Market Timing Brief™ for the 10-27-2017 Close (Bitcoin Update 11-02-2017 and 10-30-2017 Update: Japan is a Buy): SP500 Index Rally Is Not Over. Caution On Chasing Stocks and Mueller Monday. Gold Still Weak with Rates Rising Further.

A Market Timing Report based on the 10-27-2017 Close, published Sunday,  October 29th, 2017

I deliver focused comments on market timing once or twice a week.  These are supplemented with daily “Tweets/StockTwits” (see links below).

Update 11-02-2017 9:21 am: Bitcoin Update – The price has skyrocketed over the past day or so, but has not quite reached the upper end of the market timing channel, which is at about 7490.  This channel drawn on this chart is again ignoring the May swoon.  If you buy here, be prepared to buy both higher and lower.  Demand should continue to build prior to the mid-November Segwit2x fork. 

BTC-2017-11-02-921am

Bitcoin running up near but not at trend line.

 

Update 11-01-2017 6:10 am: Bitcoin Update – If you include the 1100 low in the daily market timing chart, there is an upward wedge which is normally Bearish, but if you factor that out as an extreme event, it looks very much like an upward channel, nearing it’s upper end, yes, but with room to rise overhead to about 7070ish.

BTC-2017-11-01-610am

Room to rise to top of channel.

Update 10-31-2017 1:14 pm: Bitcoin Update – It’s sitting on some support here, but obviously has run up quite a “bit” today.  There is room to fall to the next level of support at the earlier lows you see. The market is moving so fast, this chart could have changed quickly since I typed these words.  It actually tested the lower level of market timing support at Bittrex and popped back up to that black line in a couple of minutes. Now it’s moving up again above that dark line. Lots of buyers entering still.

If you are interested in learning more about this market, please send me a message through the contact box HEREI would like to gauge the interest in a “starter course” for buying cryptocurrencies.

Bitcoin-Chart-BTC-2017-10-31-114pm

Bitcoin Intraday Market Timing Chart

Update 10-30-2017: Japan is a Buy

I’m adding Japanese exposure based on the market timing breakout in their markets (see the Nikkei for example, now above 2015 high).  I am doing it through the small cap route vs. the large, both of which should still benefit. 

I’m also going with the dollar hedged ETF DXJS, because Japan is likely to lag in the tightening of their monetary policy vs. the US.  If you are not sure about the currency issue, you could hold equal amounts of DXJS (WisdomTree Japanese Small Cap Dollar Hedged) and DFJ (Wisdomtree Japanese Small Cap Dividend Fund).  They don’t have the exact same performance, but this is as close as we can get using ETFs from what I’ve found.

NOTE: The volumes of the small cap ETFs are very low, so be a little patient getting in, and check the premium you are paying at Morningstar.com.  At least you know how much you are paying up (or down).  DXJS has the best volume of the group and has had the best performance of the three.  DXJS is in yellow below, DFJ in green, and DXJ in aqua, plotted against the Nikkei.

Nikkei-index-market-timing-chart-vs-dxjs-dfj-dxj-2017-10-30-1049am

Nikkei vs. DXJS, DFJ, and DXJ.

If you want large cap exposure and dollar hedging, you can get that with DXJ or mix that with EWJ if you want to neutralize the currency issue.  You could also mix large with small cap exposure. 

Remember, I’m making two market timing decisions here:

1. The Japanese Economy will do well 

2. The US dollar will beat the yen in the intermediate term.

I am focusing on the small caps, because over time the returns are greater in them, just as they are in the U.S. Of course the risk is higher in draw-downs. 

Multiple sources are now onto this idea including the usually Bearish David Rosenberg who said Japan was the “most under-owned market: HERE.

Remember, don’t chase the ETFs (small caps in particular) or they’ll just fall right back down to their net asset value trading price (always check the NAV premium, whatever ETF you are buying!).  Be a little patient if you want to buy and you’ll be happier.

Back to this week’s issue….

1.  SP500 Index: U.S. GDP was better than expected by virtually all economists, beating the 2.5% SAAR GDP consensus @Bloomberg by about 0.5% at 2.95%, which was rounded to 3.0%.  The Bureau of Economic Analysis (BEA that puts together the GDP report) said storm reductions and storm increases in GDP were likely, but it had no way to sort it all out through it’s current data collection methods.

The market was at first hesitant after the news and then rallied further.  This also followed strong earnings performances and revenue growth by Amazon, Microsoft, Intel, and Alphabet, which all rallied in a panic mode.  Some of that no doubt was short covering, but many were chasing the stocks.

I’d advise you to keep your “non-buyer’s remorse” in check and instead find other great investments with better value in current up trends.  I am NOT talking about buying value stocks without growth!  Buying value and waiting around can take a long time and value is out of favor at the moment.  That will change, but until it does, why fight the trend?  Foreign markets are some that are much cheaper than ours, and I’ve highlighted those before on my social media stream.

I’m up about 44% on KWEB purchases of Chinese internet companies I made in late Nov. 2016 (after prior profits were taken, so the gains are actually higher), and through additions in Jan. and April 2017.  I took some profits during the recent decline, but I’m still holding 80% of the total position I had. The Chinese companies are providing the same services in China, but were cheaper.  That is not as true today with some components like JD.com trading at valuations far above Amazon’s.  Tencent is also a bit rich in valuation now.

KWEB survived at a key support level on Friday.  We’ll see where it goes from here.  I don’t just look blindly at support levels, so bouncing off of support by a little is not enough.  I use my own proprietary methods of examining whether the bottom looks solid or not.  This one is mixed.  There is some positive divergence showing up, but there were not enough buyers to verify the low.  It could be a decent entry point, IF it moves up tomorrow AND you are willing to sell if it breaks lower.  If you are not, stay out.  You will have to be more disciplined than ever to make money over the next two years.

There WILL be 5-10% corrections in this stock market rally, and we’ll need some cash to re-enter at better prices, meaning lower in relative but not necessarily in absolute terms.  Big moves up followed by corrections that are smaller will occur several more times before this already old Bull collapses into a Bear market.  That means higher lows and higher highs thereafter.

One possible, yet unknowable outside event?  The Mueller Investigation is issuing its first indictments on Monday.  I am calling it “Mueller Monday.”  If the implications are not good for Trump, his plans come into jeopardy, and the markets will not like it.  If he is NOT involved, that of course could have the opposite effect.  This is a hard thing to handicap unless you buy puts with the idea you are paying for insurance and expect you will likely lose.  I choose not to do this, but it’s not completely crazy.

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 31,629 people are joining in…

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

sp500-index-spx-market-timing-chart-2017-10-27-close

New high but barely. Take a look at the small cap chart.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of  +6.61% vs. +10.00% last week.  I say there is still more rally left with these numbers (despite any short term pullbacks).  With an all time high this week in the SP500 Index, the percent of Bears went up by just over 5 points just 2 days earlier (when the poll closed)That is the opposite of what we’ll see when this market turns into a Bear.

Thurs. 12 am close to poll Bulls               39.64% Neutrals 27.33% Bears      33.03%

2.  U.S. Small Caps: Small caps did OK on Friday as they did the prior Friday, but they have yet to confirm the new high in the SP500 Index. Yet that was the same last week, and the large caps did very well despite it.

What about the mid caps?  They AGAIN broke out to a new high (IJH).

Is the small cap performance still OK?  Yes, actually, as it’s up more than the mid and large cap stocks since the November 2016 lows, but I’ll be keeping an eye on the index.  They still need to break out eventually or the mid and large cap stocks will fall.

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

iwm-russell-2000-etf-market-timing-chart-2017-10-27-close

Small caps looking for another breakout.

3. Gold: Gold still looks poor, unless something unexpected like a Trump impeachment pops up to surprise the markets.  The Fed is clearly going to tighten.  Gov. Powell is likely Trump’s Federal Reserve Chair pick who is closer to Dr. Yellen in his interest rate outlook than the far more hawkish John Taylor, who could easily foist his “Taylor Rule” (right or wrong) on the Fed.  Still, Powell will continue to slowly raise rates and work off the balance sheet as Yellen has done, and the market likes that better than something more drastic, which they would get from both a Taylor or a Warsh, who is even more extreme than Taylor.

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

gld-gold-etf-market-timing-chart-2017-10-27-close

Gold suffers in rising rate environment with low inflation.

4. U.S. 10 Year Treasury Note Yield (TNX): Last week I said “short term, stocks will hesitate if the 10 Year Yield in the chart below does not complete a market timing breakout above the aqua line.”  In fact, we made it above that line, and I believe rates will continue to rise.  Stay with the financials in the meantime (read the issues from the past two weeks to see where I’m investing; links to upper right).

I cannot predict every squiggle in the chart, but over the next 6 months, rates will move higher.  That’s my view.

Invest in shorter maturity bonds/Treasuries/CDs and keeping adding at longer maturities as rates rise.  And get out of bond funds and invest in individual bonds, Treasury, and CDs if you can.

IF rates undulate in a range between 3.0% at the high end and 2.1% at the low end, bond funds can still do OK.  If they move still higher though, bond funds will generate losses and drive even more assets into stocks.

And stay connected on social media (links above) on Monday.  I’ll be adding exposure to a market with remaining growth potential IMO, depending on the state of the markets at the time.  If things are not right, I won’t make this recommendation.  This will be information I signal is posted here on the blog, via a social media comment.  Don’t put all your money in it, but consider starting a position and add to it as it starts working in your account.  You will have to be able to purchase ETFs to participate in this in the best way, although there is a “2nd level” way to participate too.  Be sure to check out the data on this idea yourself before investing.  As you know, I believe in conscious investing.

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-2017-10-27-close

Rates still rising as expected in a strong economy.

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”; a broad rally including small and mid cap stocks as well as large caps is a positive for stocks).  BUT we need a small cap breakout still.

Gold Signal ON (GLD is below the “Trigger line” which is negative for gold, positive for stocks).

Rate Signal ON (10 Year Yield above the “Trigger Line,” good for stocks, not bonds).  The stock market rally will be muted if we don’t need new highs over weeks to months.

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.  Thank you.

Note: My monthly newsletter is now CLOSED to new subscriptions until late this year.  I’ll let you know here if and when it reopens.

Be sure to visit the website for more general investing knowledge at:

Sun and Storm Investing™

Standard Disclaimer: It’s your money and your decision as to how to invest it.

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.

Copyright © 2017 By Wall Street Sun and Storm Report, LLC All rights reserved.

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Posted in Bonds, gold, investment, investor sentiment, large cap stocks, S&P 500 Index, small cap stocks, Treasuries | Tagged , , , , , , , , , , , , , , , , , | Leave a comment

Market Timing Brief™ for the 10-20-2017 Close: Bulls In Charge with SP500 Index Rally to All Time High on Tax Reform Progress. Gold Rally Fails on Rising Rates.

A Market Timing Report based on the 10-20-2017 Close, published Sunday,  October 22nd, 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: The market went to all time highs this week based on progress with tax reform by the GOP.  A brand new high is irrefutable strength in market timing terms, and the great news is that individual investors are still holding back.  The GOP almost certainly will pass a bill, as they have the votes, but how much of a deficit they will build into it is up for grabs, given the fact that the House passed a revenue neutral bill, and the Trump Senate bill adds 1.7 Trillion to the national debt over 10 years.  I’ve commented on the LACK of fiscal discipline by the GOP AND the Dems HERE.

Skip this paragraph if you don’t like historical economic truth.  ; )  Our recent Presidents have mostly been fiscal liars with two exceptions.  Bush Senior broke his word and raised taxes, because he wasn’t a fiscal liar.  And Clinton balanced the budget if you don’t count the Social Security hedge, a hedge all the Presidents and Congresses use to fudge the numbers.  So they were not ALL liars.  Carter did not lie, but was very ineffective as a President at a time of crushing inflation.  “Tinkle down economics” does not work.  Reagan proved that with great help from the Dems who spent along with him.  Yes, he sought a line item veto, which is like asking for Electoral College reform.  It will never happen.  But Reagan was a BIG spender in the end.  I’d just like people to realize that the Reagan story has been idolized beyond reality.  Reagan was a great man for bringing down the Soviet Union in my view, but not for having any true fiscal discipline.

The big, big news this week will be Friday’s GDP number.  Consensus for the headline Q/Q number is 2.5% (@Bloomberg).  It is specifically the first estimate of the third quarter Real (meaning inflation adjusted) seasonally adjusted annualized rate (SAAR) of growth, representing the quarter over quarter growth rate, projected from the third quarter forward.  As you can imagine, it is hard to estimate growth for an entire year based on the rate of growth in one quarter, which is why the headline number fluctuates far more than the annualized or “Year over Year” GDP number.  That’s why we’ll be looking at both the quarterly rate and the annualized rate when they come out.  The Real SAAR GDP itself is a growth rate.  Total GDP is a number estimating the production of the entire economy.

If Trump Growth is real, we should see the annualized rate tick up some more on this chart: HERE.

The markets would NOT respond well to a weak GDP number and will continue to rally based on a solid number, which would be 2.4% annualized in my view.  Slow and steady keeps the Federal Reserve’s foot off the rate hike accelerator switch.  Markets won’t mind slowly rising rates, and the financials will benefit from them as I discussed HERE.

How is the Canary doing?  Read at the last link (just above) to catch up.  Let’s look…

bac-vs-sp500-index-spx-market-timing-chart-2017-10-20-close

The Canary is Singing “The Green Song”: Bank of America is gaining on the SP500 Index.

The Canary is singing the “Green Song.”  It is gaining on the SP500 Index (bottom part of the above chart, and it’s also gaining on XLF (not plotted) as I said it would.  I’d like to see a breakout in that bottom part of the chart this week or next.

This leg of the market, if it is to be substantial, depends on rising interest rates.  There is no excuse for anything else at this point.  The Federal Reserve is cutting back on some of their prior massive interference with normal market mechanisms, which were undertaken for better (higher housing and stock prices) or worse (the bust to come could be bigger than the last one).  That is why we’ll continue to BE IN this market, but be vigilant in watching for the cracks. 

Warning: There may be a tendency during the current rally to become complacent as we saw in housing at the end of the last bubble.  Don’t.  Come back here and read and examine the charts for yourself every week even if there are no financial fireworks to disturb things.

There is one slight negative in the charts this week…see the small cap chart below…

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 31,434 people are joining in…

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

sp500-index-spx-market-timing-chart-2017-10-20-close

New high on Tax Reform progress.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of  +10.00% vs. +12.90% last week.  With individual investors LESS Bullish at all time highs in the SP500 Index, we have more rally left.  Yes, there can be pullbacks due to exogenous events (slowing elsewhere, geopolitics etc), but with earnings very strong this season and the economy growing at a reasonable pace (to be verified by the number out this next Fri.), the market should continue to do well.

Thurs. 12 am close to poll Bulls               37.93% Neutrals 34.14% Bears      27.93%

2.  U.S. Small Caps: I said last week: “The 10-09-2017 low is likely the base of the current U.S. small cap consolidation in market timing terms.” We tested below that market timing level during the week, but gains on Friday brought us back above that level.

What about the mid caps?  They broke out to new highs this week (IJH). Check!

But now we need a breakout in the small caps to match that in the large and mid caps.  No check mark there yet.  It could come this week IF rates keep rising.  So follow the interest rate chart (section #4 below).

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

iwm-russell-2000-etf-market-timing-chart-2017-10-20-close

Small caps need a NEW breakout now.

3. Gold: The trade broke down on Monday with a “Bearish Engulfing Day” market timing signal, and rates climbed back up.  The move was a “fakeout.”  Expect more losses for gold in the coming months.  The only thing that could save gold is inflation rising more rapidly ahead of Fed action (review last week’s comments  HERE).

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

gld-gold-etf-market-timing-chart-2017-10-20-close

Gold will suffer from rising rates for months IF the economy is on track.

4. U.S. 10 Year Treasury Note Yield (TNX): My central thesis, as said, is rates must rise from here, or the recovery will be in trouble.  Maybe the market can churn around for a while as Congress gets its act together, and rates can stumble sideways, but a correction of significant proportions would be much more likely in the case of falling rates.

Short term, stocks will hesitate if the 10 Year Yield in the chart below does not complete a market timing breakout above the aqua line.

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-2017-10-20-close

Rates rise again.

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”; a broad rally including small and mid cap stocks as well as large caps is a positive for stocks).  BUT we need a small cap breakout this week or next.

Gold Signal ON (GLD is below the “Trigger line” which is negative for gold, positive for stocks).

Rate Signal ON (10 Year Yield above the “Trigger Line,” good for stocks, not bonds). We need a new breakout or at least stability in a higher range. The stock market rally will be muted if we don’t need new highs over weeks to months.

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.  Thank you.

Note: My monthly newsletter is now CLOSED to new subscriptions until late this year.  I’ll let you know here if and when it reopens.

Be sure to visit the website for more general investing knowledge at:

Sun and Storm Investing™

Standard Disclaimer: It’s your money and your decision as to how to invest it.

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.

Copyright © 2017 By Wall Street Sun and Storm Report, LLC All rights reserved.

Posted in Bonds, gold, investment, investor sentiment, large cap stocks, S&P 500 Index, small cap stocks, Treasuries | Tagged , , , , , , , , , , , , , , , , | Leave a comment

Market Timing Brief™ for the 10-13-2017 Close (10-17-2017 Gold Update – May Be a “Fakeout”): The Threat to the Stock Market Rally. Gold’s a Trading Buy as it Ramps while Rates Fall.

A Market Timing Report based on the 10-13-2017 Close, published Saturday,  October 15th, 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: The markets were largely in a market timing consolidation this week (moving sideways) as recent big gains are being digested.  The small caps eased down a bit more than the large caps, but within their higher volatility range, held up well enough to allow the rally to continue.

BUT there is a threat to the rally as I discussed last week in some detail HERE.  The slipping sound heard on Friday was by interest rates which headed back down rather than up.  As I’ve said, rates rising is one of the things we need to see for the stock market rally to continue, because the financial sector depends on it, and because it means the economy is continuing to expand, which naturally drives rates up.  It is a complete misconception that when rates rise, the market does poorly.  It is true that rates have never been this low for this long, but the Federal Reserve intends to move them up slowly to avoid market volatility that would be injurious to the economy.

Remember that our “fail safe” is market timing.  When things are turning sour, we’ll see it in the charts before the market falls more quickly.  That’s not a 100% guarantee, but it’s usually the case.  Even in 1987, I saw the damage coming ahead of time.  Initially investors won’t believe the changes in the market that we will be able to see.  Why can we do this?  Because the markets cannot hide three things: Price, volume and volatility.  These are derived directly from market trading and cannot be hidden by Wall Street exchanges or anyone else.  Market timing data is the one thing the clever people on Wall Street cannot take away from us.

You can be sure, as I’ve been doing technical analysis formally and steadily since 2001, that I will continue to follow and report on what the markets are actually doing, not what people think they should do.  

After you review the large cap chart below, have a look at what small caps are doing.

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 31,259 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-2017-10-13-close

Stocks holding gains! Rally is still on.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of  +12.90% vs. +2.80% last week. Bears gave up about 6 points with about 4 points going to the Bulls and a bit less than 2 to the Neutrals.  Rallies don’t end at these levels.  There are more gains ahead in my opinion (short of unforeseen disasters like a resumption of war with North Korea – yes, resumption as we never signed a peace agreement with them!).

Thurs. 12 am close to poll Bulls               39.77% Neutrals 33.33% Bears      26.90%

2.  U.S. Small Caps: The 10-09-2017 low is likely the base of the current U.S. small cap consolidation in market timing terms. If you look at a magnified chart, you’ll see that.  The point is that the slight dip in IWM last week is still part of a consolidation, not a breach of the trend.

The mid caps are even stronger as you can tell by examining the IJH chart on your own.  This means the rally is intact with great breadth (large down to small cap participation).  So we can check off the “Breadth Box.”

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

iwm-russell-2000-etf-market-timing-chart-2017-10-13-close

Small caps slipping a bit, but rally is not broken.

3. Gold: UPDATE 10-17-2107: Gold has pulled back below the “Trigger Line” (you can see the number in the chart below).  A close below the 10-11-2017 low will reverse the trading signal in my view.  That is called a “fakeout.”  Some breakouts are fakeouts, because markets test just above them and reverse.  Gold is still fine as insurance against the US Dollar and other fiat currencies, but I make a distinction on trades vs. insurance.

Gold visited its market timing trend line (yellow) two Fridays back and then bounced as rates fell from their peak simultaneously (though the bond market was closed this past Monday).  This dance is a continuation from what we’ve seen for some time, which is an inverse trading relationship between gold and interest rates.

This echoes the threat to stocks I spoke of above.  Gold rising above my trigger is bad for the Trump Growth Thesis and negative for stocks.  Falling rates are not what the doctor ordered.  Rates should continue to rise in an expanding economy as the Federal Reserve raises rates.

I have mentioned the inflation scenario under which rates could rise while gold also rises.  That could happen if the Federal Reserve falls behind on inflation.  That does NOT seem to be the case at this time however, as the CPI is running at 2.2%, as reported this past Friday, and core CPI is running at 1.7%.

The measure of inflation the Fed prefers to watch is the 12 month change in Core PCE Prices (Price Index for Personal Consumption Expenditures (PCE)) which was last reported at 1.3%, far below their 2% target.  Dr. Yellen reviewed the inflation problem today in fact as posted HERE.  She pointed out that PCE Inflation (the change over 12 months) had reached 2.0% earlier in the year, while Core PCE Inflation had hit 1.9%.  The drop to 1.3% since then has puzzled the Fed.

Although the Federal Reserve would like to normalize rates, they are cognizant of the fact that the bond market could end up disagreeing, so there is always an out.  She says they do not plan to fidget with the balance sheet rebalancing mechanism as they do with the Fed dictated interest rates, but also reserves the right to slow that down and even reverse the flow if the economy does not do what they expect it to do.

That should address anyone who thought the entire path the Fed is now on was immutable.  It’s not.  They simply want to raise rates “while they can,” so that when they need to lower them, they can impact the economy to steady it.  It IS a manipulation and it is NOT a free market principle that drives it NO, which is why we have gold, and for the adventurous currency pioneers, a smaller amount of cryptocurrency on a percentage basis, as insurance.

The bottom line is this: if rates move back up from here and reach a new high, gold will suffer.  This means any current gold trade could be cut off in just days to a week or two.  Watch the interest rate chart below to figure out where gold will go, as they are firmly LINKED in an inverse relationship – higher rates means lower gold.

As far as market timing goes, gold is back to an up trend, also trading above my “Trigger Line” for Trump Growth. 

Now after reviewing the gold chart, have a look at the interest rate market timing signal…

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

gld-gold-etf-market-timing-chart-2017-10-13-close

Gold rises above my Trigger Line again!

4. U.S. 10 Year Treasury Note Yield (TNX): The 10 Year Treasury Yield could now back-test that orange line in the chart below that represents the “Trump Growth Trigger Line” for rates.  I told you last week, we could see a bigger drop in rates after it hit the overhead resistance line (the horizontal aqua line in the chart below; see last week’s issue).

This market timing move in rates could take us to the orange Trigger Line or perhaps to the red line below that, which would create a reverse head and shoulders formation, allowing for a bounce.  Could yields plunge still lower?  If Trump can keep legislative momentum on tax reform going, we should not revisit or break the September low.  If we do, the stock market will already be well into a deeper correction.  My favored scenario is a test no lower than the area of the orange Trigger Line or close to it, meaning the April low. 

The markets will do what they want, so we stay alert.  Stay tuned on social media with me this week (links above)!

Now 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-2017-10-13-close

Rates are heading in the WRONG direction.

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”; a broad rally including small and mid cap stocks as well as large caps is a positive for stocks).  Stocks consolidated this week. That’s fine for now.

Gold Signal OFF (GLD is above the “Trigger line” which is positive for gold, not stocks).  Gold is linked to rates though, so follow the 10 Year yield with me.

Rate Signal ON (10 Year Yield above the “Trigger Line,” good for stocks, not bonds). The fall I predicted last week may not quite be done yet.  (details above in part “4.”) Going below the orange Trigger Line will hit stocks in my view if rates get that far.

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.  Thank you.

Note: My monthly newsletter is now CLOSED to new subscriptions until late this year.  I’ll let you know here if and when it reopens.

Be sure to visit the website for more general investing knowledge at:

Sun and Storm Investing™

Standard Disclaimer: It’s your money and your decision as to how to invest it.

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.

Copyright © 2017 By Wall Street Sun and Storm Report, LLC All rights reserved.

Posted in Bonds, gold, investment, investor sentiment, large cap stocks, S&P 500 Index, small cap stocks, Treasuries | Tagged , , , , , , , , , , , , , , , | 2 Comments

Market Timing Brief™ for the 10-06-2017 Close (Update 10-09-2017): Many Are Waiting for the Stock Market to Crash Again. Gold at Low End of Range. Rates Can Move Higher.

A Market Timing Report based on the 10-06-2017 Close, published Saturday,  October 7th, 2017

I deliver focused comments on market timing once or twice a week.  These are supplemented with daily “Tweets/StockTwits” (see links below).

Update 10-09-2017: Bank of America: The Market Timing Canary in the Trump Gold Mine

For this rally to continue, there will have to be tax reform, especially corporate tax reform with repatriation, as it’s been at least partially built into the market.  And the other thing that must happen is for rates to rise; otherwise, it means economic slowing will likely occur with a potential recession to follow.  No need to be pessimistic at this point however, so…

My favored scenario is: Rising rates with at least corporate tax reform and some sort of tax reduction for the middle class, which could be enough for the markets, even if individual tax reform is watered down. 

The financials (XLF; financial ETF) are the Canary market timing signal in the coal mine, with Bank of America (BAC) being a more sensitive Canary than the XLF.  I reviewed the comparison chart, and BAC will pack more punch to the upside than will XLF, if rates keep rising with further economic expansion, OR more punch to the downside if rates fall meaningfully from here (not just a few days of a reaction swing lower), and the economy slows. 

The XLF and, more sensitively, in market timing terms, BAC will show us the way forward.

And now back to the major market setup for this week…

1.  SP500 Index: Markets are still strong, but it seems many are still waiting for the next stock market crash, so they can swoop in and buy stocks on the cheap, but instead, they are being sorely disappointed.  Of course, the doomsayers will be right one day, but please don’t mention the cost of their being out of the market since the 2009 bottom to them.  The poor market timing of the average investor is a touchy subject, but is too often left unaddressed with ongoing lousy returns.  And if you are one of the skeptics, it’s OK, because redemption is for everyone.  Winter may be coming, but “Not yet, not yet!” as the Gladiator Juba says after Maximus dies in the Colosseum.  (Gladiator meets Game of Thrones ;))

Investors could have used market timing to enter the SP500 Index SEVEN times just since May of this year.  See the green numbers on the chart below.  The entries were at higher lows or backtests of breakouts, both legitimate buying points. There is actually a 6th and 7th entry, at the breakouts themselves.  Can you find them?  #4 is one of the market timing breakout buys, but there are two others that have not been marked.

Employment did take a hit this past month (the US jobs number was minus 33,000 for September) due to Harvey and Irma, but should rebound along with increased activity due to the rebuilding efforts.  The NY Federal Reserve still expects GDP for Q3 to turn out at 1.53%, slightly above last week’s estimate, while the Atlanta Fed brought down its estimate to 2.5%.  Remember that the quarter to quarter seasonally adjusted annualized GDP numbers are more volatile than the year over year GDP numbers.  At the end of Q2 2017, Year over Year US GDP growth was 2.2%.  You can review the data HEREAs long as the economy is doing OK, and inflation is not running wild, I remain invested in equities.

Review the SP500 Index market timing chart below and then we’ll discuss investor sentiment and the US small caps…

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 31,066 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-2017-10-06-close

Hurricanes, North Korea, Tigers and Bears, Oh My!

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of  +2.80% vs. +4.59% last week.  A few more BEARS were recruited from Neutrals last week than were Bulls!  Investors are incrementally more Bearish as the market continues to make new highs.  That means there are more gains ahead!

Thurs. 12 am close to poll Bulls               35.60% Neutrals 31.60% Bears      32.80%

2.  U.S. Small Caps: Mid caps did indeed confirm the small cap market timing signal this week by breaking out to new all time highs.  Small caps moved up yet another notch.

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

iwm-russell-2000-etf-market-timing-chart-2017-10-06-close

Small caps move up once again.

3. Gold: In market timing terms, gold has reached the base of the trading range, which is represented by the yellow trend line in the chart below.
It must bounce from here or that will be a distinctly negative market timing signal.  The GLD price would then undoubtedly test the next red line beneath the current level as an initial downside target.  If you are Bullish, which I am not due to rising interest rates, then buy at the trend line and dump those shares back at the top of the range.  You can keep a core position if you like. I use gold as insurance against fiat currencies.

The one thing gold has going for it at this level is the resistance interest rates are facing (see the next chart).  No guarantees though and my bet is still for 10 Year Treasury Rates moving at least to 2.6%ish over the intermediate term.

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

gld-gold-etf-market-timing-chart-2017-10-06-close

Gold reached the bottom of the trading range.

4. U.S. 10 Year Treasury Note Yield (TNX): Rates moved still higher this week.  I think they have farther to go, as the Federal Reserve will use this time of economic expansion to raise rates and reduce their balance sheet to get ready for the next economic decline. The 10 Year Treasury Yield can certainly run up all the way to 2.6%ish without destroying economic growth.  The Fed will move slowly no doubt, as they’ve never undone QE before as they have raised rates.

Rates hit the top of the recent range and could move back down a bit before moving higher, but my bet is on higher in the intermediate term. 

The Fed has never reduced such a massive balance sheet before, so I’ll follow the charts, not my assumptions about ranges holding!  Rates could just as easily keep moving up steadily.  

Now we need to review our three 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-2017-10-06-close

Rates moved higher still, but bumped up against the July high.

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”; a broad rally including small and mid cap stocks as well as large caps is a positive for stocks).  All three market caps are moving higher.

Gold Signal ON (GLD is below the “Trigger line” which is negative for gold, not stocks).  Gold is on support at the moment.  It must hold.

Rate Signal ON (10 Year Yield above the “Trigger Line,” good for stocks, not bonds). There is more room for rates to rise.

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.  Thank you.

Note: My monthly newsletter is now CLOSED to new subscriptions until late this year.  I’ll let you know here if and when it reopens.

Be sure to visit the website for more general investing knowledge at:

Sun and Storm Investing™

Standard Disclaimer: It’s your money and your decision as to how to invest it.

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.

Copyright © 2017 By Wall Street Sun and Storm Report, LLC All rights reserved.

Posted in Bonds, gold, investment, investor sentiment, large cap stocks, S&P 500 Index, small cap stocks, Treasuries | Tagged , , , , , , , , , , , , , , , , | Leave a comment

Market Timing Brief™ for the 9-29-2017 Close: Small Caps Rocket Higher. Fed Confused on Inflation with Market Hitting All Time Highs. Not Gold Though, Down Yet Again as Rates Rise!

A Market Timing Report based on the 9-29-2017 Close, published Sunday,  October 1st, 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: The US equity markets hit all time market timing highs this Friday and brought the Dow Transportation Index with them (DJT; IYT).  Meanwhile, the Federal Reserve is confused.  Dr. Yellen, the Fed Chair, gave a speech on Thursday saying the Fed may not really understand inflation in the current context, meaning it does not seem able to predict its course.  Normally as the employment drops below 5%, wages rise and inflation ensues.  It has remained tame, with the Year/Year Core PCE Inflation Index the Federal Reserve follows dropping from 1.4% last month to 1.3% this month.  That’s not what is supposed to be happening. The Fed’s target is 2%.

Now the Federal Reserve has a big problem.  It wants to reduce the size of the balance sheet, which involves letting debt run off as I described last week: HERE This will drive up long rates, which will allow them to hike short rates gradually as well, but only if the economy does not slow as a result.

I believe creating the huge balance sheet they have now was easier than unwinding it will be.  The other side of the box they are in is that the longer they put off reducing the balance sheet, the more expensive it will be to reduce it.  As rates rise, our government will have to pay more to finance our national debt. 

What keeps us in the market is US economic growth.  GDP will remain strong over the next few quarters, meaning growth will stay strong for now (the headline GDP number is a measure of US economic GROWTH, not the level of output)  The out-performance in small caps I pointed out early on after the Fed statement’s release has continued as the market timing charts show this week.

Rates are expected to rise as the Fed reduces the balance sheet size, and actually have front run the process, which will begin this month, in October.  If this trend continues, the U.S. dollar will be higher and multinationals will be under relatively more earnings pressure than small caps or mid caps, at least the ones that are not primarily serving an international market.  Plus there is a sizable Russell 2000 exposure to financials, which do well when rates rise and banking spreads rise fueling bank profits.

Review the SP500 Index market timing chart below and then we’ll discuss investor sentiment and the US small caps…

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 30,879 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-2017-09-29-close

New all time high as the Fed struggles with its job.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of  +4.59% vs. 12.93% last week.  Investors were more Bearish this week just before the market hit all time highs.  This means there is more upside.  Investors will be VERY Bullish when the market reaches its final top.

Thurs. 12 am close to poll Bulls               33.33% Neutrals 37.93% Bears      28.74%

2.  U.S. Small Caps: We DID actually get the strength I was looking for this week and in a big way as the market timing chart shows.  Small caps initially led the charge up after the election, but then stagnated for months as the large caps caught up.  But if you missed the rocket ship that took off right after the election, you missed a lot of the post-election gains.  I think there is still more in this trade though in this move in particular, due to the long consolidation (move sideways) in market timing terms after the election.  For that reason, we added to our small cap position twice last week as noted on social media (links above) in real time.

Mid caps (IJH) are lagging a bit, but did just eek out a new high close of 1795.94, barely above the prior intraday high of 1795.14 on 7-25-2017.  Look for them to move higher early next week to confirm the large and small cap highs.

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

iwm-russell-2000-etf-market-timing-chart-2017-09-29-close

Leading since the election and now leading again.

3. Gold: Again last week, I told you to watch your gold profits, and I was correct.  By market timing of interest rates I knew to tell you to get out of some gold exposure, at least by setting mental sell stops. 

The Federal Reserves plans to raise rates and reduce their balance sheet is not going to be friendly to gold and it could go on for a while.  Only if the Fed falls behind inflation, does gold win.  Read my article on “When Does Gold Shine and When Does It Decline” if you have not (Google that phrase and it’s at the top).

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

gld-gold-etf-market-timing-chart-2017-09-29-close

Gold continues to slide on rising rates.

4. U.S. 10 Year Treasury Note Yield (TNX): This period of economic growth is the Federal Reserve’s chance to raise rates.  If the NY Fed proves to be right about it’s relatively anemic growth prediction for the U.S. economy, rates will come back down again.  That’s not what I believe will happen, but we have to rely on the other questionable economic forecasts to refute the NY Fed!  So I will continue to follow the market timing charts, most of all.  They often tell the truth before economists do.

I told you last week exactly what I am doing with bond funds in particular (link at top right).  I sold muni bond fund exposure just prior to the Fed statement (timestamped on Twitter).  Keeping durations relatively short would be good to do as well.

Now we need to review our three 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-2017-09-29-close

More room for rates to rise.

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”; a broad rally including small and mid cap stocks as well as large caps is a positive for stocks).

Gold Signal ON (GLD is below the “Trigger line” which is negative for gold, not stocks).

Rate Signal ON (10 Year Yield above the “Trigger Line,” good for stocks, not bonds).

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.  Thank you.

Note: My monthly newsletter is now CLOSED to new subscriptions until late this year.  I’ll let you know here if and when it reopens.

Be sure to visit the website for more general investing knowledge at:

Sun and Storm Investing™

Standard Disclaimer: It’s your money and your decision as to how to invest it.

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.

Copyright © 2017 By Wall Street Sun and Storm Report, LLC All rights reserved.

Posted in Bonds, gold, investment, investor sentiment, large cap stocks, S&P 500 Index, small cap stocks, Treasuries | Tagged , , , , , , , , , , , , , , , , , , , | 2 Comments

Market Timing Brief™ for the 9-22-2017 Close: Fed Headed to Higher Long Rates. Small Caps Lead the Way, But Need Further Strength to Confirm. Gold Down on Rising Rates Again!

A Market Timing Report based on the 9-22-2017 Close, published Sunday,  September 24th, 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: The Federal Reserve held the Fed Funds rate steady this week as expected, but will be starting to unwind its balance sheet in October.  As detailed at Investopedia, “$1.4 trillion of the $2.5 trillion in Treasuries have maturities of less than five years.”  This means the money that drove this rally will be withdrawn over several years.  The Fed will roll off $6 Billion in maturing Treasuries and $4 Billion in mortgage backed securities per month and each quarter they will raise that total of $10 B by another $10 B until $50 B/month is reached.  

On the technical market timing side of things, this week the small caps gave us the further market timing confirmation I was looking for in last week’s post.  Please read it HERE as I will not rehash it. (Also, please read the small cap section below.)

Last week I noted IYT, the Transportation ETF, had just formed a right shoulder vs. the March 1st high, but it’s above it now, soon to re-challenge the prior all time high.

In the past week, estimates for US Q3 SAAR GDP, rose from 1.34% for the NY Federal Reserve Bank to 1.56%, due to an increase in building permits, which is still low, and the estimate remained at 2.2% for the Atlanta Federal Reserve BankAs long as we are growing at 2% or more, the US equity market should be OK.  If the NY Federal Reserve is right, the stock market may not like it and react poorly.  They’ve been very wrong before.

Despite the “Threat War” going on between President Trump and Kim of North Korea, the market is not particularly shaken. A threat of a hydrogen bomb test by North Korea in the Pacific was made yesterday, and we’ll have to watch the market’s response in the futures tonight.  North Korea remains a bit of a wild card, despite the lack of apparent military options.  It is hard to account for insane behavior by Trump or Kim in an investment plan other than to own some gold and bonds at reasonable levels.

Review the SP500 Index market timing chart below and then we’ll discuss investor sentiment and the small caps…

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 30,690 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-2017-09-22-close

SP500 Index still near the all time high

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of  +12.93% vs +19.3% last week.  Investors became more Bearish at the high of the week, which is NOT how Bull markets end, as I say.  Bulls are killed by wild optimism.  I admit, this does not preclude corrections along the way.  We’ve had several along the way since the 3-2009 bottom.

Thurs. 12 am close to poll Bulls               40.14% Neutrals 32.65% Bears      27.21%

2.  U.S. Small Caps: Refer back to last week’s post (link to upper right) for my update. Both IWO and IWM made my stated goals.  We will add more small cap exposure on further confirmation of this breakout.  This trend is a further confirmation of the long Bull market we are in and the fact that it is NOT over.

The negative?  The close leaves us with a tiny market timing breakout of only 0.05 points.  We need more than that.

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

iwm-russell-2000-etf-market-timing-chart-2017-09-22-close

Small Caps lead the way higher.

3. Gold: I told you to watch your gold profits, and I was correct.  Higher interest rates minus extreme inflation is a bad set-up for gold.  The only plus is that GLD tested my “Trigger Line” of 122.61 and passed the test, at least for the first time.  It’s a negative, however, that GLD closed below 123.31, which was the prior breakout level. The close was 123.24.  Gold must rally from here, or I would take more profits off the table.

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

gld-gold-etf-market-timing-chart-2017-09-22-close

Gold is down on the Fed going ahead with balance sheet runoff.

4. U.S. 10 Year Treasury Note Yield (TNX): Rates should go still higher or the stock market rally will be in trouble.  I have used fundamental considerations as well as market timing signals to reduce my muni bond exposure of late. 

If you are holding INDIVIDUAL bonds that were issued by strong companies or municipalities, you’ll probably do OK even if you give up a bit of interest rate opportunity.  I am talking about bond funds that go down when everyone is selling because bonds are illiquid and movements are exaggerated when “everyone is selling.”

Now we need to review our three 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-2017-09-22-close

Rates 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”; a broad rally including small and mid cap stocks as well as large caps is a positive for stocks).

Gold Signal OFF (GLD above the “Trigger line” which is good for gold, not stocks – but gold must immediately rally as discussed above).

Rate Signal ON (10 Year Yield above the “Trigger Line,” good for stocks, not bonds).

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.  Thank you.

Note: My monthly newsletter is now CLOSED to new subscriptions until late this year.  I’ll let you know here if and when it reopens.

Be sure to visit the website for more general investing knowledge at:

Sun and Storm Investing™

Standard Disclaimer: It’s your money and your decision as to how to invest it.

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.

Copyright © 2017 By Wall Street Sun and Storm Report, LLC All rights reserved.

Posted in Bonds, gold, investment, investor sentiment, large cap stocks, S&P 500 Index, small cap stocks, Treasuries | Tagged , , , , , , , , , , , , , , , , , , | Leave a comment

Market Timing Brief™ for the 9-15-2017 Close (Updated 9-18-2017): Large Caps At An All Time High BUT…Watch Small Caps! Gold Falls on Bouncing Interest Rates Right On Cue.

A Market Timing Report based on the 9-15-2017 Close, published Sunday,  September 17th, 2017

I deliver focused comments on market timing once or twice a week.  These are supplemented with daily “Tweets/StockTwits” (see links below).  Updated Q3 GDP discussion.

1.  SP500 Index: The Conference Board of “Leading Economic Indicators” for the U.S. ticked up a bit more,  up 0.3% for July, vs. 0.6% for June and 0.3% in May.  The Conference Board believes this augers well for more second half growth in 2017 as discussed HERE.  Our decision to remain long this market via market timing has served us well, including raising exposure ahead of the 2016 election.

It is very positive that small caps are again above my “Trigger Line.”  This market timing signal is significant, because it means the rally is broadening to smaller cap stocks.  Mid caps previously back-tested the Dec. 8th high (for IJH it was 169.86), and are above their trigger line as well, further substantiating the health of the rally.  Here’s the “But.”  “But” both small and mid caps need to proceed to make new highs now.  If they fail at a right shoulder below their all time highs, it will be bad news for the continued large cap stock rally.  I’ll be keeping an eye on this all this week. 

It is of note that IYT, the Transportation ETF, has just formed a right shoulder vs. the March 1st high. You can see it in a chart of the Dow Jones Transportation Index as well (not shown here).  As many of you know, classic Dow Theory says that the Transports must now confirm the new market timing high we have in the Dow Jones Industrial Index.  They have not yet done so.  These signals are important to watch.

Another thing that bears watching are falling estimates for Q3 SAAR GDP, which on Friday fell to 1.34% for the NY Federal Reserve Bank and to 2.2% for the Atlanta Federal Reserve Bank Slower retail sales took off a bit of growth, and with over twice the impact,  industrial production and capacity utilization fell.  The Year over Year US GDP numbers are more steady than the seasonally adjusted annualized rates, which tend to jump up and down along their trend, and are still in the low 2’s for both Fed Banks, not the 3% that the Trump administration would like to see.

Please note that the NY Fed was about 1% too low for Q2 SAAR GDP (the Atlanta Fed does not post the prior data to compare, but their numbers have been off by a mile at times), so take these “predictions” with a grain of salt.

Review the SP500 Index market timing chart below and then we’ll discuss investor sentiment and the small caps…

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 30,494 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-2017-09-15-close

US Large Caps at an all time high.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of  +19.3% vs -6.46% last week, which reflects a big boost in the number of Bulls and about the same fall in the number of Bears.  Neutrals were up less than 2%.

There is still room for the spread to rise, though the easy gains may have passed during this swing up in the market.  If you have not yet learned to buy the dips with me, please learn that lesson.  Don’t chase! 

Spreads of Bulls minus Bears can reach over 30% during periods of Bullishness.  During giddy times like 2000, the peak sentiment spread was a crazy 61.7% for the study ending 1-05-2000.  You would think we would not get back to those levels ever again, but investors and traders have short memories when it comes to greed.

Thurs. 12 am close to poll Bulls               41.29% Neutrals 36.74% Bears      21.97%

2.  U.S. Small Caps: Small caps back-tested the “Trigger Line,” but made more progress this week to the upside.  They need to avoid failing at a right shoulder matching the June high in the market timing chart below. Overall, their participation in the broadening rally is very positive. Again, a brand new market timing high is needed to reinforce this rally.   (UPDATE: Testing above prior all time high this morning on 9-22-2017 of 144.25, but barely above it. IWO is testing above its prior high of 173.93. Watch for both of those to hold on one to three closes for confirmation; the more the merrier.  If you add on the breakout which we usually do in smaller size than our buy lower, use a mental stop and exit a reversal if you plan on trading it!)

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

iwm-russell-2000-etf-market-timing-chart-2017-09-15-close

Small caps need to avoid failing at a a right shoulder.

3. Gold: Interest rates were UP for the past 6 day period, and gold was down.  Got the picture.  See my post from two weeks ago on this relationship.  A reversal to the downside as opposed to a back-test of that upper yellow line in the chart below would be a negative market timing event.  If inflation gets ahead of the Fed, gold can still do well in a rising rate environment, but if the Fed hikes early and lowers its balance sheet exposure, gold will be setting off numerous market timing signals on its way down again. Watch your profits with mental stops.

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

gld-gold-etf-market-timing-chart-2017-09-15-close

Gold down on UP interest rates.

4. U.S. 10 Year Treasury Note Yield (TNX): My call 2 weeks ago that rates would correct UPWARD was correct. 

US Median Housing prices are now well above the prior 1 year average at the prior all time high during the housing bubble.  Rents have shot up much since then, much faster than overall inflation.  The Fed cannot ignore these facts much longer as the bubble in housing was the reason for the Great Recession in the first place.

The Federal Reserve has  managed to reinflate housing with the help of speculators, some large and many small.  Low interest rates have done that, just as they have contributed to all time highs in the U.S. stock market.

The remaining force that can prop up the housing market now, at least for a while) is the lack of inventory.  Builders did not build over the past few years at the clip they did prior to the crisis.  Still, if the Fed persists in its dovish policy, housing prices will escape even further beyond the reach of buyers.  If the Fed raises rates now to head this off, housing prices will moderate and likely fall as housing investors/speculators bail at the margin.

Now we need to review our three 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-2017-09-15-close

Rates bouncing again.

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”; a broad rally is a positive for stocks).

Gold Signal OFF (GLD above the “Trigger line” which is good for gold, not stocks).

Rate Signal OFF but BARELY (10 Year Yield below the “Trigger Line,” good for bonds, not stocks). This bounce means we could trigger this signal back to ON again, although the signal change attempted Friday failed to hold by the close.

P.S. I’m back in the saddle after Irma.  Winds reached low Category 2 levels where I was located in Florida.  Shingles and various other roofing materials, some lined by scores of nails were flying by at high speeds of over 100 mph for several hours in the middle of the night, early Monday morning.  The damage was very real for many, so please be generous and help others out.  How we serve others is what defines us.  I did post during the week on social media, so please always keep in touch there (links below).  Thanks for your patience and for your support.

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