Market Timing Brief™ for the 04-07-2020 Close (5-15-20 Coronavirus and 4-27-20 Market Update): “Is it Over Yet? Are Global Stock Markets Done Going Down?”

A Market Timing Report based on the April 7th, 2020 close…

5-15-20 Since my prior update on 5-10 here, I’ve changed the name of the reopening plan to “Age Based Reopening,” or A.B.R. for short…  There is more to it than what is described below, and I would tweak my prior age groups to:

  1. Up to 30 years old
  2. Up to 40 years old
  3. Up to 45 years old
  4. Up to 50 years old
  5. Up to 55 years old
  6. Up to 60 years old

From 2 to 2.5 weeks after a group goes back to work, they will be tested (at least to gain a statistical view of the group IF not testing every person) to see how many have been infected and how many have been either hospitalized or died.  Above 60, we’ll have to evaluate the data from the earlier groups, but I suspect healthy older individuals WILL be able to return to work, although they may still be at somewhat higher risk due to the relative immunosuppression vs. younger people based on age.  I’ll be sharing more of my reopening plan with government leaders and the media…

5-10-2020 Coronavirus Update: The chart is self-explanatory… The downtrend continues in active cases despite increased testing, which is positive, but the return to work while there is still community spread of the virus (simply put “they don’t know how Jack or Jane got the virus”), will inevitably lead to a surge in cases and more deaths.

My Back to Work Plan (in states with falling case numbers for 2 weeks in a row per CDC guidelines):

I would suggest that governors allow groups by age back to work in stages.  This plan does NOT include those at risk for health reasons.  They’ll have to wait for a vaccine, and we’ll have to support them as a society until it’s safe for them to work.

  1. Up to 30 year olds go back to work first, then…
  2. Up to 40 year olds, and then…
  3. Up to 50 year olds

etc….

Going back in steps like this would increase the immunity among the “worker group,” which would in turn reduce the R0 (pronounced “R Naught”; it’s the transmission rate – the number of other people each infected person infects) for those going back to work in the “next added shift.”  As the immunity of the population increases, the R0 falls.

While going back to work in “non-essential services,” those doing so would have to keep away from older individuals to protect them.  

We would have to see what the stats did by pausing between each of these 2-3 weeks at least.  We cannot afford to just “let the virus rip” as many are suggesting whether they are articulating that or not.  Here is an essay to read on why this will lead to bad results.

4-26-2020 Market Update:  My Bull Market Health Score is sending an ominous signal (a drop) at a point where the Bulls MUST move the ball forward and reach another new recent high. The VIX score was 1 (Bullish new low), but the volume and other parameters were weak (see back 2 issues or so for an explanation of the score).

Bull Market Health Score for the 4-24-20 Close

Bull Market Health Score for the 4-24-20 Close

4-24-20 Coronavirus Update:  Using data through last night, the first chart shows COVID-19 active daily case % increase has not been falling since the 13th, (which could be due to testing, but it shows there are lots of new cases, so that’s not a positive epidemiologically, whether there is a lot of testing or not as much testing, as it says “don’t reopen yet, because there is community spread,” meaning too many cases to case trace.  The only FDA approved “treatment” for COVID-19 is “Stay At Home.”  Vaccines will succeed in the end, but that will be a ways out time-wise as said HERE (see April 24, 2020 post).  Note also in the second chart below, the % increase in deaths has not fallen for 5 days.  It will, but it needs to fall even more along with new cases…

2020-04-23 US COVID-19 D-Over-D Inc Active Case %-Recent Data

2020-04-23 US COVID-19 D-Over-D Inc Active Case %-Recent Data

COVID-19 2020-04-23-US % Dead Inc D-Over-D-Recent Data

COVID-19 2020-04-23-US % Dead Inc D-Over-D-Recent Data

4-20-20 Coronavirus Update: Although I was concerned about the bump up you see in the chart below from 1.56% to 6.52% (on the far right on the chart), the next two days came in at an Active Case % D/D increase of 3.24% (4-19-20) and 3.60% (4-20-20), respectively.  The bump up was two days ago, NOT last night.  I apologize for the calendar error.  I did say that the active case number was subject to the caveat of higher rates of testing, which still stands as an issue in gauging the rate of recovery of the U.S. from COVID-19 (SARS-2 is the virus).

2020-04-20 US Coronavirus Stats

2020-04-20 US Coronavirus Stats

Although deaths lag behind active case number improvement by several weeks, they do reveal progress better when testing levels are rising (see 2nd chart below…).  The data is very lumpy/bumpy, but the trend in the “Death Chart” is clearly down (see next chart below…).

Miami just did a study of over 800 people without a known diagnosis of COVID-19 and found 60% had antibodies to COVID-19, which means they were exposed without knowing it (Ref. NBC News; 11th Hour tonight with Brian Williams).  The more people you test the higher the active and total case numbers rise.  But you cannot manufacture dead patients by testing more people…  This shows things are improving. The drop to a negative number that you see back in March was not explained just as some drops in total case numbers were never explained by Johns Hopkins or any other source I have found.  We need to see a move to NEGATIVE day over day increases both for active cases and deaths!  Then we will really be making progress….

2020-04-20-US % Dead Inc Day Over Day

2020-04-20-US % Dead Inc Day Over Day

4-12-20 US Market Update: More Reasons Not to Anchor on Stories (which was my original conclusion in the post that begins below the virus updates…)

SPY SPX and IJH midcaps are wedging up on the daily chart (negative), despite progress made on price.  IWM (small caps) is at the top of its up channel, although there is no wedge there.  My Bull Market Health Score (see 2 issues back; BMHS) is 5/5, although it could be misleading on a strong bounce in a Big Bear Market.  Markets can look like they are in recovery only to pancake again.  

You see, if you look at the daily trend, the trend off the low is UP. The close above the March 13th high is positive. But in the bigger picture, all 3 cap indexes can bounce to just above the 50 day mavs and fail, only to continue the Big Bear Market to the prior low or a brand new recent low… They’ve taken that trip before.  Although I doubt the market is fully discounting the mess ahead, I am hedging my bets by buying in steps.

But by all means, take your pick. The number of people who will agree with you, whatever you think are numerous… That’s why I refuse to anchor on what any human thinks will or won’t happen.  I set my exposure level for better or for worse, based on my view of the markets and their risk level, but then adjust my exposure according to what the market actually does.  None of the self-proclaimed geniuses knows what will happen; no one has a clue about the timeline of recovery from the virus or of the economy.  None.  All President Trump has to do is open up things too early, and we’ll see a second big wave of cases and 10’s of thousands of additional deaths.  How do you think the market would take that?  I’m not saying he WILL do that, but he could do so, given the way he’s been talking about getting everyone back to work quickly.

Stories are made up.  They may be educated by the facts, but take care not to anchor on them, even those I share.  It’s better to “Be flexible,” IMO, and follow the markets, not the stories about the markets.  As things change, we change our minds… #AnchorsAway!

(virus updates are just below and my prior market update/point of view is below those…)

4-12-20 Coronavirus (COVID-19) Update for the Globe: The Day Over Day increases in both deaths and active cases are still on the decline for the world!  This is proving that the Stay-At-Home programs are working…  The US active case Day/Day % increase fell to 4.85% since yesterday’s 5.63% (it was 10.55% on 4-04-20; see chart posted yesterday below) …  Now we need to drive the active case % increase to NEGATIVE numbers as it was at the end of February and in early March.  Had the entire world aggressively stayed at home early on the huge increase in active cases and deaths could have likely been markedly reduced.  The skeptics delayed the response.  There are now over 22,000 dead Americans.  Now we have to be sure when we “open up for business,” an entirely new pandemic is not created…

Global COVID-19 Stats for 4-12-2020

Global COVID-19 Stats for 4-12-2020

4-11-20 Coronavirus Update for the US: Day Over Day Active Case % Increase Still Falling! 

You can see “Stay-At-Home” is working.  The percentage plotted should eventually turn NEGATIVE, and then we’ll know we are really winning.   At the same time the total case number curve will become a horizontal straight line, as eventually we’ll have close to ZERO new cases each day.  That is the goal at any rate!  The last data point for active cases on the chart below was 5.63%.  On 4-11-20  it was 10.55%.  That’s good progress! 

(Note: There was an unexplained DROP in the % increase on 3-13 which made no sense, so I smoothed out the curve to remove it.  The Johns Hopkins team never explained that. The next day there was a spike up by a huge 114.98%, which was likely the combination of two days of data. Again, no explanation…)

2020-04-11 US Coronavirus Stats

US Coronavirus Stats  4-11-2020

Back to the issue I wrote up earlier this week on the markets..

NOTE: In this update I take a broad view of global equity markets and give you my conclusions about 1. How we get out of this mess and a related  2. How long will it take…

Is it Over Yet?

SARS-2 COVID-19 CoronavSARS-2 (COVID-19) Coronavirusirus

SARS-2 (COVID-19) Coronavirus  (courtesy of CDC)

Almost every chart I looked at this morning across the globe is in a 4th wave up position preparing for the 5th wave down to test the prior low or lower. That does not mean the market cannot trade up higher; it will simply have farther to fall. It would be much clearer if the market respected my “anointed target” from yesterday (look it up on my message stream).  Otherwise the market (SP500 Index, for ex.) may go up to or above the 50 day moving averages of “just about anything,” before falling again.

Is it possible the market is NOT going to retest further than it did on the last pullback to the 38.2% Fibonacci retracement level?  Yes, but it’s not “probable” for reasons I’ll discuss.

There are very divergent views of this market from “If you are betting against the USA, I’ll bet against you every day of the week,” to “It’s just economic gravity and we’re going even lower than before.”  So they’ve split the difference with a 50% retracement of the total drop off the top. Like every other poll in our country, investors are split about 50:50.

I believe strongly in basic research, as loyal readers know, but I also know the time element of that research having contributed to medical textbooks through my own work.  It takes time to develop a vaccine, which to me will be the first “cure” for COVID-19 disease for the general population.  The drugs which are candidates for directly defeating the virus (which would be actual “cures” vs. prevention by vaccines) have a lower probability of winning, but the number of companies chasing those solutions may lead to something that helps at least at the margin.  We see that in cancer Rx all the time.  Just a 4 month improvement in survival for cancer patients is often given FDA approval.  If a drug allows even 10% more COVID-19 patients to recover as proven by the stats, it would potentially be approved.  The skills companies have from defeating HIV give them a head start for sure.

The best possibility on the “drug front” is still in the realm of immunological approaches and that is the use of “immune serum,” which is obtained from infected patients, to then be replaced by mass produced humanized antibodies to SARS-2 (the name of the virus causing COVID-19 disease; just like HIV causes AIDS) if they can get that to work.  Those who have been infected will be able to supplement their incomes (if needed) through these donations.

This “passive immunity” approach has been used successfully in the past against other viruses and there are some initial reports that it may be working.  We need data to prove it.  If it works, it could be used in medical workers to protect them if they have not yet been infected (prior to a vaccine being available).   It could be used both for prevention in a small or vulnerable population and for treatment in those who become symptomatic.  

Vaccines are much more likely to return our society back to a relatively COVID-19-Free state except the people who refuse to take any vaccine.  BTW, it will be a vaccine everyone takes like the MMR vaccine, because of the seriousness of the disease being FAR WORSE than the seasonal flu. https://bit.ly/NationalCoronavirusStaycation

I also know economies take time to heal after a disruption and there is likely to be an overhang on the economy, meaning some significant remaining level of caution about doing the things we used to do, until SARS-2 (COVID-19 is the disease it causes) is “cured” by a vaccine.  This is what “Back to Work” will need to look like: We will likely start allowing people to go to work if they 1. Wear WELL FITTING N95 masks (even surgical masks serve mainly to reduce spread of infection vs. protecting the wearer FROM infection -wear them, even a cloth mask or scarf for others please!)  2. While staying at a distance of 6 ft or more from each other. 3. In well ventilated/air filtered buildings.  4. A COVIDTracker/COVIDTracer/CaseTracer Public Health work force needs to be in place as I told a local news station HERE (remember, we did not have enough public health pandemic prevention in place before COVID-19 hit!)

CONCLUSION: There will be a delay in the healing process for the economy as we wait for an effective vaccine, and this will determine the length and depth of the recession we see.  That timeline will impact and slow the recovery in the global equity markets.  I currently favor a complete/nearly complete retest of the prior lows and potentially even lower lows, but nothing is a given.  Remaining flexible is the best strategy rather than anchoring on EITHER extreme of “That’s it,” or “We’re falling to [substitute your favorite guess for an abysmal SPX low]!”

Copyright © 2020 By Wall Street Sun and Storm Report, LLC All rights reserved.

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Market Timing Brief™ for the 03-20-2020 Close (SPX Earnings/Rev and Bull Market Health Score Update 4-04-2020; Coronavirus Update on 4-06-2020 11 pm): “Deep U.S. Recession? If So, Bigger Losses to Come. How Big? Gold Remains ‘Insurance Only.’ Debt Markets Throwing Fits. Fed is Catching Up Still.”

A Market Timing Report based on the March 20, 2020 close…A Briefer than Normal Update!  An Intra-Month Market Timing Update!

The context for the charts will be addressed on social media during the week…be sure to read those posts as well, or you’ll miss at least half of the picture.

NOTE: If you want to get to the prior stock market issue, scroll past the Coronavirus updates that follow… The behavior of markets will be highly related to the COVID-19 disease response across the world and the degree of its success!

NOTE: I am publishing just after the last Friday/Holiday close of the week each month, so if the last Friday precedes the end of the month, I will publish on that corresponding weekend.  (for example, posts will be on 2-29, 3-28 (published last week, so please see my social media posts for financial updates), 5-02, 5-30, 6-27 or the day after, meaning on Saturday most likely, but at the latest by the day prior to the next week’s open, and in case of a holiday, meaning by Monday evening.)  I may publish earlier each month if the market action requires it…

If you want to be alerted to each post, please subscribe via WordPress, and you’ll receive an email each time I publish here… Thanks and feel free to comment or leave a question below…

4-06-2020  11:00 pm ET: Global Coronavirus Stat Update Vs. China (Use South Korea, if you don’t like China’s data!)  I’ve explained this below….not going to repeat it here except to say this is a PER CAPITA comparison…  The US still has far too much growth Day/Day.  The world has been looking better than the US.  South Korea and China are both adding very few cases per day.  The US total case number is now 5.60 TIMES that of South Korea and 19 times China’s on a per capita basis!  We need to learn from them. 

China is being used as the anchor in this comparison, because it was first off the block and 1st to the finish line, which means to get to a point of having so few cases that they can receive proper public health follow-up (rapid case ID and isolation with aggressive contact tracing).  That’s all we have that works, so we had better be doing it along with large scale testing.   Antibody testing could be better than RT-PCR in establishing PRIOR infection.  Antibody’s take several days to be formed, so it’s not a good way to detect infection in the first few days.

RT-PCR has a high false negative rate of up to 30% and a very low false positive rate meaning a positive test with RT-PCR tells you if you are positive for virus with great specificity, but does not adequately prove a negative due to the high false negative rate (negative tests in patients with disease).  Perhaps with further studies we’ll find that 3 tests can exclude COVID-19 with a sensitivity of 95% or higher, but realize even a 5% leak of a rapidly spreading virus means trouble.  It really has to be 99% most likely to prevent a RE-infection of communities.

You can see we have the highest Day/Day growth rate in total cases in the table and now have a case number worse than Iran’s on a per capita basis.  (doesn’t matter whether some do not trust Iran’s data either as the trend vs. South Korea stinks too)… A 9+% increase Day/Day for the US means there is still far too much community spread! 

Global Coronavirus Stats vs. China updated 4-06-20 at 11 pm ET

Global Coronavirus Stats vs. China updated 4-06-20 at 11 pm ET

4-06-2020 Coronavirus Global Stat Update: There is some good news finally…but it’s just the first day.  The peak of active case increases was 28.32% on March 21st.  Since then the rate of increase has FALLEN with a bump up to the 3-26-20 lower high.

We finally are seeing the FIRST day of a possible break in the active case day/day % increase to a lower low (orange line shown below).  The 6.01% increase seen yesterday (see chart) is still too high to allow for aggressive case isolation through widespread testing with aggressive contact tracing, but it’s a step in the right direction.  We should still ramp up testing in the meantime.  What we don’t want to see is everyone become lax about the Stay-At-Home orders too soon.  Dr. Fauci said the same thing during his recent appearances.  We need to drive the increases to DECREASES that were last seen on March 5th (-6.32%).

One other point… The global mortality rate is a very high 5.45% currently…  This is not a pandemic we want coming back for the lack of having testing in place ALONG WITH the public health work force needed to prevent a bump up in active cases!

Tell your Rep in Congress and your Senators you want that funded, or this will not work… We will be back to square one without that effort in place if treatment and/or vaccination is not yet in place when it happens…

 

Coronavirus Day Over Day Active Case % Increase Fever MAY Have Broken

Coronavirus Day Over Day Active Case % Increase “Fever MAY Have Broken.”

4-04-20 I updated both the Earnings and Revenues chart and the Bull Market Health Score below the Coronavirus updates…

4-02-20 Global Stats of 7 Countries Vs. China: Only South Korea has seen the success of China (the issue of the validity of China stats DOES NOT MATTER.  It has been a “Trumpublican” favorite frankly.  It is a dumb distraction IMO and a subconscious attempt to say the US is not doing worse than China did because they lie about their statistics.)

It is MISDIRECTED ENERGY.  Why?  Because there are now SIX THOUSAND SEVENTY-FIVE AMERICANS dead tonight.  So who cares what the China numbers are in exact terms? We know Apple and Starbucks stores have opened up again in China, so they’ve done something right.  And we still don’t have governors with the sense to issue comprehensive stay at home orders.

It is also misdirected because South Korea has succeeded and so have Singapore and Japan on a relative basis.  Let’s look at the extent of failure of the US so far vs. South Korea.  The ratio of South Korean cases per death (which are not made up) is 59.03.  That means there is one South Korean who died for every 59.03 cases.  In the US, there are 40.28 cases per death. 

Further testing, since the US is so far behind, could lower the higher US mortality rate BUT the total cases per capita in the US exceed South Korea by 285% meaning the US case number per capita is 3.85 TIMES the South Korean Total Case Number.  That is with the US still behind on testing. South Korea has done 2.33 times the number of tests that the US has per person, so that makes that 3.85 number too low!

This suggests that while the spread in our population is definitely worse than 3.85 times S. Korea’s infection rate, the US death rate could end up being lower in the end.  The actual US infection rate per capita adjusted for testing frequency would be 3.85 X 2.3587 if we had tested as much as S. Korea has or 9.08 X South Korea, but our cases per death would be 95.00 for a US COVID-19 death rate (adjusted for testing frequency to S. Korea’s test rate) per case would be 1.053% vs. S. Korea’s current rate of 1.694% (% of patients with the disease who die).  This may also get somewhat worse for the U.S. as the active cases have not flattened out yet, so the current active cases are still not resolved.  That means more people have yet to die as they are early in their disease process.

This is a testing comparison between the U.S. and South Korea from data taken from HERE.  I used South Korea, because of their greater success to date in flattening the Total Case Curve to a horizontal line.  (NOTE: The data on testing is a bit inaccurate due to testing reporting by states being extremely variable.  Some don’t distinguish multiple tests on the same patient for ex. from numbers of people tested!)

Testing as of 4-01-2020
Per Capita Tests Tests Per Capita Times US Test Rate
US 1,131,474 0.35% 1
S Korea 421547 0.81% 2.3587

The US has not yet seen this success, but it will IF we institute a National Coronavirus Stay-At-Home Order and those states currently under such orders persist in their efforts, the curve will flatten in the US too!)   Poor Spain.  They now have the worst problem of the top 7  countries by case number (South Korea is now #15 in the world!).

Please pray for every nation to flatten their total case number curve, but most of all, if you are in a state that is still not enforcing strict Stay-At-Home Orders, which sadly includes Florida still that says people going to places of worship have the right to put their communities at risk, please call your governor’s office and tell them to issue a comprehensive Stay-At-Home Order (14 days minimum extended as needed for a week at a time IMO)!

P.S. On a spiritual note: The teaching is “God helps those who help themselves.”  God does not make exceptions for people in places of worship, yes, even for me were I to make the unfortunate decision to show up in person this Sunday.  If you pray and defy prudence, God will not protect you.  God does not like big egos/pride!  If you tempt God, “S/He” will teach you a lesson (I use “He” as a Christian, but realize God is a single parent and encompasses the masculine AND feminine, and I respect ALL loving religions and even atheists who are actively denying God and thereby recognize Him.  ;)). 

This is the Picture of the World on 4-02-2020

Global Coronavirus Stats Vs. China. National Stay-At-Home is still needed.

Global Coronavirus Stats Vs. China. National Stay-At-Home is still needed.

 

3-31-20 Coronavirus Global Update: Looking at Active Case Rate of Increase Day Over Day

This chart below shows that the top orange line, the Day Over Day percentage increase in active cases (infected patients), has been decreasing gradually globally, since March 21st.  It’s still too high to end the pandemic as it was 9.56% last night, and it’s leveled off for 3 days at about 8-10%.  That needs to continue to head lower to extinguish the pandemic, because you cannot do aggressive active case quarantining and aggressive contact tracing of those positive patients when community spread is still excessive. 

That 8-10% level is still too high to allow contact tracing EXCEPT for countries that have their percentage increase of new cases (Day Over Day) down below 0.1% most likely (just an estimate).  China has done this.  The Day Over Day % total case number increase in China was 0.07% for 3-30-20 to 3-31-20.  The US was at 14.74% last night!  Not good!

We need to all join in the #NationalCoronavirusStayAtHome effort, and we need to do so now.  Why?  Because we have to drive down that “Active Case Day Over Day % Increase number to nearly ZERO. 

The states doing either nothing or those making half-hearted efforts to “StayAtHome” as we see in Florida and other states, could easily RE-infect the rest of the states doing the right thing by staying home!   This will last far longer, as I’ve said, and be far more expensive in human lives and economic losses, if we do not take bolder action now.  I spelled it out in this article in the Herald Tribune… HERE

Global Coronavirus Update: Rate of Increase Slowing?

Global Coronavirus Update: Rate of Increase Slowing? “Stay At Home” may be working.

I’m going to update the chart for Global Stats Vs. China (Total Cases) below, but not update the prior comments as they are similar. Just look at the current numbers on the graph… I am referring to the top eight countries I’ve been tracking (7 vs. China).  Others like Singapore have also had success…  (Technical Note: The very small case number increase occurring in China is included in this analysis.  It will take a long time to get the ACTIVE case number in China to zero, because, as they’ve said, they are importing cases and may have some areas of local transmission that are not being monitored well, out in the countryside for example.)

This graph shows you how much worse various countries are doing (How many times worse they are vs. China who is now beating the Coronavirus…

Global Coronavirus Case numbers Vs. China

Global Coronavirus Case numbers Vs. China

3-29-20 Coronavirus Global Update: How many times worse per capita is the situation in the U.S  vs. China?  7.36 Times worse than China in the U.S., per the data I analyzed in the table below from the primary data from Johns Hopkins tonight on 3-28-20 (Graph Below).   China is used as the reference point in the comparison, because their new case numbers are so negligible vs. their total case number.  Please CALL your Representatives, Senators, and Governors who don’t understand exponential math and tell them we need a #NationalCoronavirusStaycation!  (HOUSE Contact Numbers/Email . SENATE Contact Numbers/Email).  Bill Gates, who has worked to exterminate AIDS on a global basis knows we must do this (says shutdown would last 6-10 weeks.  (SEE TABLE BELOW)  President Trump did extend the “voluntary” stay at home suggestion today, but that may not be enough.  It depends on how many Americans take it seriously.  See THIS message of mine from today on StockTwits/Twitter.

I have been saying we should start with 14 days (nationwide though, not “if you want to”) and extend it week by week until we bring active cases down to levels we can do case isolation/contact tracing, which you cannot do when there is rampant community spread as there is in many of our states.).  If you agree, call Congress as above, and please let me know below that you’ve done it!  That may encourage others to do the same.  Thanks.

US Case Number Adjusted for Population is now 7.36 Times China.  That means the US Total Case Number is 636% higher per capita!  Some of that rapid climb could be related to testing, but no one has tested like South Korea (they’ve tested 6.44 X as much per capita as the US by 3-25-20 per this source), and we are 133% worse than South Korea in total case number.  South Korea is flattening out their total case curve as you see below, meaning they have fewer and fewer new cases, while our case number is still growing rapidly (14.7% growth in active U.S. cases, the worst of the “Big 8 Countries” vs. yesterday, which is just where Italy has been or worse; Italy has been looking better in fact for a couple of days).  So much for the conspiracy theorists who don’t trust China to report anything right.  They are wrong!  And the President has just admitted to the very serious problem in the U.S. by extending the stay at home recommendation.  Trump’s been told the risk of large numbers of dead if we let up too soon and let the virus shoot up even higher: 1.6 – 2.2 Million dead Americans.  His words tonight.

Pres. Trump and Dr. Fauci also said with the extension of his plan to the end of April we could still end up with 100,000 to 200,000 dead Americans.   I don’t think it will be quite that high, but we could easily see over 10,000 dead.  If people don’t stay home in many states they will all see pandemics.  Dr. Birx said “every U.S. city” will see a pandemic if they do not take staying at home seriously.  The only question is how MANY get sick and how many die.  It’s up to you and me!  The outcome is dependent on what we decide to do.  This will end at least for this season, but we will determine whether it ends relatively better or worse…

US and other countries per capita Coronavirus cases vs. China

US and other countries per capita Coronavirus cases vs. China.

A good part of the increase is more likely due to what is called community spread or untraceable spread.  We have to get these numbers down BEFORE contact tracing can be done as said, BUT they can do case isolation/contact tracing in states with few cases especially IF LARGER SCALE TESTING CONFIRMS the low case numbers in the less effected states.  They should stay at home/socially distance until we get that testing data.  We need to test more people in every state, so they can be quarantined and kept away from everyone else.  Stay at home if you can and get tested if you develop respiratory symptoms of any kind.  There are as of tonight 2,484 deaths in the U.S.

Back to this week’s new market timing issue…

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

What would satisfy me that the Bulls are serious?

The Bull Market Health Score this week is Bulls 0.5/Bears 5.0 vs. Bulls 0.0/Bears 5.0 for the March 13th close.  It’s a 5 point scoring system.  It has been 0 or near 0 for 4 weeks straight.

For each checklist item below, I give you the points scored as Bullish or Bearish.  If the number is “Bulls 0.0” that means the Bears score a point.

1. New high? (here I look at large caps alone) Bulls 0.0  Answer: No. Closed near the low achieved on March 18th.

2. V*IX trend favorable?  (VIX trend is either up, down or undecided and consolidating.)  Bulls 0.5  Answer: Neutral but barely.  The VIX Game Score is Bulls 0/Bears 7 at a VIX close Friday of 66.04, which is still “off the charts.” Some say above about 30 volatility in anything is untradable. But see my comments on social media as to why I gave the Bulls 0.5 point here. 

From last week:  “Remember that as volatility falls from here, it does not mean we are back to the races.  After around 11-26-08, VIX fell over the time right up to the bottom in early March 2009 at SPX 666ish.”

3. AD % Line in an Uptrend short term? (This is a proprietary stat; see base of report.): Bulls 0.0 point.  Answer: No.  It is in a downtrend despite a Friday bounce attempt.

4. Higher volume on Up Moves?  Lower volume on Down moves?  (Has to be true for either large caps or for both small and midcaps to be a “Yes.” If discrepant, the Score is 0.5)  Bulls 0.0 point.  Answer: No.  Look at the chart.  Same pattern as last week!

5. Is the “U.S. Index Matrix Signal,” as I call it, positive?  (To be positive, small and mid caps must be trending up with large caps; if mid and small caps are discrepant with each other the score is 0.5)  Bulls 0.0 point. Answer: No.  Same as last week’s issue.  The small caps are down 41.52% from their ATH 8-31-2018 vs. SP500 Index down 32.08%.  

Graph of the Bull Market Health Score (BMHS)

Note: 1000 = 1 BMHS point on the scale.  SPX values are adjusted (by 3000 points) to plot them more easily on the same graph.  (That means you should look at the relative changes in the SP500 Index (SPX), not read the values off the Y axis.)  BMHS cannot be below zero or above five.

Note that back in the summer of 2019, the market started to rally once the BMHS bottomed out for 4 weeks in a row.  The market rallied after a small blip up on Friday, 3-20-2020.

Bull Market Health Score Update for 4-03-2020

Bull Market Health Score Update for 4-03-2020

This Update of the Earnings Picture (see FactSet.com for original data and some great content!) for the S&P 500 Index (see caption) shows the trouble ahead for stocks:

Note that analysts think earnings will be negative for the SP500 in Q1 and Q2 of 2020, and they are bringing down estimates for the second half of the year and for the full year, even more than the did last week.  

4-04-2020 Update: Note the dramatic declines in earnings and revenue projections for ALL of 2020…but rebounding per current numbers in Q4 in earnings terms.  Revenue is expected to rebound in Q3 and Q4 as you see below…

2020 Earnings Falling with Rebound Expected in Q4

2020 Earnings Falling with Rebound Expected in Q4

Revenue Growth to Turn Negative in Q2 but Rebound in Q3 and Q4.

Revenue Growth to Turn Negative in Q2 but Rebound in Q3 and Q4.

 

This is probably just the tip of the Coronavirus Recession iceberg. 

Keep up-to-date and read my comments on the current setup during the week at Twitter and StockTwits (links below) where a combined 34,304 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.  (real time messages are on StockTwits as always and back on Twitter)

Join the Conversation in the StockTwits “MarketTiming” Room  (I’ll publish comments in the room periodically)

I wrote this for the 1-31-20 Issue:

‘As I warned many weeks ago, if the market keeps pushing above that top long yellow line [on the SP500 Index chart], there will be eventual payback.’  This is the payback…”

I told you last week, I’d be selling more if this turned into a “Big Bear Market,” which it has per my ‘New Rules” (scroll down to “New Rules” in blue on that page…). 

So what is lower?  From prior history, it’s around 50-60% off the all time high of 2-19-20.  Predicting the exact percentage is impossible, but let’s use 50% as the drawdown for the SP500 Index in making some reasonable guesstimates of what a Big Bear Market would look like numerically.

The only reason I added a bit of exposure during the sloppy consolidation of the past 3 days was the change in the VIX I noted on social media (see Friday posts; links below).   If it were not for that, I would have been hands off.  At a certain percent loss, I’ll sell further exposure.  I’ll post my exposure level on social media sometimes today.

I warned also that the Fed cutting rates past 3 cuts was a recession signal.  The Federal Reserve tends to be behind the curve, because it’s conservative and it tries not to upset the markets, but it was far behind the debt markets and had to catch up.  It also had to supply liquidity in large amounts, because of the demand for dollars around the world.  Here come the trillions of dollars!  Fiscal and monetary trillions alike. That is why gold will work in the end, even though it’s on trading pause right now.  I think it has further to fall as all assets are revalued in a crash as they were in 2008.

Is it going to be bad for our economy?  Considering California and New York are entirely shut down and the rest of the country is doing a half-bottomed version of that (it should be a #NationalCoronavirusVacation as expressed last week; this piecemeal approach will drag it out much longer and cause more economic damage in the end in my view).  It will also lead to re-infection of the states doing a full “time out” by people from the states not doing it. 

Same as last week: “Right now, we don’t know how deep the recession will be and whether the dip in activity will exceed one quarter, which is required definitionally, but regardless, we cannot expect the market to just bounce back to the previously stretched valuations while earnings and revenues are FALLING.”  You can see that in the two charts above.

I covered my Big Bear Market trading strategy in last week’s issue, but I’ll say more below… Have a look at the chart…

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

Market timing the SP500 Index (SPY, SPX). A Big Bear Market is here.

A Big Bear Market is here.

Now let’s review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -16.90% on 3-18-20 vs. -21.57 on 3-11-2020.  The spread is again “bad enough to support a bounce, but can easily go 10 points or so lower.”

From last week, a review: “This degree of Bearishness is fairly extreme, but there are still Bulls to be toppled.  The spread should push toward -30% if they are.  Near the Great Recession bottom the Bears were at an off the wall 70.27%, which was a convincing washout level.  The peak Bull – Bear spread hit -30 and below, peaking at a -51.4%.  That is a huge extreme that would only happen after investors have been pummeled by losses for many months, which was the case.”

Bulls Neutrals Bears
34.25% 14.50% 51.15%
Thurs. 12 am CT close to poll

 

This I found more interesting than the spread: Bearishness at a similar degree of decline in the 2008 much slower crash reached 70.27% with Bulls beaten down below 20%.  We are not at the ultimate bottom yet IMO.  We are right around the same sentiment levels as 10-01-2008 (AND PRICE DECLINE AS NOTED ABOVE) of:

33.33% 11.67% 55.00%

Not a bad match wouldn’t you say?  The spread was a somewhat juicier 21.7% back then.  But if we take this as a valid comparison, that means we could have another 26.7% lower to go from HERE. 

On a scale with 100 points being the 2-19-20 high, the current decline is 32.08% or a relative level of 67.92 points.  That’s where we sit as of Friday, March 20th.

Now drop that by 26.38% and you get?  Drum-roll…. a final low of 50.00 points on the 100 point scale, which would be a total drop off the 2-19 high of 50% (50/100).

That number is very possible considering:

1. The fact that we entered the “Big Bear Market” range of over 25% losses is symptomatic itself of the magnitude of what we are in.

2. The speed of the fall, which is, as said, 12.14 times as fast as in 2008 off the 2007 top.  That decline took 359 calendar days!  This one to the current low of Weds. was 29 days.

3.  The massive increase in unemployment and economic damage to many, many thousands of businesses nationwide.

So yes, that means the market could drop to a total decline of 50% off the 2-19-20 top.  That means you’d have to have a 100% gain off that bottom to get back to even.  This is why you don’t likely want to ride the pony all the way down that there hill…so to speak…

If you take off some exposure on a further drop, that’s not always ideal because if that becomes the bottom and you wait a day to invest back the last “chunk” of 5-10% that you took out, you could be 10% behind.  But what’s 10% among friends?  Just kidding, but really, there is no perfect way to time the unknown, which this is.  And if you are 10% behind on 10%, you are really only 1% behind in total, which is not the end of the world coming off an important low.

Why plan ahead?  When no one knows, it’s best to have a mechanical/numerical system.   So what’s your plan?  Write it down or you don’t have one in my view.  You need to hold yourself accountable to improve as a trader/investor.

It would be better to sell exposure on very strong bounces, and buy the exposure back on the pullbacks.  That’s what I call passive shorting, explained HERE However, the same warning applies. If the market simply continues up from where you sell, you drop behind.

You can always re-enter, and you must do so to have this work; otherwise, it’s better to just add what you can at each level down, keeping cash for still lower numbers.  Or you might wait for some sort of fundamental turn in the economy/coronavirus stats along with improvement in the charts.  Decide for yourself.

But what if…?  If you add on a further stretch UP, the market could then simply continue to plummet to new lows wiping out the amount you chased the market by in a few minutes.  Again, there is no perfect way to adjust exposure, and the opportunities to sell “higher” have been limited during this rapid crash.

If you believe as I do that the market is not done going down, you do not want to ride that pony all the way with more exposure than you would like. Consider what you can tolerate and still be OK financially, and decide what you’ll do based on that.  I heard someone “sold everything” last week.  Better to “sell some” at different levels particularly if you did not take profits at the top or cut your exposure dramatically then.  “Selling it all” is a bad idea, unless you absolutely need the money in the next few years for your kids’ college education, or you need to preserve a certain level of assets for retirement etc., because you did the math and you could not live without an extra $X in income.  Determine what that number is and drop your exposure to it as I’ve outlined, or come up with your own plan to accomplish it.  If you “get out” without thinking, you will likely never get back in or end up buying far too late next time. 


2.  U.S. Small Caps Market Timing – Russell 2000 U.S. Small Cap Index  (click chart to enlarge; IWM, RUT) 

Simple message: Stay out of small and midcaps unless you intend to trade them.  You don’t want to own them in Big Bear Markets due to their inherent higher financial risk.  We are now in a Big Bear Market until proven otherwise.  If you know a particular small cap can do well in a recession, of course make an exception, but remember that ALL ASSETS are revalued against each other in a liquidity crisis, which this is, until the Federal Reserve is able to stabilize markets.

I would add that if you held them all the way down, selling them now may not make sense!  Sell the bounce only and when stocks fall again, add back LARGE CAPS until the Bear Market is over (up to 2 years but time is compressed of late, so it could be much sooner).

Market timing the U.S Small Cap Index (IWM, RUT). Stay out for now.

Small caps are a trading vehicle only due to their greater financial exposure in a Big Bear.

 3. Gold Market Timing (click chart to enlarge; GLD):

Market timing the gold ETF (GLD). Can gold bounce now or will it break support?

Can gold bounce now or will it break support?

Gold broke down in part or largely due to liquidity concerns as well.  There is now room for  bounce, but over the intermediate term, gold could continue to suffer should stocks fall another 26.2% from here.

As said last time: “I am keeping only my core GLD exposure, which is now at about 4% of all assets.”  I also have very tiny investments in a trial gold stock portfolio that is doing poorly due to the recent drop, but my GDX profits are safe.

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

4. Interest Rate Market Timing (10 Year Treasury Yield; click chart to enlarge; TNX, IEF, TLT):  First take a look at the chart…the BOUNCE!

 

Market timing the US 10 Year Treasury Yield (TNX, TYX, TLT, IEF). Rates rising in counter trend bounce.

Rates rising in counter trend bounce.

The “Falling Rate Shock” was ongoing until it was overdone.  There was then a 7 day bounce and a two day correction in the bounce. 

The next direction depends on the market’s view of inflationary pressures, which are likely to stay muted as the demand will be low from consumers who don’t have jobs.  The consumer economy just had its knee caps broken by a mobster called coronavirus.  It’s not a good situation to be in at all.

The financial situation we are in is the result of the excesses of the past FOUR decades and the overspending of Presidents of both parties beginning with Ronald Reagan who created the first multi-trillion dollar National Debt by the end of his second term with the help of Tip O’Neill, the Dem Speaker of the House, and continuing now with Trump (who had a 26% overspend in 2019 vs. 2018 despite the BS tax cut, which is a redo of “Tinkle Down Economic” theory that has failed now for the THIRD TIME (they think we are idiots apparently?).  I said in advance it would not work and was proven correct.  Trump spent magical dollars we did not have!  And now we need LOTS OF MONEY to help people who are hurting economically and in health terms.

On and on it has gone with both parties as I’ve discussed previously (Google “The Invention of Fiscal Lying”).  Whether the spending was worth the money spent under Reagan to defeat the Soviet Union, we can discuss (were they defeated???  They seem to have taken Crimea back huh?  We like having Eastern Europe mostly free of course.), but what it has done is put us in a precarious position where we now need trillions to pay people to tide them over because of the coronavirus, and we really don’t have the money, and we really already have too much debt.  Hence my core gold position…

“Rates were already crashing as of 1-31-2020, and it’s even worse now.  This is a recession signal the Federal Reserve should be careful of ignoring.”

They didn’t! Lots of cash coming!

“Federal Reserve tools should be used in crisis times, and THEN reversed!  They failed to reverse rates when they could and now they have less powder…but there is always the printing press!  Ugh!”

They are starting with the printing presses now…  I don’t need to go over what they are doing.  You can find it all over the mainstream media.

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 actual BUYS and SELLS in as timely a way as possible 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 short term BEARISH and  longer term Bearish SP500 Index trend. 

Gold Signal NEUTRAL  for a further U.S. stock market rally.  The Gold Trend is  short term BEARISH and longer term Neutral.   GLD’s longer term neutral, but it will be longer term Bearish if it drops below the Oct. to Dec. 2019 lows.

What gold does mostly as I’ve written HERE is follow real interest rates around the world (if you own “gold in dollar terms” you care about U.S. rates most of all).  The rest of the world does matter however, including massive buying by central banks. 

GUIDE: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise again, it means the market believes real rates are going to fall or stay negative for a period of time.

Rate Signal RED for a further stock market rally with a short term Bullish and longer term BEARISH 10 Year Yield Trend.  (Remember: higher rates mean lower bond and Treasury prices and vice versa).  Rates are still too low to consider the signal to be anything but recessionary.  The bounce is helpful actually, but will not necessarily last.  The short term call defines the immediate rate trend off the low alone.

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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, contact me.  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.

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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Posted in Bonds, gold, investment, investor sentiment, large cap stocks, S&P 500 Index, small cap stocks, Treasuries | Tagged , , , , , , , , , , , , , , , , , , , , , , | 5 Comments

Market Timing Brief™ for the 03-13-2020 Close: “A Recession Means a Big Bear Market Is Likely and the Federal Reserve Just Confirmed It! Gold Broken for Now. Treasuries Up in Price As the ‘Falling Rate Shock’ Continues After Massive Fed Action.”

A Market Timing Report based on the March 13, 2020 close…A Mid-Month Update

The context for the charts will be addressed on social media during the week…be sure to read those posts as well, or you’ll miss at least half of the picture.

NOTE: I am publishing just after the last Friday/Holiday close of the week each month, so if the last Friday precedes the end of the month, I will publish on that corresponding weekend.  (for example, posts will be on 2-29, 3-28, 4-25, 5-30, 6-27 or the day after, meaning on Saturday most likely, but at the latest by the day prior to the next week’s open, and in case of a holiday, meaning by Monday evening.)  I may publish earlier each month if the market action requires it…

If you want to be alerted to each post, please subscribe via WordPress, and you’ll receive an email each time I publish here… Thanks and feel free to comment or leave a question below…

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

I will only give you part of the story here. Go to my social media links below for more context please. 

The Federal Reserve confirmed my thesis spelled out below as I was writing this… I share their late Sunday actions (not in a panic are they?) below…

1. A US recession has entered the HIGH RISK range of probabilities, which means 2 quarters of GDP slowing.  This is now most likely a given, although I suppose the 2 quarter part is arguable.  What matters is how fast the coronavirus is shut down. 

There are 3 possibilities:
1. Too much of the country fails to go on lockdown as China and South Korea have done, where the virus is losing now, especially in China.  China has had under 100 cases per day for several days now, so a lockdown or, my preferred term, #NationalCoronavirusVacation, as I called it on social media, WILL WORK! If we do not do that, we could have 10’s of thousands of deaths.  It’s simple math.  Our numbers have been looking like Italy’s, and there are now cases in every state but West Virginia, so this is a pandemic.  

My message?  Take it seriously now, or many will needlessly die.  Why?  Because each age group/at risk group has certain odds of dying if infected.  That means the more exposed to the virus, the more who will die.  Again, it does not have to happen, but it will if our response is not much more vigorous than what is happening now in a very piecemeal fashion.  Families who have hourly wage employees, should be compensated to stay home.  School lunches could be picked up OR even delivered to homes using the same school buses that take the kids to school. We need to be creative.

#NationalCoronavirusVacation: A Proposal…

  • Shut down the entire country for 2 weeks (the virus incubation period) except for vital services like grocery stores, pharmacies, emergency services, and needed health care including time sensitive care such as cancer treatment.
  • No crowding of stores will be allowed.  It is not smart that people are storming grocery stores when the open.  You need at least 6 feet between you and infected patient and that’s not 100% effective necessarily.  It helps though.  Traffic into and out of stores will be regulated and no one with a fever will be admitted.  Doctor’s offices and hospitals need to have similar practices, so they don’t infect their other patients.  My doctor’s office is making every patient wear a mask.  I declined my annual physical last Friday, because there is no point to adding to risk at this time.
  • Everyone (except those groups mentioned above) self-quarantines with their family.  If a family member becomes sick with the virus during the 14 days, the entire family must be quarantined for another 14 days.
  • Anyone with typical symptoms including flu-like symptoms which have been said to overlap what is seen with coronavirus, is tested.  Patients need a flu and a coronavirus test.  Testing asymptomatic patients is not efficient at this time, because you have to test for multiple days to be sure someone is negative.
  • After the “Vacation” is over, we test all workers/restaurant goers etc. with non-touch thermometers and exclude anyone with a fever.  They should likely all be tested.  Same for air, bus, train, etc. travel.
  • When we have an abundance of tests, more can be done to test larger groups including contacts, but as said, multiple tests will be required to say they are negative.  That may not be practical, but we’ll see.

2. We do something less that my plan but not nothing more.  Then this will go on for many more months as infected people slip through, go to work, infect other workers who go home and infect their child, visit their parents and essentially kill them with the virus they pass on…their children go back to school and pass the virus to other child hosts, who take it home…  Understood?  That scenario will be like Chinese water torture as they call it, especially for US markets.

3. We do nothing more than close down a few theme parks and sports for two weeks.  Then we could end up with up to 200,000 dead Americans.

There is huge political risk here for Trump.  If he does not make bold moves, it will end his chances for term #2.  This is not a partisan comment. It’s reality and due also to the fact that he did not act swiftly other than to close travel from China to the U.S.  Whether you love him or not, he will be blamed for the outcome.  I said it many days ago.  This is his Katrina.  He’s doing better now, but needs to do far more.

What would satisfy me that the Bulls are serious?

The Bull Market Health Score this week is Bulls 0.0/Bears 5.0 vs. Bulls 0.0/Bears 5.0 for the Feb 28th close.  It’s a 5 point scoring system.  It has been 0 for 3 weeks straight.

For each checklist item below, I give you the points scored as Bullish or Bearish.  If the number is “Bulls 0.0” that means the Bears score a point.

1. New high? (here I look at large caps alone) Bulls 0.0  Answer: No. Friday was a bounce in a crash.  I warned investors here over the last few months that the market was stretched.  Few except my loyal readers cared to listen.

2. V*IX trend favorable?  (VIX trend is either up, down or undecided and consolidating.)  Bulls 0.0  Answer: No. The VIX Game Score is Bulls 0/Bears 7 at a VIX close Friday of 40.11.  In the Jan. issue I said: “This level of volatility always ushers in the possibility of “much worse” volatility.  Volatility hit a high on Thursday of 77.57 vs. 89.53 in 2008.  It’s high enough though!  Remember that as volatility falls from here, it does not mean we are back to the races.  After around 11-26-08, VIX fell over the time right up to the bottom in early March 2009 at SPX 666ish.  A recession was in the way most likely, and it’s going to hit home here.  The depth will be determined by our speed of recovery from the virus as well as a fundamental recovery of global economies that were slowing ahead of the virus.

3. AD % Line in an Uptrend short term? (This is a proprietary stat; see base of report.): Bulls 0.0 point.  Answer: No.  It is in a downtrend despite a Friday bounce.  Afterhours on Friday the SPY’s fell a couple of percent by the way.

4. Higher volume on Up Moves?  Lower volume on Down moves?  (Has to be true for either large caps or for both small and midcaps to be a “Yes.” If discrepant, the Score is 0.5)  Bulls 0.0 point.  Answer: No.  Look at the chart.

5. Is the “U.S. Index Matrix Signal,” as I call it, positive?  (To be positive, small and mid caps must be trending up with large caps; if mid and small caps are discrepant with each other the score is 0.5)  Bulls 0.0 point. Answer: No.  Same as last month’s issue.  The small are down 31.1% from their ATH in 2018 and midcaps are down 26.92% from their 2-20-20 ATH (IJH was 210.86; now 154.10)

Graph of the Bull Market Health Score (BMHS)

Note: 1000 = 1 BMHS point on the scale.  SPX values are adjusted (by 3000 points) to plot them more easily on the same graph.  (That means you should look at the relative changes in the SP500 Index (SPX), not read the values off the Y axis.)  BMHS cannot be below zero or above five.

Note that back in the summer of 2019, the market started to rally once the BMHS bottomed out for 4 weeks in a row.  We are in week 3.

The lower high in BMHS was the hint that something was wrong with the higher highs being made in Tech and the SP500 Index.  That’s what is called a “negative divergence.”  The BMHS signal did not confirm the new high. 

Bull Market Health Score for 3-13-2020 CloseBull Market Health Score

Bull Market Health Score for 3-13-2020 Close

This Update of the Earnings Picture (see FactSet.com for original data and some great content!) for the S&P 500 Index (see caption) shows the trouble ahead for stocks:

Note that analysts appear to think earnings will be negative for the SP500 in Q1 2020, barely positive in Q2 and they are already bringing down estimates for the second half of the year and for the year.  

This drop could be the first whiff we are getting of an oncoming recession.

FactSet Earrnings Data

FactSet Earrnings Data

FactSet Revenue Data in decline.

FactSet Revenue Data in decline for 2020.

Keep up-to-date and read my comments on the current setup during the week at Twitter and StockTwits (links below) where a combined 34,304 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.  (real time messages are on StockTwits as always and back on Twitter)

Join the Conversation in the StockTwits “MarketTiming” Room  (I’ll publish comments in the room periodically)

I wrote this for the 1-31-20 Issue: “Take a look at the SP500 chart. From before:

“As I warned many weeks ago, if the market keeps pushing above that top long yellow line, there will be eventual payback.”  This is the payback…”

My prior buys in QQQ were premature.  That’s OK, because the adds were not huge.  I traded out of part of the position for a profit, but could have sold the whole position and done better.  Last issue I said:

“For now, I’m sticking to that viewpoint unless this turns into a Big Bear Market.  (see New Rules, if you haven’t to know what a “Big Bear” is by my rules…)  Then I’ll be selling exposure again.”

I pointed out in the last issue that Fed rates cuts do not help stave off a recession.  They are merely trying to cushion the blow of a recession.

At the Thursday close we were -26.83% for SPX.  I use SP500 Index as my guide for Bull and Bear markets and per my New Rules (HERE) we just by a bit tipped over the line into a Big Bear Market, which is a “Recession Bear Market.”   Slowdowns can give you -20% drawdowns as we saw in Dec. 2018.

Recessions are less forgiving, but that is only the case if they are deep.  In 1990, which was a -0.6% recession that was relatively brief, the drawdown was only 20%.  CNBC claims the MEDIAN (middle of all recessions; not the average) drawdown for recessions is around 28%, but in 2008-2009 the drawdown was 57.7% for the SP500 Index. 

Is it going to be that bad?  It depends on the trajectory of the virus and the global economy, but I don’t think it’s going to be pretty due to the dislocations we are seeing.  Delta cutting 40% of their flights.  You get a big increase in unemployment.  People stop buying homes.  The unemployed buy less.  Etc etc etc…  Y0u get the picture.

Right now, we don’t know how deep the recession will be and whether the dip in activity will exceed one quarter, which is required definitionally, but regardless, we cannot expect the market to just bounce back to the previously stretched valuations while earnings and revenues are FALLING.

So here’s the plan I will follow and you should only consider it, if you will execute it faithfully.  If you sell and are too afraid to rebuy, you will lose money.

  1. I will sell into the bounces until the virus/economic trajectories are better defined, but I will trade the market by the charts regardless of those two issues.   I will lower my exposure on bounces from the current level of about 74% of maximum exposure for a Bull market to 70% of my usual max. exposure for a Bull Market on the bounce, and the amount may depend on the size of the bounce.  (That means if you are normally 60% in the market when it’s Bullish, you’d go to 42% – but, of course, decide for yourself and consult your advisor).  I you won’t re-buy lower or higher if needed, don’t do anything.
  2. I will buy the stocks/sectors that do the best in a slowing economy and trade some or all of that exposure on bounces.  I bought XLV (healthcare on Thursday when the market had pulled back quite a bit.  One buy is up 1.69%.  Another buy is up 3.53% as of the close on Friday.  It will likely be in the red after the Fed action tonight if the futures stay as they are now.
  3. I will likely sell some/all of the small amount of IJH exposure I own at the next lower high and keep the XLV.  I will sell SPY exposure vs. XLV or individual stocks depending on how they are all acting.  My sells will be strategic.I would sell small and midcap exposure in ETFs at the highs.  Follow me on social media to see where those spots occur.  I sold the last major lower high successfully on 3-03, but could have sold more.   We can always learn and do better than we did “last time”…

Don’t become complacent on the big bounces as Trump did on Friday.  “Violent delights bring violent ends.”  That’s an allusion to a popular show, and it also refers to bounces like the one we saw into the close on Friday that Trump crowed about.  Big bounce means a big decline to come in a Bear Market. 

Futures are down over 5% as I type because the Fed said it:

1. Lowered Fed Funds to 0.0%-0.25% which is essentially ZERO and it will…

2. Do QE by buying Treasuries up to 500 B and also buying mortgage-backed securities up to 200 B.  700 B in total!  Read their release HERE.

Why would the market sell off because the Fed cut rates?  It’s the same answer as shared by me after the prior cut of 0.5%.   After 3 cuts, the Fed is signalling RECESSION.  These actions ON A SUNDAY NIGHT are “CRISIS MOVES,” confirming my analysis above.  The Fed knows the economy is headed into a recession with a high degree of probability, and now Trump is praising them for doing the cuts.  The market is panicking still.

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

Market timing the SP500 Index (SPY, SPX). Big Bear Market is here.

Big Bear Market is here. Will it go away quickly and how much more drawdown will we see?

Now let’s review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -21.57 on 3-11-2020.  Sentiment is bad enough to support a bounce, but can easily go 10 points or so lower.  What stood out for me was the degree of Bearishness which is fairly extreme.  On 8-07-19, when the market was just coming off the low in August, Bears were at 48.20%.  On 12-26-18, at the very bottom (intraday) of the SPX, which we have not yet revisited, it was 50.30.  Get the idea?

This degree of Bearishness is fairly extreme, but there are still a Bulls to be toppled.  The spread should push toward -30% if they are.  Near the Great Recession bottom the Bears were at an off the wall 70.27%, which was a convincing washout level.  The peak Bull – Bear spread hit -30 and below, peaking at a -51.4%.  That is a huge extreme that would only happen after investors have been pummeled by losses for many months, which was the case.

CONCLUSION: Sentiment is fairly negative, but there are still too many Bulls for the situation we are in.  There is more downside ahead is what sentiment says.  It’s not our main indicator, but it provides context for the charts. 

Bulls Neutrals Bears
29.74% 18.95% 51.31%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing – Russell 2000 U.S. Small Cap Index  (click chart to enlarge; IWM, RUT) 

Simple message: Stay out of small and midcaps unless you intend to trade them.  You don’t want to own them in Big Bear Markets.  We are now in a Big Bear Market until proven otherwise.

Market timing the U.S Small Cap Index (IWM, RUT). The worst of the bunch.

The worst of the bunch.

 3. Gold Market Timing (click chart to enlarge; GLD):

Gold broke down in part due to liquidity concerns.  Rates fell to zero at the Fed tonight, so gold futures are up 1%, but that is not a very vigorous response.  I sold all my GDX right near the lower top and sold my gold just as it was breaking down saving me from several percent in losses.  Gold fell significantly (see my stream) in 2008 by over 25% and then rallied before stocks into 2009.  It’s not the time to add in my view.

I am keeping only my core GLD exposure, which is now at about 4% of all assets.  My remaining gold stock positions consists only of a handful of gold miners that are part of a portfolio picked by an analyst I am testing with a very small amount of money.  He’s not doing well, needless to say.  It’s a meaningless percentage of my GLD exposure.  Thankfully!

Market timing the gold ETF (GLD). Broken trend.

Broken trend. Longer term neutral.

I had suggested keeping a 5% position in gold in the prior issue, but I always reserve the right to change my mind.  Gold volatility spiked in a big way and the trend was breaking, so I’m dumped it all as reported on social media in real time.  It’s less complicated than people make it. 

Being in love with gold permanently is a bad idea except as portfolio insurance against a weak dollar.  Let’s see what the dollar does.  Global slowing tends to push the dollar up, while the Fed lowering rates should push it down.  Which will win?  How negative will real rates get if the economy stops to a near crawl?  As inflation crashes, real rates drop against falling interest rates.  We’ll see, but remember the experience in 2008!  The dollar index futures are only down 0.30% today with the market down over 5% (at limit down) and with Fed Funds now at 0.0%-0.25%.

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

4. Interest Rate Market Timing (10 Year Treasury Yield; click chart to enlarge; TNX, IEF, TLT):

The “Falling Rate Shock” continued Sunday night with the Federal Reserve action.  After the Feb. 28th close I wrote…

“Rates were already crashing as of 1-31-2020, and it’s even worse now.  This is a recession signal the Federal Reserve should be careful of ignoring.” 

“Federal Reserve tools should be used in crisis times, and THEN reversed!  They failed to reverse rates when they could and now they have less powder…but there is always the printing press!  Ugh!”

QE is the printing press!   Look at that bounce Friday, but now?  The 10 year Treasury is at 0.677% after the Federal Reserve action tonight. 

You have the privilege of loaning the Treasury money at 0.677% WELL below the current inflation rate per the NY Fed “Full Data Set” Underlying Inflation Gauge of 2.3%!  You can lose 1.623% per year if you do this unless you are trading Treasuries for a break to “negative rates.”  I hope they don’t go there!  In the meantime, I’ll stick with cash and other income opportunities when they arise and look safe!

Market timing the US 10 Year Treasury Yield (TNX, TYX, TLT, IEF). Rate crash with a bounce.

Rate crash with a bounce.  It will fall tomorrow though after Fed action on Sunday.

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 actual BUYS and SELLS in as timely a way as possible 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 short term BEARISH and  longer term Bearish SP500 Index trend.  The stock signal is based on small caps, as they often lead the market down. See above for more.  I said last issue Feb. 28th: If the SP500 Index closes below the bottom yellow channel line on my chart, I’ll call the longer term SPX trend Bearish.  It did!

Gold Signal NEUTRAL  for a further U.S. stock market rally.  The Gold Trend is  short term BEARISH and longer term NeutralI am calling it short term Bearish, because of the magnitude of the drop on high volume.  GLD’s longer term neutral, but it will be Bearish if it drops below the Oct. to Dec. 2019 lows.

What gold does mostly as I’ve written HERE is follow real interest rates around the world (if you own “gold in dollar terms” you care about U.S. rates most of all).  The rest of the world does matter however, including massive buying by central banks. 

GUIDE: “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 in the current context means the global economy is slowing.  That would ultimately hurt U.S. stocks. 

Rate Signal RED for a further stock market rally with a longer term BEARISH and short term Bearish 10 Year Yield Trend.  (Remember: higher rates mean lower bond and Treasury prices and vice versa).  Rates are collapsing to all time lows!  That is still Bearish for rates and says U.S. recession risk is closing on 100% as said above.

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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, contact me.  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.

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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Market Timing Brief™ for the 02-28-2020 Close: “Enough Blood On Wall Street Yet? Gold Corrects Despite Falling Rate Shock.”

A Market Timing Report based on the February 28, 2020 close…

The context for the charts will be addressed on social media during the week…be sure to read those posts as well, or you’ll miss at least half of the picture.

NOTE: I am publishing just after the last Friday/Holiday close of the week each month, so if the last Friday precedes the end of the month, I will publish on that corresponding weekend.  (for example, posts will be on 2-29, 3-28, 4-25, 5-30, 6-27 or the day after, meaning on Saturday most likely, but at the latest by the day prior to the next week’s open, and in case of a holiday, meaning by Monday evening.)  I may publish earlier each month if the market action requires it…

If you want to be alerted to each post, please subscribe via WordPress, and you’ll receive an email each time I publish here… Thanks and feel free to comment or leave a question below…

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

In the last issue I asked, “Why are we losing some of the previous stretch in the SP500 Index that I’ve been warning would happen?  The Coronavirus COVID-19 is the excuse, not the cause of the drawdown.”  The same truth applies.  Earnings have been flat for a year and despite that investors have bid stocks up above the reality of those earnings. Investors now see supply disruptions, work stoppages, and permanent loss of some revenue such as travel related revenue.  Restaurants also fit the category of businesses that will permanently lose revenue if too many Americans mindlessly fall into fear of a pandemic.

Why do I say “mindlessly”?  Because the stats I just published HERE and HERE show the number of active cases of the virus IS DECLINING NOT RISING!  (unless it changes this evening when I run the numbers, which I’ve done daily since the virus outbreak began at the end of January (the first big spike in the total case number).  It’s better to stick with the available data than to speculate wildly about unreported cases.  Of course, there are cases not being reported, but those would REDUCE the actual mortality rate, not increase it!  Yes, we must be vigilant, but preparation has nothing to do with fear as I said a month ago.

From Last Month: “I recommend against fear-based thinking.  Look at the facts and learn how to prevent the spread of Coronavirus, and retweet my messages and you’ll help.   (I don’t need your retweets, but the world clearly does… Please pay it forward.)”   Only a few of you did retweet my messages, so please pitch in. “Liking” doesn’t help nearly as much though I appreciate it.  If you want to help, please also retweet my messages.  Remember. Fear is already viral.  Please help me get “preparation and the truth” to go viral.

Health Issues around Coronavirus (COVID-19) for those interested (a reminder – in addition to being a market analyst, I am a physician, former Director of Surgical Pathology at Stony Brook Medical School, and a trained molecular biologist who studied the way one virus called Gibbon Ape Leukemia Virus caused lymphomas in those apes. At Penn and Stanford along with Jerry Crabtree and others providing great financial support and technical assistance, I discovered the control region of the Interleukin-2 (IL-2) gene that drives T-cell growth and is susceptible to cyclosporin and other similar immunosuppressants, as well as NF-AT (along with Jeng-Peng Shaw) that turns on the IL-2 gene during the immune response as well as forming part of the nervous system and all vertebrate heart valves).

I’ve been sharing that fear directly impairs your immune system if you engage in it, and the one thing we know about the virus is that the death rate is much, much higher up to around 15% in debilitated patients particularly the elderly and those with pulmonary and cardiac conditions.  The elderly have weaker immune systems in general.  That makes them more susceptible to infection.  Being older adds a risk of not being able to recover as the body is less resilient when challenged than is the case for a young person.

Fear suppresses your immunity to viruses and makes you more likely to develop a serious case.  If you fall in those at risk categories, please don’t worry.  That will only make things worse.  Be prepared.  If you have serious lung disease for example, stay away from sick people as best you can.  Stay well nourished.  Get your sleep.  Wash your hands after returning from shopping. Politely decline to shake people’s hands unless you are very aware of your own movements.  If you contact the virus with your fingers and then touch any upper respiratory mucous membrane (eyes, nose, mouth) you risk infection of your lower respiratory tract with Coronavirus, where the virus seems to find its home.  (If you have significant upper respiratory symptoms that are like a typical cold, you are very UNLIKELY to have the virus, but you should still be tested for now to be safe.  Coronavirus causes a lower respiratory infection vs. colds which love the upper airways.

The good news for younger people is that the mortality rate for them is much lower, but as Dr. Fauci pointed out, don’t be surprised if an occasional younger patient dies, so still take any respiratory infection seriously and get tested for BOTH Influenza as well as Coronavirus (currently recommended per Sec. Azar’s comments today on ABC News).

What about Election Risk this week?  Thankfully, Joe Biden had a big win in South Carolina on Saturday.  I say thankfully, because as much as Trump thinks he can beat Sanders, he may not.  Sanders may “Out Trump Trump” as I call it, and then we could decend into socialism.  Yes, I realize some of our existing programs are “socialist,” but Sanders goes off the deep end.

Trump having his followers vote for Sanders because he thinks he’s the weaker choice is truly pathetic/sleazy, and as said, it could backfire horribly.  IF Sanders’ socialism is not defeated, the markets will have a major fit that will make this past week look like a blip!  Remember that Sanders like Trump appeals to the disaffected in our country, and he is offering them “Free Everything” as I call it.  The Biden healthcare plan is much more reasonable IMO, and his changes to tax policy will balance the budget to a greater extent and favor the middle class.  I agree with that because the middle class has not gotten a pay increase over inflation for decades.

What would satisfy me that the Bulls are serious?

The Bull Market Health Score this week is Bulls 0.0/Bears 5.0 vs. Bulls 0.0/Bears 5.0 for the Jan. 31 close.  It’s a 5 point scoring system.

For each checklist item below, I give you the points scored as Bullish or Bearish.  If the number is “Bulls 0.0” that means the Bears score a point.

1. New high? (here I look at large caps alone) Bulls 0.0  Answer: No.  Last time I warned: “Stretched markets invariably correct and simply look for bad news to do so.”  That’s what is happening.  Price is falling to come into alignment with earnings with the added fear that earnings will continue to fall for one or more quarters.

The market hates uncertainty and this is one of those uncertain times.  It’s not uncertain that we’ll beat the virus, but how well we face it off in this country could impact the near term performance of our equity market.  Then we also have impacts on multinationals from pandemics in various other countries like Italy, South Korea, and possibly Japan.  They need to quickly ID cases, diagnose them molecularly, and quarantine all contacts of infected patients.

2. V*IX trend favorable?  (VIX trend is either up, down or undecided and consolidating.)  Bulls 0.0  Answer: No. The VIX Game Score is Bulls 0/Bears 7 at a VIX close Friday of 40.11.  In the prior issue I said: “This level of volatility always ushers in the possibility of “much worse” volatility. Volatility is trending UP.  Closing above the Dec. high is a distinct negative.”  We have had yet another “Volatility Volcano” as I called it back in Feb. 2018m roughly at levels seen both during the 2015 Flash Crash and the Feb. 2016 volatility spike that caused a lot of people shorting volatility at the time to blow up their accounts (with VIX ETFs).

This level of volatility is considered “uninvestable” by some money managers/hedge funds.  I have seen newsletters out this past weekend saying to sell stocks.  That could mean more waves of selling.  Recognize that and buy in stages if you have cash.  I’ve made some purchases already and together they are down 3.48% after being down much more prior to the Fed statement that they would intervene as necessary to support the markets (see my social media feed please; links are below).  The market was up afterhours by around a percent, so perhaps my loss will be down to about 2.5% or so by Monday.  It depends on the news flow really.  Futures are down about 1% now despite that afterhours rally, so we’ll see…

3. AD % Line in an Uptrend short term? (This is a proprietary stat; see base of report.): Bulls 0.0 point.  Answer: No.  Stocks did bounce as I predicted they would in the last issue based on this parameter, but then took it on the chin as the fear about further global slowing erupted into the “Volatility Volcano.”

4. Higher volume on Up Moves?  Lower volume on Down moves?  (Has to be true for either large caps or for both small and midcaps to be a “Yes.” If discrepant, the Score is 0.5)  Bulls 0.0 point.  Answer: No.  I said as of the Jan. 31st close: “We are definitively in a 3rd wave down which is the largest wave.  Volume went up BIG on Friday on the down move.  That was true across all ‘caps.'”  This was prophetic perhaps, although the market did rally for about 8 trading days before it started crashing in 3.0% to 4.5% per day drops.

Volume on the downside has been enormous, which is not a good sign at the start.  But it can lead to a bounce at a minimum, once the market is stretched to the downside, which is why I added some exposure, while holding back some cash.  Volume on Friday EXCEEDED the volume back in December 2018, when the market was down 20% from top to bottom by the 12-24-18 close, and then it bounced hard on the 26th.  It was up 4.96% that day, and it still could have been bought then!  That closing price was not achieved again on the next small pullback on 1-3-19 of 2.48%.

5. Is the “U.S. Index Matrix Signal,” as I call it, positive?  (To be positive, small and mid caps must be trending up with large caps; if mid and small caps are discrepant with each other the score is 0.5)  Bulls 0.0 point. Answer: No.  Yikes, no way!  Small cap and mid cap stocks are suffering as usual during these highly correlated market declines, where investors start dumping everything, including utilities and gold stocks that had been working previously.  Small and midcaps make you the most on the way up (not always, but over time, generally) and lose you the most on the way down. 

Graph of the Bull Market Health Score (BMHS)

Note: 1000 = 1 BMHS point on the scale.  SPX values are adjusted (by 3000 points) to plot them more easily on the same graph.  (That means you should look at the relative changes in the SP500 Index (SPX), not read the values off the Y axis.)

Bull Market Health Score for 2-28-2020

The lower high in the BMHS formed as of the prior Friday hit home this week. The market close was 12.9% from the ATH.

Note how my BMHS had formed a lower high as of last Friday and then crashed to a value of zero this week.   The lower high BMHS on 7-26-19 also did not work out.  We then saw the August drop on the trade impasse with China.

Last month’s issue: “The minimum 3rd wave bottom if we go by the Fibonacci numbers would be 3127.  Remember, if there are 5 waves the 5th wave can descend below the end of that 3rd wave low.  The upper yellow line on the chart below, or the middle of the channel formed by the two yellow lines are also reasonable targets.”  We got to 2954.22 by the close after hitting a low of 2855.84 earlier in the day.   That was pretty close to that lower yellow channel line.  That alone says “Maybe enough!”  That is a 1000 point bounce stimulated by Powell’s statement.  When I saw how quick the reaction was to his statement, I added again on Friday and messaged that to you via social media…

STILL HOLDS: “I don’t set price targets per se as many of you know.  I just look to see WHERE the targets are.  Then I evaluate the market after each move to decide whether it’s worth a buy.

Update of Earnings Picture (see FactSet.com for original data and some great content!) for the S&P 500 Index (see caption):

FactSet Earnings Data as of 2-28-2020

Note earnings estimates are falling for the next two quarters. (Source FactSet.com Go there for more!)

Note that analysts appear to think earnings will be hit more in the next two reported quarters (Q1 and Q2) than later in the year. Oddly revenue estimates for Q4 declined the most of any quarter this week.  See my note on analyst revenue estimates declining for Q4 2020 in the caption below…

FactSet Revenue Data as of 2-28-2020

The biggest drop in revenue estimates this week was for Q4 2020, which is the biggest selling season for retail.

Keep up-to-date and read my comments on the current setup during the week at Twitter and StockTwits (links below) where a combined 34,304 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.  (real time messages are on StockTwits as always and back on Twitter)

Join the Conversation in the StockTwits “MarketTiming” Room  (I’ll publish comments in the room periodically)

I wrote this for the 1-31-20 Issue: “Take a look at the SP500 chart. From before: “As I warned many weeks ago, if the market keeps pushing above that top long yellow line, there will be eventual payback.”  This is the payback…”

The market has “dropped enough,” IF analysts projections are not too optimistic.  Of course, given the fact they cannot know what will happen for sure in the U.S. in the Coronavirus trajectory, predicting earnings becomes problematic.  For this reason, I’d stick with companies that don’t lose customer business permanently.  For example, you won’t be going to the a restaurant four times a month if you normally eat there just once a month, just because you stayed home for 3 months to avoid the virus.  The restaurants IF they will be impacted by the virus in the U.S., as Starbucks was in China, will permanently LOSE some business.  Starbucks has gone back to business we are told and the overall hit may not be that bad, but that is something investors will be looking at in the coming months.

I’d tend to favor companies whose customers will come back later and do the same business, such as buy a new software program, provided the stocks of those companies are not too overvalued vs. the market.  If they are still overpriced, they could still sell off in an overall contraction of GDP and market sell off.

So guess what?  I decided to buy the QQQ instead of picking individual companies.  If you can figure out the prior equations I presented, by all means, select individual companies.  The risk of QQQ is in the tech component that could be hit further on a valuation basis, if the slowdown is more protracted.  BUT I don’t believe the Bull market is over, which means tech companies will ultimately reach higher highs than they already have.  For now, I’m sticking to that viewpoint unless this turns into a Big Bear Market.  (see New Rules, if you haven’t to know what a “Big Bear” is by my rules…)  Then I’ll be selling exposure again.

Here is the biggest caveat around Fed rate cuts: As former Federal Reserve insider Danielle DiMartino Booth has shared (see @DiMartinoBooth on Twitter), a fourth Fed rate cut can actually lead to more LOSSES in the US equity market, because it may indicate the Fed’s belief there is a recession on the way.  Could I tell you a secret?  Recessions are Bull Market killers (see New Rules link above – critical to read).  That means ANY further rate cuts had better get us to 1. Better economic numbers relatively quickly  (if unemployment, for ex., keeps rising after rate cuts, that would be a bad sign)  2. Calmer markets (lower volatility not continued high volatility)  3. Eventually return to slowing RISING rates and slowly rising inflation (from disinflation/deflation), which is always the case when economic slowing turns to economic acceleration.

Note in the chart below that the prior double yellow line channel held the decline on Friday.   The lower yellow line is 2828 or so.  We got to 2856.  Close enough.  That does not mean the market will not keep selling off, but generally selling occurs in waves, and to reach a low 15.84% off the prior high in just 5 days is extraordinary – in fact it was reported as a record in speed of decline.  The risk of a bounce has gone up, especially with the Federal Reserve making noise about being helpful as needed in the Coronavirus crisis.

Let’s turn to my so-called “stretch indicators.”  A few notes on the methodology first…  Note that the maximum value of the Dog Stock groups are determined using the extremes reached in Dec. 2018.  Those levels are called “100%.”  The Bull Stock Group progress is judged by the percentage falls vs. the highs they achieved in December 2018, so even back then, the extremes did not quite reach 100%.  The first bars are based on the intraday maximum/minimum values and the 2nd bars are based on the closing values on 2-28-20.

So what do my stretch indicators say?  The answers they give to the question “Are we at a bottom yet?” are a bit mixed, though the most stretched group (#2 in the graph below) has shrunk to nearly the same extent they did back in December 2018.  The low then was 98.20% from the high, and intraday on 2-28-20, it reached a low of 97.15% (% drop from the December high).  You can see that #8 nearly hit 80% at the climax low on Friday, while two indicators fell shy of December levels.  Let’s summarize it by saying that 7/9 indicators were within about 80% or better to their December targets.  The caveat?  This decline was more vicious in temporal terms than the December drop. 

Again, what the numbers did say to me was that it was a reasonable place to add some exposure, whether it turns out to be right on an immediate basis or not.  I’ve bought “early” before and made great money, but if I’m wrong, I have a written plan on how to get out and I’ll be flagging that on social media if I do!   No one can tell you exactly how far markets will correct.  They are all just guesses. But what I do know is that the falls we have seen COULD be enough, so I simply had to buy some exposure.  “Had to” in order to be disciplined about getting low prices on stock exposure.

All you can do is add at certain spots and cut your losses at others.  The key is not whether the losses go to 20% and then we bounce.  The key is whether this is a Mini Bear Market (see New Rules!) or a Big Bear Market.  They are completely different in behavior.   Mini Bears lead to new highs much sooner.  They don’t kill Bull Markets.  Big Bears are the death of Bull Markets. 

2020-02-28-Bull and Dog Stock Groups

2020-02-28-Bull and Dog Stock Groups vs. their Dec. 2018 Maximum Values

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

Market timing the SP500 Index (SPY, SPX). Big red wave along with a Volatility Volcano.

Big red wave along with a Volatility Volcano. (market closed at the green arrow)

Now let’s review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -8.70% vs -4.88% on 1-29-2020.  There is room in both direction, but we are definitely not at a “selling climax” level.   The limitation is the poll, which is done only once a week (poll ends Weds midnight).  I would say investors were too Bullish still after Wednesday’s close. 

Bulls Neutrals Bears
30.43% 30.43% 39.13%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing – Russell 2000 U.S. Small Cap Index  (click chart to enlarge; IWM, RUT) 

Last issue: “You can see the 3rd wave forming here too and that my comments on social media about small caps leading the way down were predictive.”  That was not entirely right, because the market bounced and then failed in a big way.

Small caps have reached the lows of 2019 as you see on the chart.  They “should be able to” bounce, but if they don’t, do not expect the large caps to bounce either!  My target a few days ago on social media were those 2019 lows (145ish)…(who would’ve thunk it!  It’s a huge drop.)  NOTE: There should be an arrow by the closing price which is shown as 146.33. 

Market timing the U.S Small Cap Index (IWM, RUT). Small caps lead down as usual.

Small caps look like they’ve found a bottom…least the prior bottom!

 3. Gold Market Timing (click chart to enlarge; GLD):

Gold started to get a bit exponential in its rise, so if you took profits prior to Friday’s drop, congratulations!  I’d find spots to add back though, because if the Federal Reserve is going to ease, the dollar will fall, and rates are likely to fall further as well unless inflation starts building steam, but the latter is not in the cards in a slowing global economy.  Further, if inflation were to start rising quickly, gold will offer protection.  So far, the pullback is OK, though the magnitude is something to take note of.  Big swings often bring more big swings.

Still, with the Fed on the way, investors should be adding more gold, not reducing their exposure IMO.   There may also be some fear that rates will back up a bit, since THEY are now stretched to the downside.  Imminent Fed action may prevent that however.  Taken together I’m not interested in taking off exposure from my usual 5% level at this point.  Trading out of part of it when things got nutty would have worked however, so remember that as a possibility for next time.  That works IF you buy it back lower, which is what I coined “Passive Shorting.”  Read about it HERE

I’m leaving this here this week… “Over the intermediate term: Gold loves low rates, so we’ll have to monitor the recovery of rates and take some profits at some point.”

Market timing the gold ETF (GLD). Gold gave up its stretch too, which often happens when liquidity becomes the theme.

Gold gave up its stretch too, which often happens when liquidity becomes the theme.

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

4. Interest Rate Market Timing (10 Year Treasury Yield; click chart to enlarge; TNX, IEF, TLT):

I used to call these “Negative Rate Shocks” but I’m changing that to “Falling Rate Shocks.”  Rates were already crashing as of 1-31-2020, and it’s even worse now.  This is a recession signal the Federal Reserve should be careful of ignoring.  They should in fact act quickly, because they are too far behind the Treasury and bond markets at this point.  Sometimes President Trump is right, although his consistent statements such as “I love debt,” do not comfort me, because with that attitude over the long term, we will enter a crisis in which we could lose our reserve currency status to China for example.  That would be disastrous for our equity market, not to mention the devastating losses in fixed income and the financial collapse of insurance companies that would follow. 

Federal Reserve tools should be used in crisis times, and THEN reversed!  They failed to reverse rates when they could and now they have less powder…but there is always the printing press!  Ugh!

Market timing the US 10 Year Treasury Yield (TNX, TYX, TLT, IEF). Falling Rate Shock!

Falling Rate Shock!

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 actual BUYS and SELLS in as timely a way as possible 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 short term BEARISH and  longer term Bullish SP500 Index trend.  The stock signal is based on small caps, as they often lead the market down. See above for more.  If the SP500 Index closes below the bottom yellow channel line on my chart, I’ll call the longer term SPX trend Bearish.

Gold Signal RED  for a further U.S. stock market rally.  The Gold Trend is  short term BEARISH and longer term BullishI am calling it short term Bearish, because of the magnitude of the drop on high volume.  If you “buy some here,” be willing to “buy some there.”  Higher or lower!

What gold does mostly as I’ve written HERE is follow real interest rates around the world (if you own “gold in dollar terms” you care about U.S. rates most of all).  The rest of the world does matter however, including massive buying by central banks. 

GUIDE: “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 in the current context means the global economy is slowing.  That would ultimately hurt U.S. stocks. 

Rate Signal RED for a further stock market rally with a longer term BEARISH and short term Bearish 10 Year Yield Trend.  (Remember: higher rates mean lower bond and Treasury prices and vice versa).  Rates are collapsing to all time lows!  That is still Bearish for rates and says U.S. recession risk is rising.

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question if you like…

Pay it forward by sending the link to MarketTiming.Blog (that link will immediately connect them to this webpage) to a relative or friend.  Thanks for doing that.

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, contact me.  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.

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.

Copyright © 2020 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™ on 01-31-2020: “Stocks Sink and Give Up Some “Stretch.” Gold Blasts Off MORE on Geopolitical Risk as Rates Ease MORE.”

A Market Timing Report based on the January 31, 2020 close…

The context for the charts will be addressed on social media during the week…be sure to read those posts as well, or you’ll miss at least half of the picture.

NOTE: For now, as part of this experiment, I will publish just after the last Friday/close of the week each month, so if the last Friday precedes the end of the month, I will publish on that corresponding weekend.  (for example, posts will be on 2-29, 3-28, 4-25, 5-30 or the day after, meaning on Saturday most likely, or Sunday generally, but at the latest by the day prior to the next week’s open in the case of a holiday, which would be Sunday or Monday.)  I may publish earlier each month if the market action requires it, as it did this week…  A 3rd Wave began on Friday as you’ll read below… 

If you want to be alerted to each post, please subscribe via WordPress, and you’ll receive an email each time I publish here… Thanks and feel free to comment or leave a question below…

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

Why are we losing some of the previous stretch in the SP500 Index that I’ve been warning would happen?  The Coronavirus 2019 nCoV is the excuse, not the cause of the drawdown.  If governments lose control of it, it could have an  important economic impact, but it will be stomped out in time, so the economic impact will be curtailed at some point.  The earlier the better, but it will be stomped out despite the negative people out there subconsciously spending their energy wishing for it to spread (they will never admit that, but that is the state of their thinking).

I recommend against fear-based thinking.  Look at the facts and learn how to prevent the spread of Coronavirus, and retweet my messages and you’ll help.   (I don’t need your retweets, but the world clearly does… Please pay it forward.)

If you prefer negativity and doom predictions, please find another blog.  😉  We are looking for buying opportunities and places to lighten up when the markets are stretched, not trying to predict the end of the world.  Hint: It’s not ending.  Click my social media links below and read my posts on the virus.  (here are my scientific credentials.  My investing credentials are on my main page at SunandStormInvesting.com).

What would satisfy me that the Bulls are serious?

The Bull Market Health Score this week is Bulls 0.0/Bears 5.0 vs. Bulls 4.0/Bears 1.0 in my mid-Dec. report.  It’s a 5 point scoring system .

For each checklist item below, I give you the points scored as Bullish or Bearish.  If the number is “Bulls 0.0” that means the Bears score a point.

1. New high? (here I look at large caps alone) Bulls 0.0  Answer: No.  Price has finally started to correct as I have been predicting.  It’s called “Coming home to roost.”  Stretched markets invariably correct and simply look for bad news to do so.

2. V*IX trend favorable?  (VIX trend is either up, down or undecided and consolidating.)  Bulls 0.0  Answer: No. The VIX Game Score is Bulls 0/Bears 7 at a VIX close Friday of 18.84.  This level of volatility always ushers in the possibility of “much worse” volatility. Volatility is trending UP.  Closing above the Dec. high is a distinct negative.

3. AD % Line in an Uptrend short term? (This is a proprietary stat; see base of report.): Bulls 0.0 point.  Answer: No.  I added “short term” this week, because it should be there.  We are trying to capture the immediate health of the market vs. trying to time where it will be 3 months from now.  The AD % Signal is at a point where stocks COULD bounce.  “Could” is iffy with the VIX where it is unless the VIX immediately falls Monday.

4. Higher volume on Up Moves?  Lower volume on Down moves?  (Has to be true for either large caps or for both small and midcaps to be a “Yes.” If discrepant, the Score is 0.5) Bulls 0.0 point.  Answer: No.  We are definitively in a 3rd wave down which is the largest wave.  Volume went up BIG on Friday on the down move.  That was true across all “caps.”

5. Is the “U.S. Index Matrix Signal,” as I call it, positive?  (To be positive, small and mid caps must be trending up with large caps; if mid and small caps are discrepant with each other the score is 0.5)  Bulls 0.0 point. Answer: No.  Small caps are breaking lower and leading the market lower.

Graph of the Bull Market Health Score

Note: 1000 = 1 BMHS point on the scale.  SPX values are adjusted to plot them more easily on the same graph.  (That means you should look at the relative changes in the SP500 Index (SPX), not read the values off the Y axis.)

Bull Market Health Score Update 1-31-2020

Bull Market Health Score Update 1-31-2020

Note how my BMHS crashed to just 0.5 last week before the market had fallen much.  Now it’s 0.0.  This correction is already worse than the Dec. 3rd correction, because it’s entered a 3rd wave, so it’s not just a dip.  Friday was the continuation of the 3rd wave down.

The minimum 3rd wave bottom if we go by the Fibonacci numbers would be 3127.  Remember, if there are 5 waves the 5th wave can descend below the end of that 3rd wave low.  The upper yellow line on the chart below, or the middle of the channel formed by the two yellow lines are also reasonable targets.

I don’t set price targets per se as many of you know.  I just look to see WHERE the targets are.  Then I evaluate the market after each move to decide whether it’s worth a buy.  Since buys can be bounces vs. endpoints as was the case on the last move up (bounce in a downtrend), you have to be prepared to either 1. Ride out the volatility over a longer time frame OR 2. Cut some added exposure if you are too early.  I did just that on Friday (see links below to social media and stay in touch during the week).

Update of Earnings Picture (see FactSet.com) for the S&P 500 Index: The data is for SPX earnings projections from Dec. 2019 up to last Friday.  Some businesses will be impacted by Coronavirus over the shorter term, so those lines that have started going down will likely fall further…  (see my comments on social media and on Facebook at MySchoolOfHealth).  The virus (as sad as any loss of life is) is giving investors a buying opportunity, but we need to add in stages and at this point watch for signs the market is ready to bounce. 

SP500 Index Earnings Data Update 1-31-2020

SP500 Index Earnings Data

Keep up-to-date and read my comments on the current setup during the week at Twitter and StockTwits (links below) where a combined 34,251 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.  (real time messages are on StockTwits as always and back on Twitter)

Join the Conversation in the StockTwits “MarketTiming” Room  (I’ll publish comments in the room periodically)

Take a look at the SP500 chart. From before: “As I warned many weeks ago, if the market keeps pushing above that top long yellow line, there will be eventual payback.”  This is the payback…

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

Market timing the SP500 Index (SPY, SPX). Third wave down.

SPX is in the Third Wave down.

Now let’s review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -4.88% vs. 15.34% on 1-1-2020.  This alone says there could be 1-2 weeks of downside ahead.  The poll closes Weds. night, so Friday’s drop is not “in this data.”  Sentiment is not all we follow here, but it says the selling may not yet be sufficient to reset the market to move higher again.  But when things change, we change…

Bulls Neutrals Bears
31.98% 31.17% 36.86%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing – Russell 2000 U.S. Small Cap Index  (click chart to enlarge; IWM, RUT) 

You can see the 3rd wave forming here too and that my comments on social media about small caps leading the way down were predictive. 

Market timing the U.S Small Cap Index (IWM, RUT). Small caps led down and continue to do so as usual.

Small caps led the market down and continue to do so as usual.

 3. Gold Market Timing (click chart to enlarge; GLD):

We bought on the last pullback, because of the longer term slowing in the economy that will eventually force the Fed to lower rates once again.  That worked nicely…

The 1-27 high shown is the current “test” of further upside.  These tests are not magical.  As said, they are just spots to assess the market.  The market looks good for gold for now as long as rates keep falling (see below) and the dollar weakens.

Market timing the gold ETF (GLD). Gold up with market down.

Gold up with stock markets down.

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

4. Interest Rate Market Timing (10 Year Treasury Yield; click chart to enlarge; TNX, IEF, TLT): Chart shown below is for the close for the week.

Just when you thought it was safe to buy financials that depend on RISING rates, it isn’t any longer… 

The Fed is now officially behind the curve.  Literally!   They are playing with short rates but the economy may “need” more long juice (lower rates and QE). 

As is said “A broken clock is right twice a day.”  “Perma Low Rate Lover” President Trump is going to be right about the Fed needing to lower rates again.  Trump is ALWAYS pro-low rates because he says “I love debt.”  Why?  His family biz is real estate that lives or dies on rates.

Trump also seems to love “National Debt” too with soaring deficits following his tax-cut.  File that under: “Tickle Down Economics ZERO of THREE attempts.”

Remember that once rates start rising again, it may (in the long term) be because the world no longer trusts us to pay our bills.  When that happens, you’ll want to have a TON OF GOLD (double or triple the usual amount recommended).

Over the intermediate term: Gold loves low rates, so we’ll have to monitor the recovery of rates and take some profits at some point.  The prior comments apply only to the longer term picture.

Market timing the US 10 Year Treasury Yield (TNX, TYX, TLT, IEF). Yields FALLING again.

Yields falling, bonds rising!

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 actual BUYS and SELLS in as timely a way as possible 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 short term BEARISH and  longer term Bullish SP500 Index trend.  The stock signal is based on small caps, as they often lead the market down. See above for more.

Gold Signal RED  for a further U.S. stock market rally.  The Gold Trend is short term Bullish and longer term BullishAdd on pullbacks.

What gold does mostly as I’ve written HERE is follow real interest rates around the world (if you own “gold in dollar terms” you care about U.S. rates most of all).  The rest of the world does matter however, including massive buying by central banks. 

GUIDE: “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 in the current context means the global economy is slowing.  That would ultimately hurt U.S. stocks. 

Rate Signal RED for a further stock market rally with a longer term BEARISH and short term Bearish 10 Year Yield Trend.  (Remember: higher rates mean lower bond and Treasury prices and vice versa).

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question if you like…

Pay it forward by sending the link to MarketTiming.Blog (that link will immediately connect them to this webpage) to a relative or friend.  Thanks for doing that.

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, contact me.  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.

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.

Copyright © 2020 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™ on 01-06-2020: “Stocks Continue Upward Stretch Above Prior Trend. Gold Blasts Off on Geopolitical Risk as Rates Ease.”

A Market Timing Report based on intraday chart data on January 6, 2020…

The context for the charts will be addressed on social media.  I will periodically update the charts here in new posts along with the Bull Market Health Score without much comment.  If you find this posting format useful, please let me know…

1-26-2020 UPDATE of Earnings Picture (see FactSet.com) for the S&P 500 Index: The data is for SPX earnings projections from Dec. 2019 up to last Friday.  The order of the lines seen in the chart below are from the light blue line Q4 2019 at -1.9% last check to the yellow line which is Q2 2020 at 6.5%.  The orange line is calendar year 2019 earnings which have been running nearly flat vs. 2018 at 02.% latest check.  The long dark blue line near the top is calendar year 2020 Earnings and the short blue line is Q3 2020 and the short green line is Q4 2020.  So you see, the earnings picture is going to becaome steadily more impressive on a year over year basis as the year goes by in comparison with the 2019 performance.  This is a plus for the Bulls.

Earnings Outlook Q4 2019 and 2020

Earnings Outlook Q4 2019 and 2020

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

What would satisfy me that the Bulls are serious?

The Bull Market Health Score this week is Bulls 2.5/Bears 2.5 vs. Bulls 4.0/Bears 1.0 in my mid-Dec. report.  It’s a 5 point scoring system .

For each checklist item below, I give you the points scored as Bullish or Bearish. 

1. New high? Bulls 1.0  Answer: Yes.  Price continues to rise within the channel bounded by the red lines, although it represents a degree of stretch from the prior uptrend.  That presents the risk.

2. V*IX trend favorable?  Bulls 0.5  Answer: Neutral.  Mixed picture.  The VIX Game Score is Bulls 5/Bears 2 at a VIX of 14.24 at 1:51 pm ET.  The Bulls failed to take 12.00 and hold it, so for now the trend is up.  Being below the “fulcrum” (Bull target number 4 = fulcrum in the VIX Game) makes the continuation of this trend a coin flip.

3. AD % Line in an Uptrend? (This is a proprietary stat; see base of report.): Bulls 1.0 point.  Answer: Yes.  Has been flat for 7 trading days but in uptrend.  Market has been flat as well, so there is a match.

4. Higher volume on Up Moves?  Lower volume on Down moves? Bears 1.0 point.  Answer: No.  Volume increased on Jan. 3rd on the down move.  It was not spectacular, but the Bears get this point. 

5. Is the “U.S. Index Matrix Signal,” as I call it, positive?  (To be positive, small and mid caps must be doing as well as large caps) Bears 1.0 point. Answer: Small caps may be putting in a lower high at this point.  Remains to be seen.  Midcaps are the better tell this week and now back below their 2018 high.  Small caps never made it above their 2018 high.

Keep up-to-date and read my comments on the current setup during the week at Twitter and StockTwits (links below) where a combined 34,181 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.  (real time messages are on StockTwits as always and back on Twitter)

Join the Conversation in the StockTwits “MarketTiming” Room  (I’ll publish comments in the room periodically)

Take a look at the SP500 chart.  The long upper yellow line is now at about 3071 at the Friday close, but the current SPX value is much higher.  The two short upper red lines show a narrow range in an uptrend, but rising ABOVE the prior upper yellow trend line of the longer term channel.  As I warned many weeks ago, if the market keeps pushing above that top long yellow line, there will be eventual payback.

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

Market timing the SP500 Index (SPY, SPX). Still melting UP.

Trend still stretched to upside.

 

Now let’s review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of 15.34% vs. +11.58% in mid Dec.  Not impressive Bullishness, but the high Neutrals are Bullish for the market performance 6 months out.

Bulls Neutrals Bears
37.22% 40.91% 21.88%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing – Russell 2000 U.S. Small Cap Index  (click chart to enlarge; IWM, RUT) 

200 day moving average is now 155.02, not the number shown in the chart.

Market timing the U.S Small Cap Index (IWM, RUT). Small caps forming lower high?

Small caps forming lower high?

 3. Gold Market Timing (click chart to enlarge; GLD): Breakout (day 1)!  Let’s see if it holds.

Market timing the gold ETF (GLD). GLD just below breakout at 336 pm ET.

GLD breaking out (day 1).

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

4. Interest Rate Market Timing (10 Year Treasury Yield; click chart to enlarge; TNX, IEF, TLT): Mixed technical picture (read more below in summary section).

Market timing the US 10 Year Treasury Yield (TNX, TYX, TLT, IEF). Rate chart shows mixed signals.

Rate chart shows mixed signals over short term duration.

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 BUYS and SELLS in as timely a way as possible 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 GREEN for a further U.S. stock market rally with a longer term Bullish and short term Bullish SP500 Index trend.  The stock signal is based on small caps, as they often lead the market down. The small caps are pulling back in an uptrend, so that chart is still Bullish.  As said, I don’t like the midcap action, so the Bullish designation could be argued IMO.

Gold Signal RED  for a further U.S. stock market rally longer term Bullish Trend and a short term Bullish Gold Trend.  I was correct about the pullback.  It was temporary, but now we’re testing above a prior high (day 1), so we’ll see.

What gold does mostly as I’ve written HERE is follow real interest rates around the world (if you own “gold in dollar terms” you care about U.S. rates most of all).  The rest of the world does matter however, including massive buying by central banks. 

GUIDE: “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 in the current context means the global economy is slowing.  That would ultimately hurt U.S. stocks. 

Rate Signal NEUTRAL for a further stock market rally with a longer term BEARISH and short term Neutral 10 Year Yield Trend.  (Remember: higher rates mean lower bond and Treasury prices).  The trend is neutral short term, because rates are in a Bearish upward wedge and but are coming down from a Bullish ascending triangle.  The failure to break the top of the triangle is Bearish of course, so the picture is MIXED in the short termLower rates at this point would be Bearish for the stock market.  Financials have improved on HIGHER RATES, but are not beating SPX since the Dec. 3rd low.

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question if you like…

Pay it forward by sending the link to MarketTiming.Blog (that link will immediately connect them to this webpage) to a relative or friend.  Thanks for doing that.

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, contact me.  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.

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.

Copyright © 2020 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 12-13-2019 Close: “Markets Continue to Stretch UP. What the ‘Fed Locked in Neutral’ Means for Gold. Rates Slip On Friday.”

A Market Timing Report based on the December 13, 2019 Close, published Saturday, December 14th, 2019…

NOTE (12-20-19):  Despite requesting feedback at the base of this report this week, there was little of it.  Perhaps careful study of the markets has become irrelevant to many who see markets going up “no matter what happens in the real world.”

This has led me to re-evaluate the time spent, which is considerable each week, and for this reason, I will likely entirely suspend the newsletter’s publication going forward. (I have not entirely excluded doing a “once a month” version, but I’m leaning against it at the present time, as too much would occur between isssues.)

I will likely continue sharing Buy/Sell signals I see in the major markets on social media (links are below), when I take those actions myself, although I may/may not share further charts here with/without limited commentary.  Again, I’m leaning against doing the latter and leaning towards continuing the former for now.

In the meantime, I’ll be doing the same work behind the scenes that supports my thinking.  That will not stop.  The time it takes to write it up and communicate it, I will be directing to other endeavors.  I appreciate those of you who have followed me here for years (since 2010 in this last reincarnation) and wish you well.  Stay in touch on social media…until my next writing incarnation! 😉

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.

I provide quite a bit of intraweek commentary, and if you don’t see it, you will miss out on quite a bit of context, so please click on the StockTwits link below and have a read…  Thank you as always for being loyal readers and interacting on social media with your questions and comments!

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

This week: Trump impeachment nearly 100% certain.  Trump conviction chances near zero.  Fed stays pat.  China deal soon.  USMCA passed.  Consumer weak in November.  Job losses spike.  Those last two are NEW RISKS to the market. 

Let’s turn to the state of the market…

What would satisfy me that the Bulls are serious?

The Bull Market Health Score this week is Bulls 4.0/Bears 1.0 vs. Bulls 3.5/Bears 1.5 vs.  last week.  It’s a 5 point scoring system .

For each checklist item below, I give you the points scored as Bullish or Bearish. 

1. New high? Bulls 1.0  Answer: Yes.  Price continues to rise within the channel bounded by the red lines, although it represents a degree of stretch from the prior uptrend.

2. V*IX trend favorable?  Bulls 1.0  Answer: Yes.  The VIX Game Score is back to Bulls 7/Bears 0 at a VIX of 12.63 (Friday close) vs. 13.62 the prior week, which is below my “Bull Nirvana” number, the 7th VIX Game Score point.  Now the Bulls need to retake 12.00 and hold it this time.

3. AD % Line in an Uptrend? (This is a proprietary stat; see base of report.): Bulls 1.0 point.  Answer: Yes.  The close was 16,958 vs. 16,937 last week, and was a close over the prior SPX top value of 16,954.  Just over!

4. Higher volume on Up Moves?  Lower volume on Down moves? Bulls 0.5 point.  Answer: Neutral.  Volume increased on both down then up moves.

5. Is the “U.S. Index Matrix Signal,” as I call it, positive?  (To be positive, small and mid caps must be doing as well as large caps) Bulls 0.5 point. Answer: Mixed picture.  The small caps had a new breakout this week, but the midcaps are back below their 11-27-19 high.

In the chart below, the Bull Market Health Score (BMHS) data are expressed as a multiple of 1000 (e.g., Score of 4 = 4000) per the scale shown on the y axis to the left, while the SPX values are adjusted in value to fit on the same linear plot.  The scores are the blue line and SPX the orange line.

Bull Market Health Score Chart 12-13-2019

Bull Market Health Score Chart 12-13-2019

Prior data shows the Score tends to top out when the market itself is topping out, although you can see that recent pullbacks in the BMHS to 2.5 have not disrupted the uptrend much.  So far the data says that score has to fall below 1 (1000 on the scale above) to disrupt the SP500 Index uptrend.   On 7-19-19 there was a warning dip in the BMHS before a marginally higher high and then a meaningful pullback into the 8-23-19 low.  The chart above is a weekly chart, because the score is determined from each end of market week close, so the ups and downs in August are smoothed out.

Another observation is that once the BMHS falls below 1 (1000 on chart), it may be already too late to sell, although I have not gone back to data from Big Bear Markets like that of 2008-2009 to see if there were clues from the score to “stay out” for a longer period of time.  It’s possible that the BMHS could bob along between 0.5 and 0.0 for a while before ever coming up for air.  We’ll see…

Notice also that the deeper SPX downtrends are accompanied by lower lows in the BMHS and the strong recent uptrend is accompanies by higher highs in the BMHS, which have been peaking out at 4.0 (4000 on the chart above).   Any thoughts of your own?  Please comment below.

Let’s check in on the context around the price action of the market by looking at the current Market Risks… 

We have some new earnings data this week on Q4 2019…

Earnings Risk/Opportunity: What is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 8-09-19 with a skip of two weeks until the 8-30-19 data resumes the weekly data sequence followed by a skip for the week of 11-29-19 (details HERE)… The larger arrows “—>” indicate 3 weeks of of omitted data in order to compress the data.

For Q2 2019, analysts are projecting earnings growth of 0.1%  —> -1.3% ->  —> -2.1%  —> -2.6% -> -2.6% -> -3.0% -> -1.9% -> -2.6%-> -1.0% -> -0.7% -> -0.4%  DONE

and revenue growth of 4.6%  —> 4.3%  —> 4.1%  —> 3.8% -> 3.8% -> 3.7% -> 3.8% ->4.0% ->4.1% -> 4.1% -> 4.0%  DONE

For Q3 2019, analysts are projecting earnings growth of 1.8%  —> 0.8%  —> 0.3%  —> -0.5% —> -1.9%  —> -3.6% -> -3.7% -> -3.8% -> -3.7% -> -4.1% -> -4.6% -> -4.7% -> -3.7% -> -2.7% -> -2.4% -> -2.3% -> -2.2%  DONE (FactSet  did not say whether the numbers changed vs. their prior report on 11-22-19. Final number may not be accurate)

and revenue growth of 4.4%  —> 4.4%  —> 4.2% —> 3.8% —> 3.2% ->  —> 2.9% -> 2.8% -> 2.8% -> 2.8% -> 2.8% -> 2.7% -> 2.6% -> 2.8% -> 3.1% -> 3.2% -> 3.1% -> 3.1% DONE (FactSet  did not say whether the numbers changed vs. their prior report on 11-22-19. Final number may not be accurate)

For Q4 2019, analysts are projecting earnings growth of 8.1% —> 7.5%  —> 7.2%  —> 6.3% —> 4.9%  —> 3.4% -> 3.2% ->  3.0% -> 2.9% ->2.6% -> 2.3% -> 1.5% -> 0.7% -> -0.4% -> -1.1% -> -1.4% -> -1.4% -> -1.5% -> -1.3%

and revenue growth of 4.8%  —> 4.8%  —> 4.6%  —> 4.3%  —> 4.0%  —> 3.8% -> 3.7% -> 3.6% -> 3.6% -> 3.6% -> 3.5% -> 3.2% -> 3.0% -> 2.6% -> 2.6% -> 2.5% -> 2.5% -> 2.6% -> 2.5%

For CY 2019, analysts are projecting earnings growth of  3.4%  —> 3.2%  —> 2.7%  —> 1.7%  —> 1.4% -> 1.3% -> 1.3% -> 1.3% -> 1.2% -> 1.1% -> 0.7% -> 0.6% -> 0.3% -> 0.1% -> 0.0% -> 0.1% -> 0.2% -> 0.3%

and revenue growth of 4.7%  —> 4.7%  —> 4.5%  —> 4.4%   —> 4.3% -> 4.2% -> 4.1% -> 4.1% -> 4.1% -> 4.1% -> 4.0% > 4.0% -> 4.0% -> 4.0% -> 3.9% -> 3.8% -> 3.8% -> 3.8%

For Q1 2020, analysts are projecting earnings growth of 10.5% —> 9.8%  —> 8.5% -> 8.2% -> 8.1% -> 7.9% -> 7.9% -> 7.8% -> 7.6% -> 7.3% -> 6.7% -> 6.0% -> 5.6% -> 5.3% -> 5.1% -> 5.3% -> 5.2% -> 5.4%

and revenue growth of 6.2%  —>5.8%  —> 5.6% -> 5.7% -> 5.5% -> 5.5% -> 5.4% -> 5.4% -> 5.5% -> 5.3% -> 4.8% -> 4.7% -> 4.5% -> 4.5% -> 4.5% -> 4.4% -> 4.4% -> 4.4%

For Q2 2020, analysts are projecting earnings growth of 13.3%  —> 13.5%   —> 9.9%  —> 9.0% -> 9.0% -> 8.7% -> 8.6% -> 7.7% -> 7.3% -> 6.7% -> 6.6% -> 6.4% -> 6.7% -> 6.7% -> 6.9%

and revenue growth of 6.8% —> 6.6%  —> 6.4% —> 6.3% -> 6.3% -> 6.3% -> 5.9% -> 5.2% -> 5.2% -> 4.9% -> 5.0% -> 4.9% -> 4.9% -> 4.9% -> 4.9%

For CY 2020, analysts are projecting earnings growth of 10.7%  —> 10.5% -> 10.6% -> 10.4% -> 9.9% -> 9.8% -> 9.7% -> 9.7% -> 9.9% -> 9.8% -> 9.7% -> 9.7%

and revenue growth of 5.6% ->  —> 5.7% -> 5.6% -> 5.3% -> 5.3% -> 5.3% -> 5.4% -> 5.5% -> 5.5% -> 5.5% -> 5.5% -> 5.5%

As noted last week, Q4 will be the 4th negative quarter of earnings growth in a row similar to what happened in 2015-2016, but without as much price action around that dip in earnings.

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

China Deal Risk:  Risk has fallen substantially.  We are told in more definitive terms that the tariffs will be eased and lots and lots of soybeans will be sold to China.  However, the tariffs are not going back to zero.  What would really help is if China’s markets were opened up more to the U.S. to boost our GDP.  Then the recovery would in fact be supported further.

Fed Rate Cut/Hike Risk: There has been a continued increase in perceived risk of another RATE CUT by September 2020The odds are about 50:50 (just under) for the next Fed rate cut to occur in Sept. 2020. 

The Fed has cut three times and said it was done unless things get worse for the economy. As I’ve said previously: “THREE cuts is a mid-cycle adjustment.  Four cuts or more mean the Federal Reserve expects a recession.”  A hike in rates in the near future would tank the U.S. stock market. 

We look at the CME Group odds each week of rate cuts/hikes.  The risk of a December hike was 0.7% last week and the Fed left rates unchanged.

What about January?  The odds of cut #4 is 2.2% vs. 8.8% last week vs 67% 9 weeks ago!   The odds of a HIKE in Jan. are 0.0% vs. 0.7% last week vs. 5.8% 3 weeks ago. 

What about a March cut?  The odds are 8.7% this week vs. 20.8% last week vs. 75.1% 9 weeks ago for 4 or more cuts in total.  March hike?  0.0% vs. 5.0% 3 weeks ago.  

April Cut?  18.5% vs. 34.8% 3 weeks ago vs. 52.6% 4 weeks ago vs. 79.7% 9 weeks ago expect there to be 4 or more cuts.  April hike?  0.0% vs. 0.5% last week vs. 4.2% odds 3 weeks ago.

June cut?  33.6% vs. 40.0% last week vs. 56.7% 6 weeks ago expect four or more cuts by then.  Probability of a hike is 0.0% vs. 0.4% last week vs. 10.2% 4 weeks ago.

July?  45.4% vs. 47.9% last week vs. 60.7% 5 weeks ago expect 4 cuts or more cuts by then.  A hike? 0.0% vs. 0.4% last week vs. 9.2% 4 weeks ago.

What are the rest of the available “4 (or more) cut odds”?  Sept. 2020?  49.8% vs. 56.2% last week vs. 65.2% 6 weeks ago.  Sept. 2020 Hike?  0.0% vs. 0.0% last week vs. 8.1% 4 weeks ago.  Nov. 2020 cut: 55.0% vs. 59.2% last week vs. 69.3% 6 weeks ago.  Nov. hike? 0.0% vs. 0.0% last week vs. 7.2% 4 weeks ago.  Dec. 2020 Cut: 60.6% vs. 64.7% last week vs. 73.8% 6 weeks ago.  Dec. hike?  0.0% vs. 0.0% last week vs 6.3% 3 weeks ago.

At least among those in the interest rate futures markets, the perceived odds of a recession or at least Fed action by November continuing into December 2020 will be required to prevent a recession or make it more shallow is slightly LESS than it was last week.  The first risk above 50% occurs in November 2020 now vs. September last week.  Again, there is ZERO discounting of a recession in the stock market right now.  

The Risk of a Neutral Fed:  SAME.  The Fed is stuck now unless the data becoming more than a little compelling.  There is risk of inflation on the one hand and more slowing on the other.  Prior: “Ultimately the change by the Federal Reserve in going to “Neutral” was NOT positive for the U.S. equity market, but it ignored it.  It won’t ignore it if economic slowing does not reverse itself going into 2020.”  

U.S. Iran War Risk: SAME.  Interestingly quiet.  No change for weeks.  More stable after the leak of the “Iran Annihilation Plan HERE

2020 Election Risk: See last week’s post.  The entry of Bloomberg makes things more difficult for Joe Biden, but he’s still the favorite to win the Dem nomination.  Losing in Iowa and New Hampshire won’t look good though, and it could bring him down in the polls.

As I shared on social media last week, the other major concern I have (concern for the market!) is the possibility that Sanders and Warren join forces, because together their numbers would lead the field (34% vs. Biden at 28.4%) That could happen at the convention.  I predict they would lose to Trump with a recurrence of the Nixon/McGovern race, where Nixon won in a landslide DESPITE the Vietnam War.

Buttigieg was falling in the polls this week due to the attacks on his donor sources.  He has now given back the money he got from lobbyists, but it does not look good to the Sanders/Warren purist liberals.

Not all billionaires are created equal!  Steyer is still in the near death group at 1.6% (same Ref. as above), while Bloomberg has bought himself 5.2% in a hurry.  He’s making the mistake of not taking individual donations, which could keep him out of upcoming debates.  I have no clue why they are not accepting at least $1 donations to satisfy the debate requirements, but let me know if you’ve heard how he plans to get on the stage.

Trump Impeachment Risk: Impeachment Risk: 100% now that the articles have been passed by the House Judiciary Committee.  Conviction Risk?  Still near zero probably something like 0.00000000000001%.  The Constitution STILL does not matter to the GOP.  If it did, they would at least criticize his actions.  At least GOP Rep. Will Hurd (he’s retiring) did just that while saying he would not support impeachment. He is ex-CIA and has been disturbed by the President’s obviously bad behavior.  If you can at least recognize how Fox News would have FILLETED President Obama for doing any close to what Trump did, great.  Removal is perhaps drastic and debatable.  The wrong Trump did is NOT debatable.  I wish Republicans would find a spine and say what he did was plain wrong.

Deficit/Debt Threat: No Change: Trump is now beating Obama at something!  The size of his deficit!  It’s bigly.  Read THIS.  The deficit is up 26% to $964 Billion for fiscal 2019, the HIGHEST IN 7 YEARS!  

I’ll leave this here as a monument to our monumental debt, which could threaten interest rates in the future.  When rates rise, there will be “heck to pay.”  The U.S. dollar remains at risk and having at least 5% of your non-real estate net worth in gold exposure is a reasonable hedge in any portfolio.  Some say higher, but owning stocks is also a hedge that over time would work out for solid companies, even in the face of very high inflation (after the market came back from a deep swan dive!). 

Inflation Risk: The other risk is inflation ticking up.  Employment is high and wages are increasing, which means costs are increasing, so if the economy slows WITH rising costs, people are fired, so companies can meet their earnings goals.  Let’s see how this Christmas season turns out and in the meantime carefully watch employment, wage increases, and inflation.  The market would not enjoy either seeing or anticipating a Fed rate hike anytime in 2020.  No one expects it!  If that comes back into the picture, Houston, we’ll have a problem.  It will mean inflation has truly picked up, as hiking rates before the election in particular would be seen as endangering Trump’s re-election.

Employment Risk:  There was a big spike in jobless claims this week (see my social media stream; link to chart). 

Consumer Strength Risk: Retail sales were weak last month as reported this past week.  The consumer has been the support under GDP this year, so if that trend continues and the job loss rate continues to spike as it did this week (see my social media feed), the stock market could start losing steam.  Jobless people spend less!

Current Scenario… Unchanged this week!

Despite the extra push up above trend we are seeing (the higher channel in the chart below), the prior pattern we saw earlier in 2019 could repeat itself.  A further melt-up and then a substantial correction, which could be months away and may be poll dependent.  If Biden fails to gain traction for example, Trump might be considered a shoe in for a second term vs. anyone left on the Dem field.

A final high will be reached prior to the discounting of a recession, which brings on a ‘Big Bear Market.’  Whether the market moves up a bit more and drops, corrects immediately, OR rises now to a final (for the cycle) all time high, we are not yet at the all time high in my opinion.  There is more upside to come, if not now, then later, before the final high.

This is also very similar to January 2018 on the chart that led to a sizable, quick dive in the market of 11.78%.  We could see a similar correction between now and the end of the 1st quarter of 2020.  We do not have the Fed in the way at this point. It’s just frozen in the corner as I’ve contended.  China trade is going to be better not worse, at least at the margin, which could help U.S. GDP to grow faster.

Back to the charts….

Now take a look at the SP500 chart.  The long upper yellow line is now at about 3065 at the Friday close.  The two short upper red lines show a narrow range in a gentle up trend, rising ABOVE the prior upper yellow trend line of the longer term channel.

As I warned four weeks ago, if the market keeps pushing above that top long yellow line, there will be eventual payback.

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

Market timing the SP500 Index (SPY, SPX). Stretched but rising.

Stretched but rising.

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

“Intel-igent Market Timing Signal” (Intel; I*NTC; * there to throw off the crawlers!): Neutral.  SAME: “The stock is stuck below the April ATH.  Why should it break out if the U.S. GDP is due to slide to below 1%?  The June 4 high of 57.60 has been exceeded, and the April high of 59.59 is the next test to achieve a new all time high.”

The NY Fed says GDP for Q4 will be 0.69% and the Atlanta Fed using the exact same numbers says 2.0%.  Take your pick!  Following my canaries may be more productive than following GDP predictions as the latter are usually way off!

Bank of America (B*AC) Market Timing Signal: Bullish and is back above the 33.05 breakout for 8 days now.  “It will only hold the breakout if, rates keep climbing.  Sell a reversal at least on a close or sell on a close with a reversal on higher volume IMO.”  A reversal lower with FALLING rates would be a negative prognostic sign for the economy.

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 34,181 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.  (real time messages are on StockTwits as always and back on Twitter)

Join the Conversation in the StockTwits “MarketTiming” Room

Now let’s go on to review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +11.58 vs. +2.59% last week.  Investors are becoming a bit more Bullish but it’s not an extreme spread, so more upside is possible.   Investors routinely become uber-Bullish at real tops in markets, and this is not one of those.  Bottom Line?  Even if the market corrects, it will be a buying opportunity that will lead us to an even higher high.

This is just one signal we follow, as price ultimately beats every other signal.  A future sentiment peak does not allow us to go to sleep in the Sun and Storm Investing™ World.  😉

Bulls Neutrals Bears
37.63% 36.32% 26.05%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM):

We now have a breakout, and it was sustained with a new high being reached this week.  I am skeptical of this new high holding, because midcaps have NOT come along.  At the same time, I cannot argue with a trade to the 173ish high.  Rates must keep rising for the financial component of IWM to succeed.  They’ve just turned back down in the recent range it seems.

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

Market timing the U.S Small Cap Index (IWM, RUT).Breakout maintained...so far.

.Breakout maintained…so far.

 3. Gold Market Timing (GLD): 

No change.  In fact this week, GLD is back above that upper red line in the chart below!

SAME MAJOR POINT: IF the Fed lags inflation, gold wins, but if it front runs inflation, gold loses on a relative basis.  Follow the chart though, not the noise from talking heads.  Higher inflation (absent continued slowing of GDP) is probable given the “Fed Stuck in Neutral” place we are in.  Gold wins!   If the next Fed move is a CUT, gold wins too.

SAME Technicals: If it breaks lower and GDX breaks, I’ll likely be lowering my exposure to gold.  That means holding above that 2013 lower high on the chart.

The Gold ETF (click chart to enlarge; GLD): That top red line is 137.80.  The market “has my number” as I say.  When the market changes, we change.

Market timing the gold ETF (GLD). Gold will win with a neutral Fed.

Gold will likely win with a neutral Fed.

4. Interest Rate Market Timing (10 Year Treasury Yield; TNX, IEF, TLT):

Still true despite the Friday drop: The drop in rates on Friday may create a lower high, but until proven otherwise with a breach of the November lows (which would be bad for banks!), rates are in an ascending triangle on an intermediate term basis.  That is Bullish for rates.  I added TIPs (first add and the yield is not great, so I’m buying with the expectation of a capital gain in a retirement account and that I’ll trade it, not buy and hold) on the Friday pop in rates after the Fed left rates unchanged and indicated it was taking 2020 off.  😉  The dollar is weakening, which makes imports more expensive and adds to inflation. 

It could be that rates trade within a range, so if you don’t trade, you’ll just make the low coupon available, which will be less than the REAL inflation rate.  You are paying to hold treasuries/bonds in that case!

Speaking of the REAL inflation rate, I had a little back and forth discussion with former Dallas Fed analyst/advisor Danielle DiMartino Booth on Twitter this past week noted HERE.  She was a Fed advisor before she wrote her book “Fed Up: An Insider’s Take on Why the Federal Reserve is Bad for America.”

I recommend you do what I suggested to her could be a more useful calculation of inflation for an individual investor to use in financial planning, that is to calculate your personal rate of inflation (you’ll have to throw out exceptional items and consider the cost of money, if you have equity in your house, etc.), but it could give you a better idea than the CPI does or even the “UGI full measure” Danielle cited for how much of a return in percentage terms YOU will have to make to stay ahead of inflation before and in retirement.  In retirement you’ll still need money, but after retirement you won’t have to worry about money.  😉   The goal is to have enough money in life, so the only thinking you do about money is for the fun of the game and/or about how you plan to spend and share your wealth with others. 

BEFORE YOU GO… I am assessing the value of this work to my readers in a year end review.   If you find it valuable, please communicate to me WHY it is valuable to you via email through my contact page HERE (or click the “Contact Me” tab at the top).  Thank you. 

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): 

Market timing the US 10 Year Treasury Yield (TNX, TYX, TLT, IEF). Rates move lower again.

Rates moving lower again?

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 BUYS and SELLS in as timely a way as possible 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 GREEN for a further U.S. stock market rally with a longer term Bullish and short term Bullish SP500 Index trend.  The stock signal is based on small caps, as they often lead the market down. The small caps have broken out and that breakout MUST be preserved and further extended.  This week was confirmation of that prior breakout, although I did not like seeing the midcaps lose ground.

Gold Signal YELLOW  for a further U.S. stock market rally longer term Bullish Trend and a short term NEUTRAL Gold Trend.  This still looks like a correction vs. a breakdown until it does not!  The chart looks like a crouching tiger!  😉

What gold does mostly as I’ve written HERE is follow real interest rates around the world (if you own “gold in dollar terms” you care about U.S. rates most of all).  The rest of the world does matter however, including massive buying by central banks. 

Remember, gold may be down but not yet out, because if the Fed lags inflation, gold will win.  Since I am predicting a “Federal Reserve Stuck In Neutral” into the 2020 Election, inflation will win, and gold and oil will win.

GUIDE: “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 in the current context means the global economy is slowing.  That would ultimately hurt U.S. stocks. 

Rate Signal GREEN for a further stock market rally with a longer term BEARISH and short term Bullish 10 Year Yield Trend.  (Remember: higher rates mean lower bond and Treasury prices). Whether the short term trend should be called Neutral vs. Bullish is arguable at this time, but it’s not Bearish yet. There is actually an even longer term view that says rates have been in a neutral trading pattern since 2011, but the above two views are more practical on a trading/intermediate term investing basis.

I’ll leave this reminder from 9-20-2019’s issue: “Remember, FOUR Fed cuts will NOT be a “mid-cycle adjustment” and would be taken badly by the market ironically, considering the market’s addiction to lower rates.  A fourth cut means the Federal Reserve is seeing recession risk as significantly high.”

Also for Reference:Rates usually RISE slowly in a strong recovery and the stock market rally continues as they rise, as I’ve repeated multiple times on social media and here.  Empirically though, rates that are “lower” (than 3.11%) and are NOT rising rapidly have allowed the market to rise.”

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”    It closed at 60.07 vs. 59.20 last week.  Still holds: If it rises above 58.82 (YES) and then 60.94 (NOT YET), oil and oil stocks will be off to the races.  63.38 would be the next target.

Just a reminder: If TNX bounces too quickly and too high, this will give rise to Rate Shock III… As said before: “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.'”  I called the period of rising rates in early October #RateShockII.

Another Reminder On Falling Rates: “The risk lately has been ‘Falling Rate Shocks.’  (I changed the term from “Negative Rate Shocks” because there are in fact negative rates in a lot of countries now.  First we had ‘Falling Rate Shock I’ in December 2018 (because rates FELL while the Fed raised the Fed Funds rate 0.25% in mid-December, in what was perceived as a policy error by critics),  ‘Falling Rate Shock II’ in May 2019, and ‘Falling Rate Shock III’ in August 2019.  The Stock Market Bulls had better hope that they don’t get more rate cuts past October. 

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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, contact me.  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.

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.

Copyright © 2019 By Wall Street Sun and Storm Report, LLC All rights reserved.

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Market Timing Brief™ for the 12-06-2019 Close: “Market Looks Past All Risks After Shallow Dip. Gold On Notice with Interest Rates Rising.”

A Market Timing Report based on the December 06, 2019 Close, published Saturday, December 7th, 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.

I provide quite a bit of intraweek commentary, and if you don’t see it, you will miss out on quite a bit of context, so please click on the StockTwits link below and have a read…  Thank you as always for being loyal readers and interacting on social media with your questions and comments!

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

The week began with a dip as my Bull Market Health Score suggested it might.  But that dip did not turn into a correction.  A “dip” is defined in my “New Rules”  HEREThe drop was -3.81% from the high on 11-29-19.  But later in the week as the China trade deal seemed to be still in negotiation, we got a very strong employment report of 266,000 new jobs with upward revisions that drove the 3 month average job creation to 205,000 per the Bureau of Labor Statistics, which handily beat the glum +67,000 number in the often NON-correleated ADP Employment Report on Wednesday.

For those of us who remember what it was like in the melt-up years in the late 1990’s before the cascading market crash of the NASDAQ in the early 2000’s (78% drop!) there are a few things very much and some not so much in common between the two periods:

1. We have a lot of web based “software as a service” companies commanding nosebleed valuations, although they are fewer in number vs. back then.  The business models are not as ridiculous by any means.  And valuation is a tricky thing to trade.  A miss can shave 10-20% off a stock like that in a day.  A surprise can add the same in a day.  If you can sleep with that in your portfolio, good, but make sure you balance those sorts of stocks out with steady growers.

If risky (high beta vs. SPX) stocks are 10% of your portfolio, you can lose 50% and still only give up 5% of your net worth to see that rise to 20% or more (if not, it’s not worth it!).  You would obviously trim back as you went along to keep your risk level constant, and I would (and do) take out 100% profits when I have them, and then ride the gravy with a more generous stop.

2. The economy is strong and jobs reports are coming in very positive.  I remember back then how the Bears were looking for the first sign of weakness they could use to make their gains and how the Bulls could not be convinced there was ANY risk in what they owned.  I helped many people at that time of much higher valuations save their retirement accounts and their kids’ college accounts from decimation (testimonials at sunandstorminvesting.com).

3. A President is being impeached.  The case details were worse for Bill Clinton however, because they had the obstruction of justice charge fleshed out.  When Bill Clinton was impeached in 1998 the Republicans controlled both Houses of Congress.  In the Senate trial vote on “February 12, Clinton was acquitted on both counts as neither received the necessary two-thirds majority vote of the senators present for conviction and removal from office – in this instance 67.  On Article One [lying to a grand jury and witness tampering], 45 senators voted to convict while 55 voted for acquittal. On Article Two, 50 senators voted to convict while 50 voted for acquittal [67 required to convict on any one count].  Consequently, Clinton remained in office for the balance of his second term.” Ref.  Note that the first count was about his lying to a grand jury about having sex with Monica Lewinsky, but the closer vote for him (still 17 votes short of conviction) was the second count of obstruction of justice.  This is what it contained (same Ref.)…

“Article II charged Clinton with attempting to obstruct justice in the Jones case by:[28]

  1. encouraging Lewinsky to file a false affidavit
  2. encouraging Lewinsky to give false testimony if and when she was called to testify
  3. concealing gifts he had given to Lewinsky that had been subpoenaed
  4. attempting to secure a job for Lewinsky to influence her testimony
  5. permitting his lawyer to make false statements characterizing Lewinsky’s affidavit
  6. attempting to tamper with the possible testimony of his secretary Betty Currie
  7. making false and misleading statements to potential grand jury witnesses”

This is where Trump is most vulnerable, but that case has not been made convincingly without interviews of key witnesses like Trump’s former White House Counsel Don McGhan II, as well as NSA Chief Bolton, Sec. of State Pompeo, and Acting Chief of Staff Mick Mulvaney.  Trump is not as vulnerable in my view on the notion that the “ask” on the Bidens was enough, or even that holding up the military aid is enough to remove him.  On the “ask,” the Republicans are attempting to say it was OK for Trump to tie the Biden investigation announcement by Ukrainian President Zelensky to the quid pro quo of the release of military aid and a White House meeting which would bolster Zelensky’s standing vs the Russians (and there WAS a quid pro quo per multiple witnesses including both Trump’s Chief of Staff Mulvaney as well as EU Ambassador Sondland).  The Republicans are saying that asking for a SPECIFIC investigation is the same as asking Pres. Zelensky to investigate corruption in general, which it is clearly not but…

One could say that regardless of the specificity of the President’s targeted request, he had “the right” as President to ask for the investigation if there was reasonable doubt about what went on between Biden, the Ukrainian government, and his son Hunter, who did receive a ridiculous amount of money from a corrupt Ukrainian gas company, the business of which he knew little about.  That sort of money transfer to people connected to those in power, however, was not and is not now illegal.  It SHOULD be made illegal (there should ideally be a relationship between value added and the payments for those hired who have/have had a meaningful political connection “families of government officials, elected or otherwise and those officials themselves), but it isn’t and wasn’t illegal for Hunter Biden to be paid the huge sums, so the premise that Trump had probable or good cause to ask Zelensky to specifically investigate the Bidens is absurd.

That said, and I would censure Trump for his behavior, because it COULD be argued that Trump was trying to influence the election, and I personally believe and intuit directly he was attempting that, but one can argue as the Republicans are that the “ask” alone is not enough to remove a president from office.  I believe that effort will fail.  If there were a pattern of this, beyond publicly telling Russian and China to investigate his opponents, then the Democrats would have a strong case of widespread and repeated abuse of power.  At this point, they don’t have enough evidence in my view.

In sum, the House will impeach and the Senate will acquit Trump and we’ll move on to the 2020 Election barring further evidence.  If the Democrats insist on the Senate trial, which now seems likely, Trump could be less damaged than if he were censured in my view.  Acquittal implies “Trump didn’t really do anything awful.”  Be clear – what he did WAS awful.  If Obama had done the same, the GOP would have rushed to force him out.  Censure is serious and says Congress agrees that what the President did was awful and should not be repeated, or he would suffer removal from office.  P.S. Giuliani is still in very big trouble.

Last week I said, “This was the week of the small cap breakout.  If it is maintained, the entire market should continue higher.”  On the other hand, a reversal for the small caps would likely be lethal for the market’s further immediate rise.  It would accelerate a bigger correction.  Decisions, decisions…”

The market seems to have made a decision and all we need next week is another high higher in ALL CAPS than the 11-29-19 high, and the market rally should continue.  Small, mid, and large caps must come along for that ride, but small caps would benefit most as they are higher beta and are down more off their prior high.

Remember the SP500 Index is still running somewhat on borrowed time as the stretch in the market has for several weeks been similar to what happened to the market in Jan. 2018.  That ended badly in Feb. 2018 as you recall.

What about the Fed rate cuts?  I’ve seen some writing about how they are going to be helping now because their impact works on a lag.  Here are the dates (Ref.):

Jul 31 2.25% Fed lowered rate despite steady growth
Sep 18 2.0% Fed was concerned about slowing growth.
Oct 30 1.75% Slow global growth and muted inflation.

If it is true that they worked on a lag, why have interest rates been rising since the Sept. 3, 2019 low, and how long is that lag really?   The Fed says it’s 6-9 months.  I think the market has taken care of much of that lag already.  The 10 Year US Treasury Yield (TNX) was 2.061% on July 30, 2019 with a Fed Funds rate of 2.25% the next day.  That drop in TNX was on the EXPECTATION the Fed would lower rates eventually.

On January 4, 2019 Powell started hinting that the Fed would not hike further and in fact the economy was vulnerable to further slowing as noted HERE.  The bounce off the Dec. 24th closing low was dramatic and it continued until the first significant dip in early March that ended on 3-08-2019.  “Don’t fight the Fed,” an often repeated mantra generally is the truth.  When it comes to negative interest rates in the EU, I think the mantra has failed them.  Going negative still resulted in growth slowing in Germany to near zero.  (Things MAY be improving a bit now, but it’s all very tentative.)

What has been happening since the Sept. 3, 2019 interest rate low is more than a snap-back off a stretch lower; it is also a reaction to what is coming.  I laid this out over the past couple of weeks.  The Federal Reserve is now boxed in, barring extreme changes in the incoming data to being a “Fed Stuck In Neutral.”

The Federal Reserve is politically on hold, because any tightening would be attacked viciously by Trump as an attempt to throw the election, just as a former Fed governor has suggested that they do (He was a fool to suggest it!  It’s not the Fed’s job to be political.).  They won’t act in that way deliberately, because it risks the survival of the institution of the Fed.  Why do you think they raised rates on Dec.19, 2018 as the market was already falling?  They were focused on inflation, not full employment.  They felt the economy was already at full employment when it hit 5% unemployment and now we’re back at 3.5%, the Sept. 2019 low.  But they will be forced to allow inflation to rise a bit more than they would have previously.

What does this mean? 

1. Rates will continue to rise given the growing economy vs. a “Fed Stuck In Neutral,” hurting bond investors and driving more money into stocks IF rates rise slowly.  Rate shocks are a big negative, as I summarize at the base of this report.

2. That will help gold and the value of other “stuff,” like commodities and oil as long as the economy does not in fact pick up real steam from here.  If it did, gold would fall as real rates fall (see my summary on how gold pricing works HERE).   The reason gold has not broken down badly (but it’s weak as you’ll see below) I believe is because the market realizes the Fed is stuck.  When the Fed can raise rates as the economy grows, it keeps real rates positive which gold dislikes, and possibly even keeps real rates rising, which gold hates.  That’s why gold could do OK despite the economy picking up (if it does!).  But beware after the 2020 Election and also follow the inflation numbers, because the Fed has a mandate to do its job.  It can allow some excess inflation vs. what it would have allowed in Dec. 2018, but there is a limit.

Let’s turn to the state of the market…

What would satisfy me that the Bulls are serious?

The Bull Market Health Score this week is Bulls 3.5/Bears 1.5 vs. Bulls 4.0/Bears 1.0 last week.  It’s a 5 point scoring system .

For each checklist item below, I give you the points scored as Bullish or Bearish. 

1. New high? Bulls 1.0  Answer: Yes.  I’m giving it a yes here, because the price is back in the prior higher channel (red lines at top in the chart below).

2. V*IX trend favorable?  Bulls 0.5  Answer: Neutral.  The VIX Game Score is Bulls 6/Bears 1 at a VIX of 13.62 (Friday close) vs. 12.62 the prior week, which is above my “Bull Nirvana” number, the 7th VIX Game Score point.  The Bulls need to retake that 7th point next week and then take a run on 12.00ish.

3. AD % Line in an Uptrend? (This is a proprietary stat; see base of report.): Bulls 0.5 point.  Answer: Neutral.  The close was 16,937 vs. 16,909 last week.  Another new high is needed to turn the full point over to the Bulls.  It’s not unreasonable for that number to be below the prior high as the market is below its prior high.

4. Higher volume on Up Moves?  Lower volume on Down moves? Bulls 0.5 point.  Answer: Neutral.  The move up on Weds was with some increase in volume, but not impressively so.  The move on Fri. was big, but the volume did not match it.

5. Is the “U.S. Index Matrix Signal,” as I call it, positive?  (To be positive, small and mid caps must be doing as well as large caps) Bulls 1.0 point. Answer: Yes.  The small caps initially lost and then regained the breakout I’ve been following with you.

Let’s check in on the context around the price action of the market by looking at the current Market Risks… 

We have some new earnings data this week on Q4 2019…

Earnings Risk/Opportunity: What is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 8-09-19 with a skip of two weeks until the 8-30-19 data resumes the weekly data sequence followed by a skip for the week of 11-29-19 (details HERE)… The larger arrows “—>” indicate 3 weeks of of omitted data in order to compress the data.

For Q2 2019, analysts are projecting earnings growth of 0.1%  —> -1.3% ->  —> -2.1%  —> -2.6% -> -2.6% -> -3.0% -> -1.9% -> -2.6%-> -1.0% -> -0.7% -> -0.4%  DONE

and revenue growth of 4.6%  —> 4.3%  —> 4.1%  —> 3.8% -> 3.8% -> 3.7% -> 3.8% ->4.0% ->4.1% -> 4.1% -> 4.0%  DONE

For Q3 2019, analysts are projecting earnings growth of 1.8%  —> 0.8%  —> 0.3%  —> -0.5% —> -1.9%  —> -3.6% -> -3.7% -> -3.8% -> -3.7% -> -4.1% -> -4.6% -> -4.7% -> -3.7% -> -2.7% -> -2.4% -> -2.3% -> -2.2%  DONE (FactSet  did not say whether the numbers changed vs. their prior report on 11-22-19. Final number may not be accurate)

and revenue growth of 4.4%  —> 4.4%  —> 4.2% —> 3.8% —> 3.2% ->  —> 2.9% -> 2.8% -> 2.8% -> 2.8% -> 2.8% -> 2.7% -> 2.6% -> 2.8% -> 3.1% -> 3.2% -> 3.1% -> 3.1% DONE (FactSet  did not say whether the numbers changed vs. their prior report on 11-22-19. Final number may not be accurate)

For Q4 2019, analysts are projecting earnings growth of 8.1% —> 7.5%  —> 7.2%  —> 6.3% —> 4.9% -> 4.5%  -> 3.9% -> 3.5% -> 3.4% -> 3.2% ->  3.0% -> 2.9% ->2.6% -> 2.3% -> 1.5% -> 0.7% -> -0.4% -> -1.1% -> -1.4% -> -1.4% -> -1.5%

and revenue growth of 4.8%  —> 4.8%  —> 4.6%  —> 4.3%  —> 4.0%-> 4.0% -> 4.0% -> 4.0% -> 3.8% -> 3.7% -> 3.6% -> 3.6% -> 3.6% -> 3.5% -> 3.2% -> 3.0% -> 2.6% -> 2.6% -> 2.5% -> 2.5% -> 2.6%

For CY 2019, analysts are projecting earnings growth of  3.4%  —> 3.2%  —> 2.7%  —> 1.7%  —> 1.4% -> 1.3% -> 1.3% -> 1.3% -> 1.2% -> 1.1% -> 0.7% -> 0.6% -> 0.3% -> 0.1% -> 0.0% -> 0.1% -> 0.2%

and revenue growth of 4.7%  —> 4.7%  —> 4.5%  —> 4.4%   —> 4.3% -> 4.2% -> 4.1% -> 4.1% -> 4.1% -> 4.1% -> 4.0% -> 4.0% -> 4.0% -> 4.0% -> 3.9% -> 3.8% -> 3.8%

For Q1 2020, analysts are projecting earnings growth of 10.5% —> 9.8%  —> 8.5% -> 8.2% -> 8.1% -> 7.9% -> 7.9% -> 7.8% -> 7.6% -> 7.3% -> 6.7% -> 6.0% -> 5.6% -> 5.3% -> 5.1% -> 5.3% -> 5.2%

and revenue growth of 6.2%  —>5.8%  —> 5.6% -> 5.7% -> 5.5% -> 5.5% -> 5.4% -> 5.4% -> 5.5% -> 5.3% -> 4.8% -> 4.7% -> 4.5% -> 4.5% -> 4.5% -> 4.4% -> 4.4%

For Q2 2020, analysts are projecting earnings growth of 13.3%  —> 13.5% -> 12.0% ->12.6% -> 10.7 -> 9.9% -> 9.3% -> 9.2% -> 9.1% -> 9.0% -> 9.0% -> 8.7% -> 8.6% -> 7.7% -> 7.3% -> 6.7% -> 6.6% -> 6.4% -> 6.7% -> 6.7%

and revenue growth of 6.8% —> 6.6% -> 6.7% ->6.6% -> 6.5% -> 6.4% -> 6.5% -> 6.4% -> 6.4% -> 6.3% -> 6.3% -> 6.3% -> 5.9% -> 5.2% -> 5.2% -> 4.9% -> 5.0% -> 4.9% -> 4.9% -> 4.9%

For CY 2020, analysts are projecting earnings growth of 10.7% -> 10.6% -> 10.6% -> 10.6% -> 10.5% -> 10.6% -> 10.4% -> 9.9% -> 9.8% -> 9.7% -> 9.7% -> 9.9% -> 9.8%

and revenue growth of 5.6% -> 5.6% -> 5.6% -> 5.6% -> 5.7% -> 5.6% -> 5.3% -> 5.3% -> 5.3% -> 5.4% -> 5.5% -> 5.5% -> 5.5%

In summary, Q4 will be the 4th negative quarter of earnings growth in a row similar to what happened in 2015-2016.  Back then the pullback was from the 5-2015 top to the 2-2016 low 15.2%, just above my boundary between correction and Mini Bear Market (see the link above to my “New Rules.”  This time? The worst corrections have been around -5-8% or so, the worst being in May at -7.63%.   The August decline on Trump’s comments about the China deal being delayed was -6.80%.   Those are mild corrections in my ranking of pullbacks.  They are very common in Bull markets.

Why the corrections this time are so much milder likely has to do with the more favorable tax environment under Trump.  It’s not magic.  Fiscal stimulus pulls demand ahead.  The consumer has been supporting this market for a reason – the consumer has more cash available post-tax cuts.  We pay for it later.  That’s what history tells us.  Families that use credit cards to fund vacations have a great time, until the time comes to pay for them.  Then not so much fun is had.  Same idea.

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

China Deal Risk: There is some noise on both sides, but I favor the Peter Boockvar scenario he outlined with Rick Santelli this week @CNBC.  He said the Chinese have to make a decent deal now, because the two sides probably won’t negotiate anything else prior to the election.  They’d have to wait until 2021, which is why the Chinese want some tariffs lifted NOW.  The threats on Hong Kong are just threats I believe, because Xi cannot risk not making a deal with Trump now.  If Xi reacts to those bills, he’s taking his eye off the ball. 

Fed Rate Cut/Hike Risk: 

NOTE: The CME Group Data on their website Friday was in error as I had suspected they were.  The Sept. through Dec. 2020 numbers have been corrected below using data from Monday, Dec. 9, 2019 at around 9:48 am. 

There has been a continued increase in perceived risk of another RATE CUT by September 2020The odds are about 50:50 (just under) for the next Fed rate cut to occur July 29th, 2020. 

The Fed has cut three times and said it was done unless things get worse for the economy. As I’ve said previously: “THREE cuts is a mid-cycle adjustment.  Four cuts or more mean the Federal Reserve expects a recession.”  A hike in rates in the near future would tank the U.S. stock market. 

Now the probability is 0% for a 4th cut in mid-December as assessed by CME Group The risk was 22.1% 6 weeks ago.  The risk of a rate HIKE is 0.7% vs. 4.4% 3 weeks ago. 

What about January?  The odds of cut #4 is 8.8% vs. 8.5% last week vs. 12.4% 2 weeks ago vs. 35.8% 4 weeks ago vs 67% 8 weeks ago!   The odds of a HIKE in Jan. are 0.7% vs. 4.0% last week vs. 5.8% 2 weeks ago. 

What about March?  The odds are 20.8% this week vs. 16.2% last week vs. 23.3% 2 weeks ago vs. 75.1% 8 weeks ago for 4 or more cuts in total.  March hike?  0.6% vs. 3.7% last week vs. 5.0% 2 weeks ago.  

April Cut?  30.1% vs. 26.5% last week vs. 34.8% 2 weeks ago vs. 52.6% 3 weeks ago vs. 79.7% 8 weeks ago expect there to be 4 or more cuts.  April hike?  0.5% vs. 3.2% last week vs. 4.2% odds 2 weeks ago.

June cut?  40.0% vs. 36.6% last week vs. 43.5% 2 weeks ago vs. 56.7% 5 weeks ago expect four or more cuts by then.  Probability of a hike is 0.4% vs. 2.7% last week vs. 3.6% 2 weeks ago vs. 10.2% 3 weeks ago vs. 0% 4 weeks ago.

July?  47.9% vs. 46.6% last week vs. 49.4% 2 weeks ago vs. 60.7% 4 weeks ago expect 4 cuts by then.  A hike? 0.4% vs. 2.3% last week vs. 3.2% 2 weeks ago vs. 9.2% 3 weeks ago.

What are the rest of the available “4 (or more) cut odds”?  Sept. 2020?  56.2% vs. 51.7% last week vs. 58.9% 2 weeks ago vs. 53.2% 3 weeks ago vs. 38.7% 4 weeks ago vs. 65.2% 5 weeks ago.  Sept. 2020 Hike?  0.0% vs. 2.1% last week vs. 2.6% 2 weeks ago vs. 8.1% 3 weeks ago.  Nov. 2020 cut: 59.2% vs. 56.5% last week vs. 62.9% 2 weeks ago vs. 57.3% 3 weeks ago vs. 41.6% 4 weeks ago vs. 69.3% 5 weeks ago.  Nov. hike?  0.0% vs. 1.8% last week vs. 2.3% 2 weeks ago vs. 7.2% 3 weeks ago.  Dec. 2020 Cut: 64.7% vs. 62.6% last week vs. 66.5% 2 weeks ago vs. 61.7% 3 weeks ago and 73.8% 5 weeks ago.  Dec. hike?  0.0% vs. 1.6% last week vs 6.3% 2 weeks ago.

At least among those in the interest rate futures markets, the perceived odds of a recession or at least Fed action by September continuing into December 2020 will be required to prevent a recession or make it more shallow is slightly higher than it was last week. 

Either way it means the risk of a recession even if shallow in extent and duration, is possible only 9-10 months off.   Markets react early to events in the future, some say by 6 months or more.

I pointed out the increased odds of that by Sept. 2020 just last week.  The stock market is NOT discounting a recession at this point.  Not at all.  

The Risk of a Neutral Fed:  There is risk of inflation on the one hand and more slowing on the other. Prior: “Ultimately the change by the Federal Reserve in going to “Neutral” was NOT positive for the U.S. equity market, but it ignored it.  It won’t ignore it if economic slowing does not reverse itself going into 2020.”  

U.S. Iran War Risk: SAME. Interestingly quiet.  No change for weeks.  More stable after the leak of the “Iran Annihilation Plan HEREFunny how they simply seemed to shut up isn’t it?  The media has mostly missed this connection.  But that’s OK as we’ll “let sleeping dogs lie.” 

2020 Election Risk: See last week’s post.  The entry of Bloomberg makes things more difficult for Joe Biden, but he’s still the favorite to win the Dem nomination by far now.  Losing in Iowa and New Hampshire won’t look good though. 

Still, everyone else including Buttigieg is too weak at this point to win the nomination.  Things can change.  A serious Sanders challenge could shake the markets.  His health is in big question still.  He looks old and his body was acting like it wanted to die recently, which won’t encourage voters except his strongest supporters.  He also “wrote the damn bill” that intends to shove One Payer Healthcare down your throat.  Whether good or bad, Americans LOVE choice and competition.

Warren has been wounded by Buttigieg as extreme and I believe controlling (shove it down your throat healthcare vs. a public option, just as Bernie supports), while Harris is out (quite deservedly so for what was essentially her racist attack on Biden on, you guessed it, racism!  She was inauthentic in the debates, and Americans smelled it a mile away. I’m not saying she’s a bad person at her core.  I’m saying she acted badly.).

Having heard a more recent interview of Biden, I believe he can win.  He has to avoid confrontations to some extent, but then again as I’ll get to in one second, it could help him with a lot of voters.  I discussed Bloomberg last week.  He’d have to come out of his shell to win.  He won’t likely suddenly transform his personality.  America wants a fist fight in 2020: Trump vs. Biden.  Bloomberg sticks to statistics.  Biden says he’d like to take Trump behind the shed and have at him.  Not the highest energy approach for sure, but that’s what America wants at this time.  May God help us!

Trump Impeachment Risk: Little change this week after falling after the hearings.  Impeachment Risk: 100% now.  The Democrats have cornered themselves into a “fail-safe flight to the finish” (look up the movie!).  Conviction Risk?  Still near zero.  The Constitution does not matter to the GOP.

Deficit/Debt Threat: No Change: Trump is now beating Obama at something!  The size of his deficit!  It’s bigly.  Read THIS.  The deficit is up 26% to $964 Billion for fiscal 2019, the HIGHEST IN 7 YEARS!  

I’ll leave this here as a monument to our monumental debt, which could threaten interest rates in the future.  When rates rise, there will be “heck to pay.”  The U.S. dollar remains at risk and having at least 5% of your non-real estate net worth in gold exposure is a reasonable hedge in any portfolio.  Some say higher, but owning stocks is also a hedge that over time would work out for solid companies, even in the face of very high inflation (after the market came back from a deep swan dive!). 

Current Scenario…

Despite the extra push up above trend we are seeing (the higher channel in the chart below), the prior pattern we saw earlier in 2019 could repeat itself.  A further melt-up and then a substantial correction, which could be months away and may be poll dependent.  If Biden fails to gain traction for example, Trump might be considered a shoe in for a second term vs. anyone left on the Dem field. Democrats may want to consider how much they attack Biden over the next few months, because they are then working for Trump IMO.  I’ve studied these candidates enough to understand how this election can turn into a disaster for Democrats, at least at the level of the Presidency.

A final high will be reached prior to the discounting of a recession, which brings on a ‘Big Bear Market.’  Whether the market moves up a bit more and drops, corrects immediately, OR rises now to a final (for the cycle) all time high, we are not yet at the all time high in my opinion.  There is more upside to come, if not now, then later, before the final high.

Conclusion for This Section: Given the stretched status of large caps, I will likely only add small cap exposure or specific stock exposure in the U.S. and/or ETF exposure OUTSIDE the U.S. from here on out until the overbought state of the U.S. market corrects itself.  Follow social media this coming week to see what I add.  I am still overexposed to the U.S. in equities and have been since Feb. 2018 when I correctly pivoted out of foreign stocks into U.S. stocks at and near the Feb. 2018 low.

Back to the charts….

Now take a look at the SP500 chart.  The long upper yellow line is now at about 3068 at the Friday close.  The two short upper red lines show a narrow range in a gentle up trend, rising ABOVE the prior upper trend line.

As I warned three weeks ago, if the market keeps pushing above that top long yellow line, there will be eventual payback.

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

Market timing the SP500 Index (SPY, SPX). Another new high?

Another new high?

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

“Intel-igent Market Timing Signal” (Intel; I*NTC; * there to throw off the crawlers!): Neutral.  SAME: “The stock is stuck below the April ATH.  Why should it break out if the U.S. GDP is due to slide to below 1%?  The June 4 high of 57.60 has been exceeded, and the April high of 59.59 is the next test to achieve a new all time high.”  The NY Fed says GDP for Q4 will be 0.58% and the Atlanta Fed using the exact same numbers says 2.0%.  Take your pick!  Following my canaries may be more productive than following GDP predictions as the latter are usually way off!

Bank of America (B*AC) Market Timing Signal: STILL TRUE -> Bullish, but needs to push higher soon.  It looked like it was breaking down on Tues., but is back above the 33.05 breakout.  “It will only hold the breakout if, rates keep climbing.  Sell a reversal at least on a close or sell on a close with a reversal on higher volume IMO.” 

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 34,181 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.  (real time messages are ONLY on StockTwits until Twitter reforms its policies, but we’ll have it as a backup system)

Join the Conversation in the StockTwits “MarketTiming” Room

Now let’s go on to review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +2.59% vs. +3.36% last week. 

Here is what I said last week: “Even more so today: Sentiment should be peaking if this is in fact a top.  It is not a top.  It could be a temporary top, but it’s not ‘The Top.’  The move down from a spread of around 15% [three] weeks ago is not enough to dislodge the Bulls.  Sentiment can wobble down and then back up without more than a dip of a few percent.”  The market did in fact wobble down and back up.  Sentiment is nowhere near a top.

Bulls Neutrals Bears
31.72% 39.16% 29.13%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM):

We now have the breakout, but it must hold.   If rates turn back down, it won’t likely hold.  It’s a buy, particularly if IWM continues higher Monday to a new recent high.

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

Market timing the U.S Small Cap Index (IWM, RUT). Breakout is recovered.

Breakout is recovered.

 3. Gold Market Timing (GLD): 

No change.  In fact this week, GLD is barely BELOW that upper red line in the chart below, and a new low was not reached!

SAME: Things are shifting…  We’ve gone from “recession risk” and “multiple cuts” as well as “don’t fight the Fed” to “Three cuts and done.” 

SAME MAJOR POINT: IF the Fed lags inflation, gold wins, but if it front runs inflation, gold loses on a relative basis.  Follow the chart though, not the noise from talking heads.

This week it’s even more likely the Fed will CUT again before it hikes (again, if the CME numbers are correct). 

SAME Technicals: If it breaks lower and GDX breaks, I’ll likely be lowering my exposure to gold.  Holding above that 2013 lower high on the chart…for now.

The Gold ETF (click chart to enlarge; GLD): That top red line is 137.80.  The market “has my number” as I say.  When the market changes, we change.

Market timing the gold ETF (GLD). Gold on the edge...

Gold on the edge…

4. Interest Rate Market Timing (10 Year Treasury Yield; TNX, IEF, TLT):

Rates are in an ascending triangle on an intermediate term basis.  That is Bullish.  They did not continue breaking down.  I added some corporate bond exposure Friday (average effective maturity of just over 10 years), because rates had reached an overbought level.  But I’ll add slowly. 

SAME: As long as the Federal Reserve stays “Neutral,” rates will be rangebound barring a left field event, a.k.a. a “Black Swan event.”  Lower rates would imply the Fed medicine is not working yet/ever or that more is needed.  I believe it’s a waste of time to lower rates except as a temporary goosing of the economy, when things are truly bad, and lower rates have negative impacts on savers and on price inflation (raises inflation due to down dollar).

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): 

Market timing the US 10 Year Treasury Yield (TNX, TYX, TLT, IEF). Trend still up in rates.

Trend still up in rates.

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 BUYS and SELLS in as timely a way as possible 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 GREEN for a further U.S. stock market rally with a longer term Bullish and short term Bullish SP500 Index trend.  The stock signal is based on small caps, as they often lead the market down. The small caps have now broken out and that breakout MUST be preserved and extended.

Gold Signal YELLOW  for a further U.S. stock market rally longer term Bullish Trend and a short term NEUTRAL Gold Trend.  The current pattern is a warning sign.  The longer term Bullish trend will evaporate if it breaks below the current level by much at all.  This still looks like a correction vs. a breakdown until it does not!

What gold does mostly as I’ve written HERE is follow real interest rates around the world (if you own “gold in dollar terms” you care about U.S. rates most of all).  The rest of the world does matter however, including massive buying by central banks. 

Remember, gold may be down but not yet out, because if the Fed lags inflation, gold will win.  Since I am predicting a “Federal Reserve Stuck In Neutral” into the 2020 Election, inflation will win, and gold and oil will win.

GUIDE: “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 in the current context means the global economy is slowing.  That would ultimately hurt U.S. stocks. 

Rate Signal GREEN for a further stock market rally with a longer term BEARISH and short term Bullish 10 Year Yield Trend.  (Remember: higher rates mean lower bond and Treasury prices). Whether the short term trend should be called Neutral vs. Bullish is arguable at this time, but it’s not Bearish yet. There is actually an even longer term view that says rates have been in a neutral trading pattern since 2011, but the above two views are more practical on a trading/intermediate term investing basis.

I’ll leave this reminder from 9-20-2019’s issue: “Remember, FOUR Fed cuts will NOT be a “mid-cycle adjustment” and would be taken badly by the market ironically, considering the market’s addiction to lower rates.  A fourth cut means the Federal Reserve is seeing recession risk as significantly high.”

Also for Reference:Rates usually RISE slowly in a strong recovery and the stock market rally continues as they rise, as I’ve repeated multiple times on social media and here.  Empirically though, rates that are “lower” (than 3.11%) and are NOT rising rapidly have allowed the market to rise.”

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”    It closed at 59.20 vs. 58.11 last week.  Still holds: If it rises above 58.82 (YES) and then 60.94 (NOT YET), oil and oil stocks will be off to the races.  63.38 would be the next target.  Since May, the price of oil almost appears to have been managed to stay between 50 and 59/barrel.  I wonder why?  😉  OPEC says it will cut more production than expected as of Friday, but we’ll follow the charts!

Just a reminder: If TNX bounces too quickly and too high, this will give rise to Rate Shock III… As said before: “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.'”  I called the period of rising rates in early October #RateShockII.

Another Reminder On Falling Rates: “The risk lately has been ‘Falling Rate Shocks.’  (I changed the term from “Negative Rate Shocks” because there are in fact negative rates in a lot of countries now.  First we had ‘Falling Rate Shock I’ in December 2018 (because rates FELL while the Fed raised the Fed Funds rate 0.25% in mid-December, in what was perceived as a policy error by critics),  ‘Falling Rate Shock II’ in May 2019, and ‘Falling Rate Shock III’ in August 2019.  The Stock Market Bulls had better hope that they don’t get more rate cuts past October. 

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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, contact me.  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.

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.

Copyright © 2019 By Wall Street Sun and Storm Report, LLC All rights reserved.

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Market Timing Brief™ for the 11-29-2019 Close: “China’s Threat of ‘Strong Countermeasures’ Due to U.S. Hong Kong Bills Rattles Master Market. More Downside? Gold Still On Pause Although Interest Rates Have Slipped.”

A Market Timing Report based on the November 29, 2019 Close, published Saturday, November 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.

I provide quite a bit of intraweek commentary, and if you don’t see it, you will miss out on quite a bit of context, so please click on the StockTwits link below and have a read…  Thank you as always for being loyal readers and interacting on social media with your questions and comments!

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

The comment by President Xi through the Chinese state media of “strong countermeasures” against the U.S. for interfering with the Hong Kong sovereignty issue/protests is an immediate market risk.   Why?  Because the market has been going above the prior trend based at least in part on a Phase One China Trade War resolution.  How President Xi would dance around taking strong countermeasures and making a trade deal is very unclear, which puts mid-December tariff hikes in play for Trump, and those tariffs would add greatly to U.S. price inflation expectations and eventual higher inflation.  The market would not like that at all.  Remember that some big stocks like Intel (INTC) and even Apple (AAPL) have gone up a lot based on this resolution.  The risk of a significant correction has risen.

“Trump signed a bill into law on Wednesday that requires the State Department to certify annually that Hong Kong has sufficient autonomy to retain special U.S. trading consideration, which helps Hong Kong’s economy.” (Ref. link above)  In my view, Trump would not have signed the bills supporting Hong Kong’s sovereignty (and banning the sale of rubber bullets, tear gas to the Hong Kong police) if it were not for the fact that Congress would have overridden his veto and embarrassed him as a Communist sympathizer.  The same has happened with Russia.  He was forced into those sanctions too, despite any rhetoric to the contrary.

This was the week of the small cap breakout.  If it is maintained, the entire market should continue higher.  On the other hand, a reversal for the small caps would likely be lethal for the market’s further immediate rise.  It would accelerate a bigger correction.  Decisions, decisions…

Interest rates, which we’ve been tracking intently, have eased, but they are “down but not out.”  Remember that if the data supports some lift to the economic picture, rates will rise, not fall.  The Federal Reserve will likely take longer than before to hike rates upon seeing that lift, but will eventually hike rates again if the trend were to continue.  Fed Chair Powell is data dependent, even if it takes him a while to perceive what the data is.  Meanwhile savers have seen a drop in rates from around 2.3% in money markets back to 1.6ish%.

Let’s turn to the state of the market…

What would satisfy me that the Bulls are serious?

The Bull Market Health Score this week is Bulls 4.0/Bears 1.0 vs. Bulls 2.5/Bears 2.5 last week.  It’s a 5 point scoring system .

For each checklist item below, I give you the points scored as Bullish or Bearish. 

1. New high? Bulls 1.0  Answer: Yes.  New high with slow rise within the channel demarcated by the two red lines in the chart below.

2. V*IX trend favorable?  Bulls 0.5  Answer: Neutral.  The VIX Game Score is Bulls 7/Bears 0 at a VIX of 12.62 (Friday close) vs. 12.34 the prior week, which is below my “Bull Nirvana” number, which is the 7th Score point.  The Bulls broke 12.00 this week, and then that goal was given back.  The market dropped 0.40% on Friday.  The Bulls need to retake VIX 12.00 or there will be more downside.  Two weeks ago I pointed to the potential for further VIX downside (good for Bulls).

3. AD % Line in an Uptrend? (This is a proprietary stat; see base of report.): Bulls 0.5 point.  Answer: Neutral.  The close was 16,909 vs. 16,848 last week, but after posting a new high, the number fell below the high from 14 days ago of 16,930.

4. Higher volume on Up Moves?  Lower volume on Down moves? Bulls 1.0 point.  Answer: Yes.  It was up on the last breakout, so the Bulls score a point.

5. Is the “U.S. Index Matrix Signal,” as I call it, positive?  (To be positive, small and mid caps must be doing as well as large caps) Bulls 1.0 point. Answer: Yes.  The small caps finally broke out as the second chart shows.  If this is reversed, watch out below. 

As I showed you a few weeks ago, a Bull Market Health Score of 4 or higher can persist for a while, but indicates a degree of market stretch that can lead to a pullback.  However, if we see Bulls breakouts in the numbers above, the Bull market move will be further verified (new high, VIX back below 12 (breakout to downside), higher AD%, big up volume, and happy U.S. Index Matrix).

Let’s check in on the context around the price action of the market by looking at the current Market Risks… 

We have some new earnings data this week…

Earnings Risk/Opportunity: NO UPDATE this week due to the holiday at FactSet.  What is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 8-09-19 with a skip of two weeks until the 8-30-19 data resumes the weekly data sequence (details HERE)… The larger arrows “—>” indicate 3 weeks of of omitted data in order to compress the data.  NOTE: 96% of SP500 Index companies have reported.  That was just 5% more than last week.

For Q2 2019, analysts are projecting earnings growth of 0.1%  —> -1.3% ->  —> -2.1%  —> -2.6% -> -2.6% -> -3.0% -> -1.9% -> -2.6%-> -1.0% -> -0.7% -> -0.4%  DONE

and revenue growth of 4.6%  —> 4.3%  —> 4.1%  —> 3.8% -> 3.8% -> 3.7% -> 3.8% ->4.0% ->4.1% -> 4.1% -> 4.0%  DONE

For Q3 2019, analysts are projecting earnings growth of 1.8%  —> 0.8%  —> 0.3%  —> -0.5% —> -1.9%  —> -3.6% -> -3.7% -> -3.8% -> -3.7% -> -4.1% -> -4.6% -> -4.7% -> -3.7% -> -2.7% -> -2.4% -> -2.3% -> -2.2%

and revenue growth of 4.4%  —> 4.4%  —> 4.2% —> 3.8% —> 3.2% ->  —> 2.9% -> 2.8% -> 2.8% -> 2.8% -> 2.8% -> 2.7% -> 2.6% -> 2.8% -> 3.1% -> 3.2% -> 3.1% -> 3.1%

For Q4 2019, analysts are projecting earnings growth of 8.1% —> 7.5%  —> 7.2%  —> 6.3% —> 4.9% -> 4.5%  -> 3.9% -> 3.5% -> 3.4% -> 3.2% ->  3.0% -> 2.9% ->2.6% -> 2.3% -> 1.5% -> 0.7% -> -0.4% -> -1.1% -> -1.4% -> -1.4%

and revenue growth of 4.8%  —> 4.8%  —> 4.6%  —> 4.3%  —> 4.0%-> 4.0% -> 4.0% -> 4.0% -> 3.8% -> 3.7% -> 3.6% -> 3.6% -> 3.6% -> 3.5% -> 3.2% -> 3.0% -> 2.6% -> 2.6% -> 2.5% -> 2.5%

For CY 2019, analysts are projecting earnings growth of  3.4%  —> 3.2%  —> 2.7%  —> 1.7%  —> 1.4% -> 1.3% -> 1.3% -> 1.3% -> 1.2% -> 1.1% -> 0.7% -> 0.6% -> 0.3% -> 0.1% -> 0.0% -> 0.1%

and revenue growth of 4.7%  —> 4.7%  —> 4.5%  —> 4.4%   —> 4.3% -> 4.2% -> 4.1% -> 4.1% -> 4.1% -> 4.1% -> 4.0% -> 4.0% -> 4.0% -> 4.0% -> 3.9% -> 3.8%

For Q1 2020, analysts are projecting earnings growth of 10.5% —> 9.8%  —> 8.5% -> 8.2% -> 8.1% -> 7.9% -> 7.9% -> 7.8% -> 7.6% -> 7.3% -> 6.7% -> 6.0% -> 5.6% -> 5.3% -> 5.1% -> 5.3%

and revenue growth of 6.2%  —>5.8%  —> 5.6% -> 5.7% -> 5.5% -> 5.5% -> 5.4% -> 5.4% -> 5.5% -> 5.3% -> 4.8% -> 4.7% -> 4.5% -> 4.5% -> 4.5% -> 4.4%

For Q2 2020, analysts are projecting earnings growth of 13.3%  —> 13.5% -> 12.0% ->12.6% -> 10.7 -> 9.9% -> 9.3% -> 9.2% -> 9.1% -> 9.0% -> 9.0% -> 8.7% -> 8.6% -> 7.7% -> 7.3% -> 6.7% -> 6.6% -> 6.4% -> 6.7%

and revenue growth of 6.8% —> 6.6% -> 6.7% ->6.6% -> 6.5% -> 6.4% -> 6.5% -> 6.4% -> 6.4% -> 6.3% -> 6.3% -> 6.3% -> 5.9% -> 5.2% -> 5.2% -> 4.9% -> 5.0% -> 4.9% -> 4.9%

For CY 2020, analysts are projecting earnings growth of 10.7% -> 10.6% -> 10.6% -> 10.6% -> 10.5% -> 10.6% -> 10.4% -> 9.9% -> 9.8% -> 9.7% -> 9.7% -> 9.9%

and revenue growth of 5.6% -> 5.6% -> 5.6% -> 5.6% -> 5.7% -> 5.6% -> 5.3% -> 5.3% -> 5.3% -> 5.4% -> 5.5% -> 5.5%

The earnings and revenue data was already discussed above!

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

China Deal Risk: Noted above.  Recapping briefly: Risk of failure elevated after the signing of two bills by Congress and President Trump to support the people of Hong Kong over their Mainland China oppressors.   Xi threatened retaliation, which is not a good thing at this juncture of negotiations and ahead of the threatened December tariff hikes.  The market would respond poorly to those new tariff levels.

Fed Rate Cut/Hike Risk:  The Fed has cut three times and said it was done unless things get worse for the economy.  Now the probability is 0% for a 4th cut in mid-December as assessed by CME Group The risk was 22.1% 5 weeks ago.  The risk of a rate HIKE is 4.4% now vs. 0% 2 weeks ago. 

As I’ve said previously: “THREE cuts is a mid-cycle adjustment.  Four cuts or more mean the Federal Reserve expects a recession.”  A hike in rates in the near future would tank the U.S. stock market. 

What about January?  The odds of cut #4 is 8.5% vs. 12.4% last week vs. 35.8% three weeks ago vs 67% seven weeks ago!   The odds of a HIKE in Jan. are 4.0% vs. 5.8% last week. 

What about March?  The odds are 16.2% vs. 23.3% last week vs. 75.1% seven weeks ago for 4 or more cuts in total.  March hike?  3.7% vs. 5.0% last week.  

April Cut?  26.5% vs. 34.8% last week vs. 52.6% 2 weeks ago vs. 79.7% 7 weeks ago expect there to be 4 or more cuts.  April hike?  3.2% vs. 4.2% odds last week.

June cut?  36.6% vs. 43.5% last week vs. 56.7% 4 weeks ago expect four or more cuts by then.  Probability of a hike is 2.7% vs. 3.6% last week vs. 10.2% 2 weeks ago vs. 0% 3 weeks ago.  

July?  46.6% vs. 49.4% last week vs. 60.7% 3 weeks ago expect 4 cuts by then. A hike? 2.3% vs. 3.2% last week vs. 9.2% 2 weeks ago.

What are the rest of the available “4 cut odds”?  Sept. 2020?  51.7% vs. 58.9% last week vs. 53.2% 2 weeks ago vs. 38.7% 3 weeks ago vs. 65.2% 4 weeks ago.  Sept. 2020 Hike?  2.1% vs. 2.6% last week vs. 8.1% 2 weeks ago.  Nov. 2020 cut: 56.5% vs. 62.9% last week vs. 57.3% 2 weeks ago vs. 41.6% 3 weeks ago vs. 69.3% 4 weeks ago.  Nov. hike?  1.8% vs. 2.3% last week vs. 7.2% 2 weeks ago.  Dec. 2020 Cut: 62.6% vs. 66.5% last week vs. 61.7% 2 weeks ago and 73.8% 4 weeks ago.  Dec. hike?  1.6% vs. 2.1% last week vs 6.3% 2 weeks ago.

In sum, the risk of another rate CUT (recession risk goes up) is just above 50% first in Sept. 2020 unchanged from last week in terms of the date and continues through December with the odds increasing into 2020 year end.  The risk of a HIKE is still very low all the way out to December 2020, so says Master Market!

SAME: For now, that means a majority of investors who place bets on the Fed/interest rates believe that recession is on the schedule by the Fall of 2020, or at least the conditions that will force the Federal Reserve to act to avoid recession or make it a more shallow one.  That may in fact not happen, but if the China Trade War gets worse, it could.  That means they are ultimately worried about what I call a Big Bear Market (click and scroll to definitions in blue under “New Rules”).

The Risk of a Neutral Fed:  Same. Ultimately the change by the Federal Reserve in going to “Neutral” was NOT positive for the U.S. equity market, but it ignored it. It won’t ignore it if economic slowing does not reverse itself going into 2020.  

Takeaway Point SAME and still important:  The Federal Reserve is not just “in Neutral,” it’s politically STUCK IN NEUTRAL! (or it will be perceived the Fed is political and anti-Trump – something you have not heard from the mainstream media – their narrative is that Powell is independent of Trump.)  Remember this when you consider both gold and bonds as investments (see below).

U.S. Iran War Risk: Interestingly quiet.  No change for weeks.  More stable after the leak of the “Iran Annihilation Plan HEREFunny how they simply seemed to shut up isn’t it?  The media has mostly missed this connection.  But that’s OK as we’ll “let sleeping dogs lie.” 

2020 Election Risk: The entry of Bloomberg makes things more difficult for Joe Biden, although Bloomberg is known better to Democrats in power than to Americans in general.  They’ve heard his name and seen his cable channel is about it.  He’s #9 in the world in wealth per Forbes as of March.  His wealth makes Trump’s look small.  What he may lack is the charisma needed in a national race.  Remember George W. Bush?  Not the brightest star in the sky, but he could relate to people, unlike his brother, Jeb, who could speak intelligently in English but not in “Voterese.”  Trump speaks a far right dialect of “Voterese,” which is his base.  Bloomberg must quickly prove he can relate to the larger American electorate.  Billionaire Tom Steyer is already falling in the polls and appears to have failed to ignite any real interest among Democrats.

My Call on Mike: Mike Bloomberg must be ahead of Harris by December 15th (in 5th place at least) and ahead of Buttigieg (in fourth place or better) by December 31st to appear viable.  He is not taking donations, so he can’t meet the donation requirement for the debates and must meet the polling requirements.  He’s at 2.5% behind Yang at 3.3% (in the latest poll, Bloomberg is at 3%) in national polls and slightly ahead of Amy Klobuchar.

The above discussion would make it seem that Biden should beat Bloomberg, but I looked at the social media feed under #Biden, and “it ain’t good.”  His campaign is asleep on Twitter, instead of directing the conversation or at least influencing it.  Why aren’t they?  Because Biden is the “safe choice,” not the “inspiring choice” as Obama was as the first African American candidate who was both bright and could speak “Voterese” fluently.  This nomination may still be Biden’s to lose, but he seems to be losing from the start with Buttigieg (who was attacked for being out of touch with African Americans this past week) leading in Iowa at least (a very white state demographically).  At this time, my view is still that if Biden does not face off Trump, the Democrats will lose unless Mike Bloomberg can gain serious traction fast.

Mike Bloomberg would be an important voice in the debates to face off the anti-capitalism Democrats as a middle class boy who achieved the American Dream in a big way.  I would like to see a more inclusive capitalism emerge as I’ve said here before, but not socialism.  Increased profit sharing with employees is a must, or our system will be pushed to the far left during the next big crisis.

In the meantime, the ultra-liberal Warren is dropping hard in the polls as her plan to shove one healthcare choice down the throats of the American people appears doomed.  Her response this week was apparently to say she’d phase in her forced plan slowly, which is sort of like being choked to death slowly.  It takes longer, but you still end up dead!  Bernie (who “wrote the damn bill”) is not doing that well either in large part for the same reason, although he appears to be picking up support from Warren’s decline along with Pete Buttigieg who has been rising in the polls since Oct. 14th with a recent big spurt up.  He is rising as fast as Warren is falling, although he’s still in fourth place at a mean polling percentage of 11%, and his numbers have been going up and down with each successive poll.

Trump Impeachment Risk: Little change this week after falling after the hearings.  Conviction Risk?  Still near zero.  The Constitution does not matter to the GOP any longer.  It will matter again only if Biden is elected.  Censure is still a possible out for the GOP, so they don’t appear they are trampling on the Constitution in supporting Trump.  That’s what they look like as of today.  What’s wrong is wrong.  Every president should be held accountable.  Clinton was appropriately chastised via impeachment. Trump deserves a trip to the figurative stocks as well (not those stocks, the other stocks! ; )). 

Deficit/Debt Threat: No Change: Trump is now beating Obama at something!  The size of his deficit!  It’s bigly.  Read THIS.  The deficit is up 26% to $964 Billion for fiscal 2019, the HIGHEST IN 7 YEARS!  

I’ll leave this here as a monument to our monumental debt, which could threaten interest rates in the future.  When rates rise, there will be “heck to pay.”  The U.S. dollar remains at risk and having at least 5% gold exposure is a reasonable hedge in any portfolio.  Some say higher, but owning stocks is also a hedge that over time would work out for solid companies, even in the face of very high inflation (after the market came back from a deep swan dive!). 

Current Scenario…(modified since prior issue!)

Despite the extra push up above trend we are seeing (the higher channel in the chart below), the prior pattern we saw earlier in 2019 could repeat itself (up slightly off a long consolidation and then down sharply into a mild to moderate correction [5-15%]).  The China risk has increased this week, which is why stocks dropped in both China (to a greater degree) and in the US.

A final high will be reached prior to the discounting of a recession, which brings on a ‘Big Bear Market.’  Whether the market moves up a bit and cracks back, corrects immediately, OR rises now to a final (for the cycle) all time high, we are not yet at the all time high in my opinion.

Same Bottom Line: I am holding my current exposure for now and seeking markets outside the U.S.  Why?  Because I’m overexposed to the US market at this point in allocation terms (have been since Feb. 2018, when I traded nearly all my foreign exposure for U.S. exposure, all communicated on social media), and I would favor a correction from this level before the final all time cycle high is reached.  Yes, global markets could fall too, so I’m moving in steps to “buy foreign.”  If we don’t see a U.S. market drop, there are other markets to buy without chasing a market I am already overexposed to.

Back to the charts….

Now take a look at the SP500 chart.  The green line is 2940.91, the
9-21-2018 High preceding the decline ending December 24th.  The long upper yellow line is now at about 3062 at the Friday close.  The two short upper red lines show a narrow range in a gentle up trend, rising ABOVE the prior upper trend line.

As I warned three weeks ago, if the market keeps pushing above that top yellow line (the longer one), there will be an eventual payback.

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

Market timing the SP500 Index (SPY, SPX). Wobble off the top of the higher channel.

Still in the higher channel, above trend subject to correction.

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

“Intel-igent Market Timing Signal” (Intel; I*NTC; * there to throw off the crawlers!): Neutral.  SAME and China’s response to the U.S. Hong Kong bills was not helpful: “The stock is stuck below the April ATH.  Why should it break out if the U.S. GDP is due to slide to below 1%?  Think about that.  The June 4 high of 57.60 has been exceeded, and the April high of 59.59 is the next test to achieve a new all time high.”

Bank of America (B*AC) Market Timing Signal: Bullish, but needs to push higher soon.  This week there were FIVE closes above 33.05, which was the early 2018 high (I quoted a slightly lower number before as I apparently picked out a slightly lower high in that time frame), and then zero progress.   Prior holds: “That’s a negative, but this is a major breakout if it holds.  It will only hold if rates keep climbing.  Sell a reversal at least on a close or sell on a close with higher volume IMO.” 

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 34,181 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.  (real time messages are ONLY on StockTwits until Twitter reforms its policies, but we’ll have it as a backup system)

Join the Conversation in the StockTwits “MarketTiming” Room

Now let’s go on to review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +3.36% vs. +5.21% last week.  Even more so today: “Sentiment should be peaking if this is in fact a top.  It is not a top.  It could be a temporary top, but it’s not “The Top.”  The move down from a spread of around 15% two weeks ago is not enough to dislodge the Bulls.  Sentiment can wobble down and then back up without more than a dip of a few percent.

Bulls Neutrals Bears
33.64% 36.09% 30.28%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM):

We now have the breakout, but it must hold.   If rates continue back down, it won’t likely hold.  NOTE: That green arrow should be pointed to the price point ABOVE the red line… The arrow is pointing to the prior consolidation below the breakout.

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

Market timing the U.S Small Cap Index (IWM, RUT). Breakout but must hold and move higher.

Breakout but must hold and move higher.

 3. Gold Market Timing (GLD): 

No change.  In fact this week, GLD is barely back above that upper red line in the chart below!

SAME: Things are shifting…  We’ve gone from “recession risk” and “multiple cuts” as well as “don’t fight the Fed” to “Three cuts and done.” 

SAME MAJOR POINT: IF the Fed lags inflation, gold wins, but if it front runs inflation, gold loses on a relative basis.  My contention as said above is that Federal Reserve bias will now be against raising rates prior to the election, so inflation will get a boost!  Gold wins…but it must perform on the charts to prove it! 

SAME Technicals: Gold is just below that key top red line, and slightly above the 2013 lower high.   If it breaks and GDX breaks, I’ll likely be lowering my exposure to gold.  Holding above that 2013 lower high on the chart…for now.

The Gold ETF (click chart to enlarge; GLD): That top red line is 137.80.  The market “has my number” as I say.  It tested below, but the gold Bears got nowhere with it.  At least so far…  When the market changes, we change.

Market timing the gold ETF (GLD). Barely above that top red line.

Barely above that top red line.

4. Interest Rate Market Timing (10 Year Treasury Yield; TNX, IEF, TLT):

Rates have been in a holding pattern all week. Follow the bouncing ball up or down.

SAME: As long as the Federal Reserve stays “Neutral,” rates will be rangebound barring a left field event, a.k.a. a “Black Swan event.”  Lower rates imply the Fed medicine is not working yet/ever.  I believe it’s a waste of time to lower rates except as a temporary goosing of the economy, and it has a negative impact on savers and on inflation (raises inflation due to down dollar).  The modern Federal Reserve has taken on the job of managing the economy, which has eventual consequences we will have to pay in real dollars.  They hurt the poor by taking away their interest on savings.  What they are really doing is helping to levitate the stock market by making rates so low, companies borrow money to buy their stock back.  It is perverse, and there will be payback. 

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): 

Market timing the US 10 Year Treasury Yield (TNX, TYX, TLT, IEF). Five days of "sideways" meaning consolidation.

Five days of “sideways” meaning consolidation.

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 BUYS and SELLS in as timely a way as possible 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 GREEN for a further U.S. stock market rally with a longer term Bullish and short term Bullish SP500 Index trend.  The stock signal is based on small caps, as they often lead the market down. The small caps have now broken out and that breakout MUST be preserved and extended.

Gold Signal YELLOW  for a further U.S. stock market rally longer term Bullish Trend and a short term NEUTRAL Gold Trend.  The current pattern is a warning sign.  The longer term Bullish trend will evaporate if it breaks below the current level by much at all.

What gold does mostly as I’ve written HERE is follow real interest rates around the world (if you own “gold in dollar terms” you care about U.S. rates most of all).  The rest of the world does matter however, including massive buying by central banks. 

Remember, gold may be down but not yet out, because if the Fed lags inflation, gold will win.  Since I am predicting a “lagging Federal Reserve” into the 2020 Election, inflation will win, and gold and oil will win.

GUIDE: “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 in the current context means the global economy is slowing.  That would ultimately hurt U.S. stocks. 

Rate Signal YELLOW for a further stock market rally with a longer term BEARISH and short term Bullish 10 Year Yield Trend.  (Remember: higher rates mean lower bond and Treasury prices). Whether the short term trend should be called Neutral vs. Bullish is arguable at this time, but it’s not Bearish yet. There is actually an even longer term view that says rates have been in a neutral trading pattern since 2011, but the above two views are more practical on a trading/intermediate term investing basis.

I’ll leave this reminder from 9-20-2019’s issue: “Remember, FOUR Fed cuts will NOT be a “mid-cycle adjustment” and would be taken badly by the market ironically, considering the market’s addiction to lower rates.  A fourth cut means the Federal Reserve is seeing recession risk as significantly high.”

Also for Reference:Rates usually RISE slowly in a strong recovery and the stock market rally continues as they rise, as I’ve repeated multiple times on social media and here.  Empirically though, rates that are “lower” (than 3.11%) and are NOT rising rapidly have allowed the market to rise.”

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”    It closed at 58.11 vs. 57.77 last week.  Still holds: If it rises above 58.82 and then 60.94, oil and oil stocks will be off to the races.  63.38 would be the next target.  Since May, the price of oil almost appears to have been managed to stay between 50 and 59/barrel.  I wonder why?  😉

Just a reminder: If TNX bounces too quickly and too high, this will give rise to Rate Shock III… As said before: “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.'”  I called the period of rising rates in early October #RateShockII.

Another Reminder: “The risk lately has been ‘Falling Rate Shocks.’  (I changed the term from “Negative Rate Shocks” because there are in fact negative rates in a lot of countries now.  First we had ‘Falling Rate Shock I’ in December 2018 (because rates FELL while the Fed raised the Fed Funds rate 0.25% in mid-December, in what was perceived as a policy error by critics),  ‘Falling Rate Shock II’ in May 2019, and ‘Falling Rate Shock III’ in August 2019.  The Stock Market Bulls had better hope that they don’t get more rate cuts past October. 

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question or report a typo… 

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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, contact me.  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.

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.

Copyright © 2019 By Wall Street Sun and Storm Report, LLC All rights reserved.

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Market Timing Brief™ for the 11-22-2019 Close: “Large, Mid, and Small Caps Will Soon Make a Move. Which Way? Gold Still On Pause Even as Interest Rates Ease.”

A Market Timing Report based on the November 22, 2019 Close, published Saturday, November 23rd, 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.

I provide quite a bit of intraweek commentary, and if you don’t see it, you will miss out on quite a bit of context, so please click on the social media links below and have a read…  Thank you as always for being loyal readers and interacting on social media with your questions and comments! 

1.  SP500 Index Market Timing (S&P 500 Index®; SPY, SPX): Investors were asleep again this week despite the Trump impeachment hearings.  This weekend there is a report that one of the indicted Giuliani thugs is willing to testify that Rep. Nunes (Republican ranking member on Intel Committee) went to Europe to procure dirt on Joe Biden.  So stay tuned, but from what we know now, “Teflon Don” is safe on the Senate side as he continues to convert negative energy from the left to positive energy among his base.  Some may call his energy “positively negative,” but apparently it’s an acquired taste.  The point is he uses the attacks as an energy source for his support and re-election.  The small caps having been oscillating in a narrow range for 15 straight trading days!  But something is about to give…one way (down) or the other – that would be UP.

Rates fell a bit more this week.  They are a key that will determine which way important markets inflect, up or down.  Right now they are above the trend established since the Aug. to early Sept. low, so the 10 year Yield is still in an up trend.  At the same time, a breakout above 1.903% failed as I have reported.

The NY Fed now predicts Q4 GDP at 0.71%, the Atlanta Fed at an even more non-Trumpish 0.4%.  That is abysmal and yet, the market could care less because the Fed is lowering rates….oh wait, they are in “Neutral” I believe Dave (that would be me) said last week.

Larry Kudlow promised us 3% growth, after he promised us 4% growth or higher from the tax bill which now has the 2019 deficit 26% above 2018 as I’ve shared.  “Tinkle Down Economics” fails for the 3rd time.  What is that expression? “Fool me once shame on you; fool me twice shame on me!”  They don’t even cover the 3rd time of being fooled, so the average voter is in fact ignorant apparently, and has not a clue when they are being lied to.  To cover all bases: Both sides/All sides lie.  They just can’t help themselves, because they all want something for themselves, be it influence, power and stature for its own sake, money, or the crown of “Give Away Queen” and “Savior of Everyone,” which Elizabeth Warren will get if she wins (she won’t IMO).  You see how truly politically independent I am?  😉

Let’s turn to the state of the market…

What would satisfy me that the Bulls are serious?

The Bull Market Health Score this week is still Bulls 2.5/Bears 2.5 vs. Bulls 4.0/Bears 1.0 last week.  It’s a 5 point scoring system.

For each checklist item below, I give you the points scored as Bullish or Bearish. 

1. New high? Bulls 0.5  Answer: Neutral.  Stretched vs. trend, and also down vs. last week. But no break lower yet.

2. V*IX trend favorable?  Bulls 0.5  Answer: Neutral.  The VIX Game Score is Bulls 7/Bears 0 at a VIX of 12.34 (Friday close) vs. 12.07 the prior week, which is below my “Bull Nirvana” number, which is the 7th Score point.  The Bulls lost the “bonus” VIX point that I used to refer to in my score.  As Before: “The 2018 low was 10.17, so there is still room to fall.  It was 8.56 in 2017, but earnings were better then and lots of growth was anticipated under the Trump tax cuts.”  I said last week: “The VIX has to break 12.00 next week or else.”  It hasn’t broken below 12, though it tried last on Fri. the 15th, and the market has made no progress, falling about 10 points for the week. 

3. AD % Line in an Uptrend? (This is a proprietary stat; see base of report.): Bulls 0.5 point.  Answer: Neutral.  The close was 16,848 vs 16,888 last week.  The number is down from where it was 16 trading days ago, so there has been no progress, even as the market has edged up a bit above trend.  Last week: “It must make a new high next week or else.”  No breakdown yet, as said, but no break to the upside in this parameter makes it “Neutral.”

4. Higher volume on Up Moves?  Lower volume on Down moves? Bulls 0.5 point.  Answer: Neutral.  Volume has not been impressive on either the Bullish or Bearish side.

5. Is the “U.S. Index Matrix Signal,” as I call it, positive?  Bulls 0.5 point.  Answer : Neutral.  Now it’s been a full FIFTEEN market days, and SAME: “small caps have not broken above the longer term range while mid caps have been holding above that level for 15 days – but not by much.  The mid cap breakout did not reverse, but it also did not continue up with the large caps.”

Still true: A small cap breakout would mean the market upside is not done.  On the other hand, with small caps holding below the top of the range for fifteen days straight, I would not be shocked to see a pullback begin.  In July, the small caps traded sideways for 17 days and then rallied a bit, followed by 3 days of sharp downside (but only a small correction) on high volume.  The midcaps did about the same thing.  I doubt the market is going to rally for more than a news related pop, which could be followed by a correction (5-15% drop; scroll down to “New Rules” on my definitions HERE).

Even the impeachment hearings could not inspire either buying OR selling this week.

Let’s check in on the context around the price action of the market by looking at the current Market Risks… 

We have some new earnings data this week…

Earnings Risk/Opportunity: what is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 8-09-19 with a skip of two weeks until the 8-30-19 data resumes the weekly data sequence (details HERE)… The larger arrows “—>” indicate 3 weeks of of omitted data in order to compress the data.  NOTE: 96% of SP500 Index companies have reportedThat was just 5% more than last week. 

Hurrah!  Earnings for 2019 are now projected to grow a whopping 0.1%!  Please do not step on that green shoot!  😉  Note also though that Q2 2020 earnings growth estimates have finally stabilized by moving back up a bit this week while Q1 2020’s data has not.  The market decided (it seems thus far) to skip over the earnings weakness (an earnings shrinkage vs. the prior year) in Q2-Q4 2019 and look ahead to better times.  They had better show up!

For Q2 2019, analysts are projecting earnings growth of 0.1%  —> -1.3% ->  —> -2.1%  —> -2.6% -> -2.6% -> -3.0% -> -1.9% -> -2.6%-> -1.0% -> -0.7% -> -0.4%  DONE

and revenue growth of 4.6%  —> 4.3%  —> 4.1%  —> 3.8% -> 3.8% -> 3.7% -> 3.8% ->4.0% ->4.1% -> 4.1% -> 4.0%  DONE

For Q3 2019, analysts are projecting earnings growth of 1.8%  —> 0.8%  —> 0.3%  —> -0.5% —> -1.9%  —> -3.6% -> -3.7% -> -3.8% -> -3.7% -> -4.1% -> -4.6% -> -4.7% -> -3.7% -> -2.7% -> -2.4% -> -2.3% -> -2.2%

and revenue growth of 4.4%  —> 4.4%  —> 4.2% —> 3.8% —> 3.2% ->  —> 2.9% -> 2.8% -> 2.8% -> 2.8% -> 2.8% -> 2.7% -> 2.6% -> 2.8% -> 3.1% -> 3.2% -> 3.1% -> 3.1%

For Q4 2019, analysts are projecting earnings growth of 8.1% —> 7.5%  —> 7.2%  —> 6.3% —> 4.9% -> 4.5%  -> 3.9% -> 3.5% -> 3.4% -> 3.2% ->  3.0% -> 2.9% ->2.6% -> 2.3% -> 1.5% -> 0.7% -> -0.4% -> -1.1% -> -1.4% -> -1.4%

and revenue growth of 4.8%  —> 4.8%  —> 4.6%  —> 4.3%  —> 4.0%-> 4.0% -> 4.0% -> 4.0% -> 3.8% -> 3.7% -> 3.6% -> 3.6% -> 3.6% -> 3.5% -> 3.2% -> 3.0% -> 2.6% -> 2.6% -> 2.5% -> 2.5%

For CY 2019, analysts are projecting earnings growth of  3.4%  —> 3.2%  —> 2.7%  —> 1.7%  —> 1.4% -> 1.3% -> 1.3% -> 1.3% -> 1.2% -> 1.1% -> 0.7% -> 0.6% -> 0.3% -> 0.1% -> 0.0% -> 0.1%

and revenue growth of 4.7%  —> 4.7%  —> 4.5%  —> 4.4%   —> 4.3% -> 4.2% -> 4.1% -> 4.1% -> 4.1% -> 4.1% -> 4.0% -> 4.0% -> 4.0% -> 4.0% -> 3.9% -> 3.8%

For Q1 2020, analysts are projecting earnings growth of 10.5% —> 9.8%  —> 8.5% -> 8.2% -> 8.1% -> 7.9% -> 7.9% -> 7.8% -> 7.6% -> 7.3% -> 6.7% -> 6.0% -> 5.6% -> 5.3% -> 5.1% -> 5.3%

and revenue growth of 6.2%  —>5.8%  —> 5.6% -> 5.7% -> 5.5% -> 5.5% -> 5.4% -> 5.4% -> 5.5% -> 5.3% -> 4.8% -> 4.7% -> 4.5% -> 4.5% -> 4.5% -> 4.4%

For Q2 2020, analysts are projecting earnings growth of 13.3%  —> 13.5% -> 12.0% ->12.6% -> 10.7 -> 9.9% -> 9.3% -> 9.2% -> 9.1% -> 9.0% -> 9.0% -> 8.7% -> 8.6% -> 7.7% -> 7.3% -> 6.7% -> 6.6% -> 6.4% -> 6.7%

and revenue growth of 6.8% —> 6.6% -> 6.7% ->6.6% -> 6.5% -> 6.4% -> 6.5% -> 6.4% -> 6.4% -> 6.3% -> 6.3% -> 6.3% -> 5.9% -> 5.2% -> 5.2% -> 4.9% -> 5.0% -> 4.9% -> 4.9%

For CY 2020, analysts are projecting earnings growth of 10.7% -> 10.6% -> 10.6% -> 10.6% -> 10.5% -> 10.6% -> 10.4% -> 9.9% -> 9.8% -> 9.7% -> 9.7% -> 9.9%

and revenue growth of 5.6% -> 5.6% -> 5.6% -> 5.6% -> 5.7% -> 5.6% -> 5.3% -> 5.3% -> 5.3% -> 5.4% -> 5.5% -> 5.5%

The earnings and revenue data was already discussed above!

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

China Deal Risk: No Change.  The overall market has ignored it.  We are told a deal is imminent, and then it is not.  The Chinese are gaming Trump, and he’s not folding, but he’s bending and says he will make a series of deals, including a first deal that may look light on results.  Xi has the edge as “Lifetime Leader.”

Fed Rate Cut/Hike Risk:  The Fed has cut three times and said it was done unless things get worse for the economy.  Now the probability is 0% for a 4th cut in mid-December as assessed by CME Group The risk was 22.1% 4 weeks ago.  The risk of a rate HIKE is 6.6% now vs. 0% last week. 

As I’ve said previously: “THREE cuts is a mid-cycle adjustment.  Four cuts or more mean the Federal Reserve expects a recession.”  A hike in rates in the near future would tank the U.S. stock market. 

What about January?  The odds of cut #4 is 12.4% vs. 13.9% last week vs. 35.8% two weeks ago vs 67% six weeks ago!   The odds of a HIKE in Jan. are 5.8%. 

What about March?  The odds are 23.3% vs. 25.3% last week vs. 75.1% six weeks ago for 4 or more cuts in total.  March hike?  5.0%.  

April Cut?  34.8% vs. 52.6% last week vs. 79.7% 6 weeks ago expect there to be 4 or more cuts.  April hike?  4.2% odds.

June cut?  43.5% vs. 43.6% last week vs. 56.7% 3 weeks ago expect four or more cuts by then.  Probability of a hike is 3.6% vs. 10.2% last week vs. 0% 2 weeks ago.  

July?  49.4% vs. 48.2% last week 60.7% 3 weeks ago expect 4 cuts by then. A hike? 3.2% vs. 9.2% last week.

What are the rest of the available “4 cut odds”?  Sept. 2020?  58.9% vs. 53.2% last week vs. 38.7% 2 weeks ago vs. 65.2% 3 weeks ago.  Sept. 2020 Hike?  2.6% vs. 8.1% last week.  Nov. 2020 cut: 62.9% vs. 57.3% last week vs. 41.6% 2 weeks ago vs. 69.3% 3 weeks ago.  Nov. hike?  2.3% vs. 7.2% last week.  Dec. 2020 Cut: 66.5% vs. 61.7% last week and 73.8% 3 weeks ago.  Dec. hike?  2.1% vs 6.3% last week.

In sum, the risk of another rate CUT (recession risk goes up) is above 50% first in Sept. 2020 vs. in April last week and continues through December with the odds increasing into 2020 year end.  The risk of a HIKE bizarrely starts in December 2019 (not happening IMO), but the probability of a hike fell for 2020 to the low single digits from last week.  Rate cuts are being pushed out while rate hikes are considered a bit less probable for the entirety of 2020.

SAME: For now, that means a majority of investors believe that recession is on the schedule for 2020, or at least the conditions that will force the Federal Reserve to act to avoid recession or make it a more shallow one.  That means they are ultimately worried about what I call a Big Bear Market (click and scroll to definitions in blue under “New Rules”).

The Risk of a Neutral Fed:  Same. Ultimately the change was NOT positive for the U.S. equity market, but it ignored it.  The market is behaving as if it does not care about the Neutral Federal Reserve despite the fact that the President is pleading for more cuts as the market moved higher and now has stalled out. 

Takeaway Point SAME:  The Federal Reserve is not just “in Neutral,” it’s politically STUCK IN NEUTRAL! (or it will be perceived the Fed is political and anti-Trump – something you have not heard from the mainstream media – their narrative is that Powell is independent of Trump.)

My Investing Scenario shifts a bit this week….

Current Scenario…(modified from prior)

Trading or even adding except doing so blindly by calendar or automated purchases here is tricky.  Even if the market pops a bit as soon as Monday, the prior pattern we saw earlier this year could repeat itself (up slightly off a long consolidation and then down sharply into a mild to moderate correction [5-15%]).  The market could continue higher however if the trade deal is better than thought and/or if the Congress moves to censure or admonish Trump vs. impeach him (he will spin ANY of that to his advantage).   A final high will be reached prior to the discounting of a recession, which brings on a ‘Big Bear Market.’  Whether the market moves up a bit and cracks back, corrects immediately, OR rises now to a final (for the cycle) all time high, we are not yet at the all time high yet.  Got it?  😉

Bottom Line: I am holding my current exposure for now and seeking markets outside the U.S. to add back exposure other than to trim off the exposure represented by my most recent adds (bought some CBRE, EWG, and XLE and sold SPY).  Why?  Because I’m overexposed to the US market at this point in allocation terms, and I would favor a correction from this level before the final all time cycle high is reached.  Yes, global markets could fall too, so I’m moving in steps to “buy foreign.”  If we don’t see a U.S. market drop, there are other markets to buy without chasing a market I am already overexposed to.

U.S. Iran War Risk: No change this week.  More stable after the leak of the “Iran Annihilation Plan HERE.  

2020 Election Risk: The Democrats were unable despite compelling testimony that Trump did something wrong (Newsbreak: He did) to move public opinion toward conviction.  Without that, impeachment may look like a game they are playing and people don’t like games, even if justified at some level.  “They are wasting our time” is the thought.

Why is this happening? Because although Trump et. al. were knee deep with Russia in 2016, they did not engage in an organized conspiracy to work with them.  They just bumbled around in a way that made it necessary for the FBI to investigate.  If you were to meet with key Russians over and over, they would investigate you as well.  The idea that they should not have been doing surveillance is ignorance of reality in my view.

Mueller showed clearly the Russians interfered substantially in our election process in 2016.  Trump doesn’t like to admit that because it hurts his “poor baby ego.”  Bottom line?  Trump can use this to assert that because they blamed him for direct collusion, which was unproven, the Ukraine “Drug Deal” as Trump’s own NSA chief Bolton called it, was all the same thing.  It wasn’t, but his illogic will persuade the poorly informed public, and he’ll have a good shot at re-election considering the disarray and far left leanings of the Democrats.

Biden still has to win the Dem nomination for the Dems to win in 2020 IMO.  Bloomberg won’t activate the Dem base as a billionaire who ran stop/frisk ops in NYC as much as it made the city safer.  The Democrats are actively weakening their best chance, because they are leaning too far left.   They make fun of Biden, who is a mostly cured, but not entirely cured stutterer, which he has shared before but not widely until a recent article came out.  So try to be kind if he has trouble getting a word out!   Unless you are perfect of course…  😉  I don’t like all his policy choices, but I do respect his work on behalf of our country. 

Warren and Sanders are too controlling for voters to fully embrace as they did Obama.  “Medicare for Everybody Who Doesn’t Want It” is their motto or shove it!  We Americans don’t like that except for the elites on the far left that do not want the private sector to compete against  Medicare.  Let them compete I say!  The winner(s) will be selected based on price and quality!  (Biden is missing this point in his defense of “Medicare for All Who Want It.”  I say it’s an “American argument.”)

Trump Impeachment Risk: Little change but possibly slightly lower.  See above.  Conviction Risk?  Near zero.

Deficit/Debt Threat: No Change: Trump is now beating Obama at something!  The size of his deficit!  Read THIS.  The deficit is up 26% to $964 Billion for fiscal 2019, the HIGHEST IN 7 YEARS!  

I’ll leave this here as a monument to our monumental debt, which could threaten interest rates in the future.  When rates rise, there will be “heck to pay.”  The U.S. dollar remains at risk and having at least 5% gold exposure is a reasonable hedge in any portfolio.  Some say higher, but owning stocks is also a hedge that over time would work out for solid companies, even in the face of very high inflation (not in the case of bankruptcies of course!). 

Back to the charts….

Now take a look at the SP500 chart.  The green line is 2940.91, the
9-21-2018 High preceding the decline ending December 24th.  The long upper yellow line is now at about 3062 at the Friday close.  The two short upper red lines show a narrow range in a gentle up trend, rising ABOVE the prior upper trend line.

As I warned two weeks ago, if the market keeps pushing above that top yellow line (the longer one), there will be an eventual payback.

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

Market timing the SP500 Index (SPY, SPX). Time for a move!

Time for a move!

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

“Intel-igent Market Timing Signal” (Intel; I*NTC; * there to throw off the crawlers!): Neutral.  SAME: “The stock is stuck below the April ATH.  Why should it break out if the U.S. GDP is due to slide to below 1%?  Think about that.  The June 4 high of 57.60 has been exceeded, and the April high of 59.59 is the next test to achieve a new all time high.”

Bank of America (B*AC) Market Timing Signal: Bullish, but needs to push higher soon.  There has been 1 close above 33.05, which was the early 2018 high (I quoted a slightly lower number before as I apparently picked out a slightly lower high in that time frame). This is a major breakout if it holds.  It will only hold if rates keep climbing.  Sell a reversal at least on a close or sell on a close with higher volume IMO. 

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 34,144 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.  (real time messages are ONLY on StockTwits until Twitter reforms its policies, but we’ll have it as a backup system)

Join the Conversation in the StockTwits “MarketTiming” Room

Now let’s go on to review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +5.21% vs. +15.90%.  Sentiment should be peaking if this is in fact a top.  It is not a top.  It could be a temporary top, but it’s not “The Top.”  Follow the direction of the next move and prepare to be disappointed if it’s up (see above). 

Bulls Neutrals Bears
34.24% 36.72% 29.03%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM):

Same: But now 15 days without a breakout as noted above.  “Bad sign that IWM could not break out with the large caps continuing their climb or even match the midcap breakout.  If you see a breakout, it will be a positive sign for at least another Bullish stretch (for large and midcaps too) before the next decline.”

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

Market timing the U.S Small Cap Index (IWM, RUT). Stagnant!

Stagnant! Follow the next move.

 3. Gold Market Timing (GLD): 

No change.

SAME: Things are shifting…  We’ve gone from “recession risk” and “multiple cuts” as well as “don’t fight the Fed” to “Three cuts and done.” 

SAME MAJOR POINT: IF the Fed lags inflation, gold wins, but if it front runs inflation, gold loses on a relative basis.  My contention as said above is that Federal Reserve bias will now be against raising rates prior to the election, so inflation will get a boost!  Gold wins…but it must perform on the charts to prove it! 

Technicals: Gold is just below that key top red line, and slightly above the 2013 lower high.   If it breaks and GDX breaks, I’ll likely be lowering my exposure to gold.  Holding above that 2013 lower high on the chart…for now.

The Gold ETF (click chart to enlarge; GLD): That top red line is 137.80.

Market timing the gold ETF (GLD). Gold on the edge of a move too.

Gold on the edge of a move too.

4. Interest Rate Market Timing (10 Year Treasury Yield; TNX, IEF, TLT):

SAME: As long as the Federal Reserve stays “Neutral,” rates will be rangebound barring a left field event, a.k.a. a “Black Swan event.”  Lower rates imply the Fed medicine is not working yet/ever.  I believe it’s a waste of time to lower rates except as a temporary goosing of the economy, and it has a negative impact on savers and on inflation (raises inflation due to down dollar).  I don’t like either of those.  It hurts the poor most of all as they don’t own stocks or real estate.  They don’t even get the positive feedback that it’s good to save money in the bank. 

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): 

Market timing the US 10 Year Treasury Yield (TNX, TYX, TLT, IEF). Rates down but in up trend at the moment.

Rates down but in short term up trend at the moment.

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 BUYS and SELLS in as timely a way as possible 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 longer term Bullish and short term Bullish SP500 Index trend.  The stock signal is based on small caps, as they often lead the market down.  SAME 11-22-19: Small caps are barely moving.  The top was established on Feb. 25th.  Above there, the Bull will be back in full swing.

The VIX Score will be shown in the context of Bull Market Health Score above to avoid redundancy. 

Gold Signal YELLOW  for a further U.S. stock market rally longer term Bullish Trend and a short term NEUTRAL Gold Trend.  The current pattern is a warning sign.  The longer term Bullish trend will evaporate if it breaks below the current level by much at all.

What gold does mostly as I’ve written HERE is follow real interest rates around the world (if you own “gold in dollar terms” you care about U.S. rates most of all).  The rest of the world does matter however, including massive buying by central banks. 

Remember, gold may be down but not yet out, because if the Fed lags inflation, gold will win.  Since I am predicting a “lagging Federal Reserve” into the 2020 Election, inflation will win, and gold and oil will win.

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 in the current context means the global economy is slowing.  That would ultimately hurt U.S. stocks. 

Rate Signal YELLOW for a further stock market rally with a longer term BEARISH and short term Bullish 10 Year Yield Trend.  (Remember: higher rates mean lower bond and Treasury prices). Whether the short term trend should be called Neutral vs. Bullish is arguable at this time, but it’s not Bearish yet. There is actually an even longer term view that says rates have been in a neutral trading pattern since 2011, but the above two views are more practical on a trading/intermediate term investing basis.

I’ll leave this reminder from 9-20-2019’s issue: “Remember, FOUR Fed cuts will NOT be a “mid-cycle adjustment” and would be taken badly by the market ironically, considering the market’s addiction to lower rates.  A fourth cut means the Federal Reserve is seeing recession risk as significantly high.”

Also for Reference:Rates usually RISE slowly in a strong recovery and the stock market rally continues as they rise, as I’ve repeated multiple times on social media and here.  Empirically though, rates that are “lower” (than 3.11%) and are NOT rising rapidly have allowed the market to rise.”

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”    It closed at 57.77 vs. 57.76 last week vs. 57.24 the week before.  Still holds: If it rises above 58.82 and then 60.94, oil and oil stocks will be off to the races.  63.38 would be the next target.  Since May, the price of oil almost appears to have been managed to stay between 50 and 59/barrel.  I wonder why?  😉

Just a reminder: If TNX bounces too quickly and too high, this will give rise to Rate Shock III… As said before: “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.'”  I called the period of rising rates in early October #RateShockII.

Another Reminder: “The risk lately has been ‘Falling Rate Shocks.’  (I changed the term from “Negative Rate Shocks” because there are in fact negative rates in a lot of countries now.  First we had ‘Falling Rate Shock I’ in December 2018 (because rates FELL while the Fed raised the Fed Funds rate 0.25% in mid-December, in what was perceived as a policy error by critics),  ‘Falling Rate Shock II’ in May, and ‘Falling Rate Shock III’ in August.  The Stock Market Bulls had better hope that they don’t get more rate cuts past October. 

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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, contact me.  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.

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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