A Market Timing Report based on the 04-18-2019 Close, published Sunday, April 21th, 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 SP500 Index rose to test the lower line of the 2017 upward channel. And then it fell a bit. That does not mean the Bull died, but it’s something to watch, as the small caps reversed back below their 200 day moving average again on Wednesday and Thursday. After moving up a bit on Friday, April 12th, the SPX has gone sideways as it digests earnings. Let’s check in with the earnings trend again…
Earnings Risk: what is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 and 4-18-19 (details HERE)…the earnings numbers improved slightly for Q1, but are slightly worse for Q2 through Q4. Revenue estimates ticked up a bit for Q1-Q3, while they are the same for Q4. This new look is with 15% of companies reporting. One hundred and fifty will report this coming week.
For Q1 2019, analysts are projecting earnings growth of -3.6% -> -4.3% -> -3.9% and revenue growth of 4.9% -> 4.8% -> 5.0%.
For Q2 2019, analysts are projecting earnings growth of 0.1% -> -0.4% -> -0.5% and revenue growth of 4.6% -> 4.2% -> 4.4%.
For Q3 2019, analysts are projecting earnings growth of 1.8% -> 1.4% -> 1.3% and revenue growth of 4.4% -> 4.1% -> 4.4%.
For Q4 2019, analysts are projecting earnings growth of 8.1% -> 8.3% -> 8.2% and revenue growth of 4.8% -> 4.7% -> 4.7%.
For CY 2019, analysts are projecting earnings growth of 3.8% -> 3.4% -> 3.4% and revenue growth of 4.9% -> 4.6% -> 4.7%.
Are the Bulls serious? As I asked three 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; now 2905.03) with a move of the VIX below that “Nirvana” number, a higher close of the A/D % indicator (above 16258; now 16,384 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 once again…
1. New high. Check. There is nothing like higher prices to confirm a rally’s strength.
2. VIX below the “Bull Nirvana Number.” 12.10 close on Thursday. Still a check.
3. AD % Line: 16,384 and now in consolidation with the SP500 Index. Check but needing a new breakout.
4. Volume: No check because Thursday was April options expiration. Volume has been 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. Still, higher prices requires demand from buyers, so we’ll see how long this disequilibrium can last.
Here’s a Brief Review of the Other Market Risks at Hand:
Mexico Border Closing Risk: President Trump folded. What problem?
China Deal Risk: There is going to be a “big, beautiful deal.” We had better have a decent deal, and the talk is the results will be respectable.
Mueller Report Risk: The redacted report is out and was blessed by the Attorney General, who acted like a partisan. Nevertheless, the Democrat buzz is leaning toward “no impeachment proceedings,” despite the remaining risk of further investigations. If obstruction were a slam dunk case, Mueller would have made the case, despite the bias in the press that says he was just passing it on to Congress for evaluation, and he could not indict a sitting President per DOJ rules.
Here is why they won’t proceed with impeachment. The answer was pointed out by Democrat Congressman Emmanuel Cleaver on MSNBC on Saturday. If Trump is impeached by Democrats and then exonerated in the resulting trial by the Senate, Trump will claim “I was cleared by Congress.” And he would be telling the truth. Impeachment of Trump is a trap for Democrats to fall into.
2020 Election Risk: Read my comments on this HERE. If the economy is strong at the time of the election, it will be hard for any Democrat to beat Trump, especially if they lean toward greater socialism.
Howard Schulz, former CEO of Starbucks is running as an independent and could steal votes from both sides. Trump cannot afford to lose many votes as the GOP base is smaller than the Democrat base. Polls will tell us how the Schulz run for the Presidency threatens to throw the election. Third party candidates have a clear history of “ruining it” for one of the sides as Perot did for GWH Bush in his second run for a second term against Bill Clinton. I’ve listened to Schulz and I doubt he passes the “likability test.” He was a great CEO, and has treated his workers well to his credit, but candidates have to appeal to voters on a personal level. I’ve never seen that sort of charisma in him.
Governor Bill Weld is running against Trump for the slot on the GOP ticket as of a couple of days ago. He was the stronger link of the Johnson ticket, and in the end defected from Johnson to support Hillary Clinton, while still remaining on the 2016 ballot as Johnson’s VP candidate. By running as a GOP candidate, he’s already indicating he won’t run as an independent, which means his chances are slim. Trump voters will brand him a Rhino, and a friend of Hillary, which he is – they served during the Watergate investigations together working a lawyers for the U.S. House Judiciary Committee during the Watergate impeachment inquiry.
Gov. Weld was a very successful Massachusetts Governor and a Criminal Prosecutor under Ronald Reagan, so his credentials are strong. He was also popular in a Democrat state receiving 71% of the votes in his second run for governor against a Democrat. That’s in Kennedy country mind you… He’s a fiscal Conservative unlike ANY Republican serving in Congress who has financed Trump’s big deficits.
Even Rand Paul caved to Trump’s fiscal irresponsibility and the proven failure of “Tickle Down Economics.” It failed twice before, but you apparently can sell anything to gullible American voters. Both parties intend to spend us into the ground and destroy the U.S. dollar, which is why I consider gold a long term hedge worth keeping. The only thing that’s saved us is the US Dollar being the #1 reserve currency, which China intends to take from us. If we lose that, our interest rates would skyrocket and cause a crash in the stock market. It’s not a near term threat for the simple reason that the China, Japan, and Europe are simultaneously weakening their own currencies.
Fed Rate Hike Risk: Gone for the moment, but maybe not for as long as believed. You know my stand on this. The Federal Reserve is neutral, not dovish. Rates are rising and the bond and Treasury markets will end up pulling the Fed along by its nose to higher rates IF the recovery continues.
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):
Now let’s check in on two “Canary Signals” we’ve been following: They are singing a Bullish song.
“Intel-igent Market Timing Signal” (Intel; INTC): At a new all time high. As Bullish as Bullish gets. A reversal would be a big negative as INTC is a leader. Don’t bank on it though!
Bank of America (BAC) Market Timing Signal: Speaking of banks. BAC is testing a prior lower high of 30.14, and slipped under it last Monday. Rates look a bit stretched, but that’s not a clear call. Follow TNX if you want to know how the banks will trade.
Now let’s go on to review investor sentiment…
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Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +15.73% vs. +19.91% last week. The neutrals are over 40%, which is highly correlated with an UP market 6 months later. The odds per AAII research are above 80%. The sentiment spread slipped this week, so the odds this is a top are low. That does not preclude a pullback in a Bull market.
|Thurs. 12 am CT close to poll|
2. U.S. Small Caps Market Timing (IWM): They are now leaning DOWN. Although individual stocks with solid growth (earnings and revenues) stories can still perform well, the index is weakening.
Russell 2000 U.S. Small Cap Index (click chart to enlarge; IWM, RUT):
3. Gold Market Timing (GLD): Rates could as easily rise a bit more as fall from this level, and so will go the fate of gold. GLD needs to rally immediately. Any further breach of that lower yellow line will be met by more serious selling. At this point, one could argue (barely) that the chart represents a falling wedge, which is Bullish, but a Bull has to act like a Bull. Monday would be the time.
The Gold ETF (click chart to enlarge the chart; GLD):
4. Interest Rate Market Timing – I’ve been keeping track of a couple of key levels. The close Thursday was 2.560%, above the lower number, though barely, and still below the upper target mentioned on 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%.”
If interest rates continue to rally further, it will bring into question whether the economy is actually going to accelerate in Q4 and continue to do so into Q1 of 2020. Also, as pointed out multiple times, an acceleration of rates that is excessive creates Rate Shock conditions for the equity market. The current bounce is the longest one since rates began falling in Nov. 2018.
Check out the “Market Signal Summary” below – after you review the following chart… It reveals 3/3 YELLOW signals this week. Caution in expectations for an immediate further rally.
U.S. 10 Year Treasury Note Yield (click chart to enlarge; TNX, IEF, TYX, TLT, TBF):
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 12.10 vs. 12.01 last week. These are the other targets: 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 BARELY NEUTRAL Gold Trend. Some would call it BEARISH. 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 120.37 on Friday, below the reversal number. Once it breaks the nearest low, the trend turns Bearish. Much more rate pressure could tip gold over.
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 mildly Bullish 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 64.07 vs 63.89 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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Spot on and thanks!
Thanks, and you are welcome Charles!