true tops, the sentiment spread is “off the charts high.”

2.  U.S. Small Caps Market Timing (IWM): Still in a downtrend, forming a descending triangle.  Such triangles tend to break to the downside.  That’s actually the most generous assessment of the chart, because IWM made a lower low on 3-25.  You could simply say it’s a downtrend with a small retracement back up.  The odds are we’ll see another lower low soon.

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

Small caps rise a bit in a downtrend.

 3. Gold Market Timing (GLD): The reversal above the key level noted in the chart below failed, despite TNX falling to new lows.  That’s negative.  Rates rose a bit on Friday and could rise further this next week pressuring gold even more.

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

Market expecting a rate bounce?

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX): Rates crashed and then on Friday moved up just a bit.  There is more room for bouncing into next week.  [4-01-2019 Note: The key levels for the Rate Bulls to cross to the upside are 2.554% and the 1-31-19 low of 2.626%.]

Check out the “Market Signal Summary” below – after you review the following chart…

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

Rates sink and bounce slightly.

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 MARKET SIGNAL AND TREND SUMMARY for a Further U.S. Stock Market Rally with Real GDP Growth (“Real” means above inflation):

Stock Signal RED for a further U.S. stock market rally with a Bullish SP500 Index trend.  The signal here is based on small caps, as they often lead the market down.

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!) closed at 13.45 vs. 16.48 last week, which means the Bulls  have captured 6/7 targets. The Bulls need to retake 13.31 early next week.    

Same as before: There are now 7 Bear targets and the score is Bulls 3 to Bears 4.  The targets are 13.31, 14.04-14.08, 15.04, middle “fulcrum” point = [15.94-15.95 to 16.09], 17.06, 17.27, and 17.89. 

The ‘Bull Nirvana Target’ is our V*IX # of 2018: 13.31.”  (That # is target #7 for the Bulls.) 

Gold Signal YELLOW  for a further U.S. stock market rally with a NEUTRAL Gold Trend.  What gold does mostly as I’ve written HERE is follow real interest rates.  STILL HOLDS 3-30-2019: G*LD has to rise above 123.19 on an immediate basis (* added to throw off the “crawlers,” as I don’t like being part of “consensus.”)  GLD closed at 122.01 on Friday, below the reversal number.   Once it breaks the nearest low, the trend turns Bearish.  If rates move up next week, it will break that support IMO. 

From before: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise, it means the market believes real rates will  fall, which means the global economy is slowing.  That would hurt U.S. stocks. 

Rate Signal RED for a further stock market rally with a BEARISH 10 Year Yield Trend.  Rates need to RISE slowly in a recovery for the stock market rally to continue, as I’ve repeated multiple times on social media as well as here.  They are falling, and it’s not a good sign!

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”  WTI closed at 60.14 vs. 59.04 last week.  Oil is still in an uptrend, so either rates will rise now and the oil rally will continue, OR rates will keep falling and oil will reverse. 

Watch the rate at which TNX climbs if the current trend reverses.  If it shoots up very fast, stocks will correct.  In the Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018. That’s what I called ‘Rate Shock.'”  The period of rising rates in early October I called #RateShockII.  The next shock, I’ll be calling #RateShockIII.

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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. 

A BEARISH trend signal does not mean we should not buy.  A BULLISH trend 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 or bought, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL trend 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 IWM and GLD charts for now as reference points only; they have historical value for us from the post-2016 election period.

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