A Market Timing Report based on the 04-12-2019 Close, published Sunday, April 14th, 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.

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

The Bulls are on a run to retop the market at the prior high.  The AD % line I follow is at a brand new high as of Friday, April 14th.  Volume was not impressive, yet it’s been in a slow decline through this entire rally, so relying on that did not work.

I said two weeks ago…

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).

Let’s check that list…

1. New high.  Check. There is nothing like higher prices to confirm a rally’s strength.

2. VIX below the “Bull Nirvana Number.”  12.01 close on Friday.  Check.

3. AD % Line: 16,404 and climbing. Check.

4. Volume: No check. Declining throughout this rally since December.  Higher prices without volume for an individual stock is considered highly suspect, but this has not been predictive for the S&P 500 Index since the Dec. low.

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

Mexico Border Closing Risk: President Trump folded under intense political pressure, which is what you are supposed to do if serving in a representative government vs. being a King.  It was a bad idea to impair GDP growth beyond its already falling level by disrupting supply chains.  

China Deal Risk:  There is going to be a “big, beautiful deal.”  Deal risk is considered quite low.  Any surprise would be a “left field” event.

Mueller Report Risk: Low.  All is quiet at the moment, although the Democrats are looking for the goods on Trump still.  I covered this HERE (under “Market Risks at Hand”).  I doubt they will have enough to boot him prematurely, as Mueller would have charged him with obstruction if he could have.

2020 Election Risk:  Read my comments on this HERE.  The nomination of a liberal Democrat would hand the election to Trump.  Remember Presidential candidate George McGovern?  No?  Exactly my point…  He was a far left candidate, and Nixon crushed him.

“Nixon won the [1972] election in a landslide, taking 60.7% of the popular vote and carrying 49 states, and he was the first Republican to sweep the South. … Nixon received almost 18 million more votes than McGovern, and he holds the record for the widest popular vote margin in any United States presidential election.”

If Howard Schultz runs for the Presidency as an independent, he’ll throw the election to Trump as Ross Perot did for Bill Clinton.  Clinton defeated “Bush and Perot, winning 43% of the vote to Bush’s 37.4% and Perot’s 18.9%.”Ref.

Fed Rate Hike Risk: Gone for the moment, but maybe not for as long as believed.  I’ve repeatedly said the Fed is not actually overtly dovish, but rather in “Neutral.”  The media has had this wrong.  They are not hiking due to the stock market’s performance in Dec. and intense pressure from Trump.  They will be led by the bond/Treasury market to hike when those markets dictate they must.  It won’t matter what Trump says if oil keeps climbing.  The Fed will be forced to hike rates.  Trump can yell at the Fed, and he can yell at the Saudis, but he cannot yell at inflation! 

Earnings Risk:  what is shown are the projections in the FactSet 3-15-2019 report followed by the report from 4-12-2019 (details HERE)…the numbers GOT WORSE over the past month, not better, except for Q4, which of course is supposed to save the year.  

For Q1 2019, analysts are projecting earnings growth of -3.6% -> -4.3% and revenue growth of 4.9% -> 4.8%.
For Q2 2019, analysts are projecting earnings growth of 0.1% -> -0.4% and revenue growth of 4.6% -> 4.2%.
For Q3 2019, analysts are projecting earnings growth of 1.8% -> 1.4% and revenue growth of 4.4% -> 4.1%.
For Q4 2019, analysts are projecting earnings growth of 8.1% -> 8.3% and revenue growth of 4.8% -> 4.7%.
For CY 2019, analysts are projecting earnings growth of 3.8% -> 3.4% and revenue growth of 4.9% -> 4.6%.

You can see from the above, analysts expect HIGHER earnings growth for the year with LOWER revenue growth.  That could happen because of inflation.   You make more money, because you raise prices with inflation, but each dollar made is worth less.

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):

Bulls have the ball.

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Bullish as I said it would be above 50.60.  Now at 56.42, climbing back toward the prior all time high (ATH).

Bank of America (BAC) Market Timing Signal:  Tentatively Bullish with earnings coming out on Tuesday.  Barely over March high of 30.14.  Rates have bounced and that bounce could go further and move BAC still higher.

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 +19.91% vs. +6.75 vs. last week.  The neutrals are near 40%, which is highly correlated with an UP market 6 months later.  The odds per AAII research are above 80%.  The sentiment spread is as high as it was at the end of February when a shallow pullback started, but it may run still higher.  The number of Bears is becoming a bit too low, and that has been associated with minor pullbacks in prior data points.  All this says is that there is a risk of a bump in the road for the Bulls, but there is no extreme Bullishness to warn of.

2.  U.S. Small Caps Market Timing (IWM): They’ve done nothing since 2-22-2019.  A new high is needed.  Problem?  Inflation rising (which it will with oil prices rising steadily) is not good for small caps.

Russell 2000 U.S. Small Cap Index  (click chart to enlarge; IWM, RUT): The chart represents the 4-12-19 close, not 4-14-19.

Small caps need a new high.

 3. Gold Market Timing (GLD): The reversal above the key level noted in the chart below failed when rates were low and failed again on Thursday as rates rose.  The last low was a higher low, which is good.  A strong economy and stock market are not good for gold, even with slightly rising inflation.  I believe there is a bias in the bond market that says the Fed will not let inflation get out of hand.  Gold may do OK, but it may not be off to the races either.  Fed’s on pause, and gold’s on pause.  If rates keep rising the Fed will be pulled by the nose and gold could pay for it. 

The Gold ETF (click chart to enlarge the chart; GLD): The chart represents the 4-12-19 close, not 4-14-19.

Gold fails to reverse upward once again.

4. Interest Rate Market Timing – From 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%.”

We’re now above that first target.  Next stop, 2.626%.

We are at a level of rates where U.S. stock market investors would like to see SLOWLY rising interest rates.

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):  2.625% was an obviously minor overshoot low vs. the earlier 2.626% low.  The chart represents the 4-12-19 close, not 4-14-19.

Rates bouncing and took out the first reversal level.

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 YELLOW 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 12.01 vs. 12.82 last week, which means the Bulls  have captured 7/7 targets.  The Bulls also won the bonus round at 12.-17-12.37. 

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 bonus target is [12.-17-12.37].  The Bulls now have 8 of 8 targets.  Bears 0.

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 121.83 on Friday, below the reversal number.   Once it breaks the nearest low, the trend turns Bearish.  Rates have moved up and gold has stayed above the nearby lows.  Much more rate pressure could tip gold over however.

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 YELLOW  for a further stock market rally with a NEUTRAL 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 63.89 vs. 63.08 last week.  Oil is still in an uptrend, so either rates will keep rising now and the oil rally will continue, OR rates will resume their fall and oil will reverse. 

Two weeks ago I said: “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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