Market Timing Brief™ for the 3-22-2019 Close: “Stock Market Breaks Down, but How Low Do We Go? Gold Reacts Weakly to Rate Plunge.”

A Market Timing Report based on the 03-22-2019 Close, published Saturday, March 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.

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

To recap quickly, last week I asked:

“Is a new higher high for one day enough to say the Mini Bear is dead?  No.  It takes up to 3 days, as traders know, to confirm a move, but the way machines trade these days, that can mean leaving several percent on the table if you wait.” 

The market closed 5 days above the three lower SP500 Index highs we’ve been tracking here and on Friday swooned back below two of them closing at 2800.71 with the lowest of the three lower highs at 2800.18.   We closed below 2/3 targets.  “So you are saying there’s still hope?”  (“Dumb and Dumber” quote)  Not exactly!  I am expecting a correction began on Friday and I give you my first target below…. It’s more of a suggestion, because as many of you know by now, I judge the market’s behavior at the time it reaches a given level.  It’s a real time process!

I also added last week:

“To me, this is a fledgling Bull Market, but what don’t I like?  For one thing, the NYSE based Advance/Decline % Line (T2100) that I follow on proprietary software, shows a failure to make new highs despite the SP500 Index breaking out above the triple top target levels.  That means the move on Friday could be a head fake…Also, see “small caps” below, another warning sign.”

U.S. small caps have been falling since March 4th after peaking on Feb. 25th! And they dove 3.64% on Friday.  That is a very negative sign for the near term.

“But…but…but….the reaction to the Fed on Thursday looked very positive!”  The market was up another 1.13% to a new recent high, still above the “Big Three Lower Highs” of Oct., Nov., and Dec.   But then…on Friday, the Treasury market decided the Federal Reserve going “all out neutral” as I’ll call it, marginally much more dovish than their rate hiking stance at least, was a dire sign about the state of the economy, so investors sold stock exposure.  The percentage of stocks below their 40 day moving average (mav) per my proprietary software (see link at bottom) shot up by 88.13% on Friday to 36.14%.  To give you perspective, that number was 88.94% on Dec. 4th, the first day of the massive December decline.  

That bit of data alone, plus the weakness of earnings and projections going into earnings season that became progressively worse for the four weeks prior to last week’s post (it slowed down because the earnings season was 96% over by then), means that the stock market could be headed into a significant decline. 

Of course, no one could have told you the market was going to fall by exactly 16.54% from the October 17th high (the highest of the 3 lower highs) and by 20.06% from the 9-21-2018 all time intraday high (ATH).  Then they also could not have told you the market would, at the Friday close, be up 19.12% from the Dec. 24th close after peaking at +21.43% from the December low on 3-21-2019, just as earnings estimates for Q1 2019 and for the entirety of 2019 were being CUT WEEK AFTER WEEK. 

That’s the reason I wrote the warning early Friday morning when I said,

“This is why I call the market “Master Market,” an ignorant little emotional boy who does not know how to value himself properly.” 

Read the rest of my educational tweet series HERE.   I asked whether the market was “stupid,” for rising as earnings estimates were falling.  

Some would say, “But the market is anticipating a turnaround in 4th quarter earnings.” Why would that be, given the fact that they lowered their estimates 4 weeks in a row?  Why would that be, if the Federal Reserve is going “all out neutral”?

And they’d say, “But there are companies that are still hitting their numbers.”  That’s correct and on point – I covered that last week – check your companies one by one!

“But isn’t it Bullish for rates to fall?”  Not in this case….

On March 2nd on this blog I told you the “Only Way Up for the U.S. Stock Market” and it was:

Break out to new highs with SLOWLY rising (added 3-16-19: OR stagnant) interest rates.  This is the ONLY way UP for the U.S. stock market.

Friday’s plunge in the 10 year Treasury Yield was the opposite of the “Only way UP for U.S. stocks.”  Rates fall when deflation and economic slowing are feared.  As I explained, the normal healthy late cycle Bull market should be accompanied by slowly rising interest rates as the economy continues to expand.  That is not happening.  The opposite is happening.  I called out the breakdown in the rate chart last week and added:

If TNX were to make a brand new low, the stock market will likely enter a dip/correction, as that is NOT what is supposed to happen in a real recovery The Fed would have to move to an outright dovish position if that were to happen, at least in time they would.

Well, we may have just started the correction I referred to in the quote.   Some of you may still believe that following interest rates is boring, but you can see how exciting a plunge in rates can be.  Many high flying stocks were down 5-10% or more on Friday, because of the negative message the Treasury market was sending. 

If rates don’t stabilize early in the week, the stock market will fall farther quickly. 

Does the market believe a rate CUT could be on the way?  Eventually, yes.  The CME Group says the market gives a 18.4% probability to a RATE CUT by the June 19th Federal Reserve meeting.  That probability of a rate cut rises to 41.9% for the Sept. 18th meeting.  It’s 47% by Oct. 30th and 57.9% by the Dec. 11th meeting.  That’s a majority. 

But the Fed won’t be able to cut rates if inflation rises.  At the moment, that does not seem to be an issue, but we’ll continue to follow oil and gold to monitor the risk of stagflation (slowing economy with rising inflation as we had in the 1970’s, when stocks went UP and real returns in stocks were NEGATIVE due to the erosion of buying power.)

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

China Deal Risk:  There is going to be a “big, beautiful deal.” It’s taking longer than most had hoped.  “No deal” would greatly upset the markets, but Trump seems to know that if the markets tank into the election, he’ll lose, as he’s said that privately it has been reported.  CNN just reported that a meeting between Trump and Xi may happen “next month.”

Mueller Risk: Diminished it seems.  Don Jr. and the Trump gang in general are off the hook, but oddly enough, President Trump is not off the hook until either AG Barr says so this weekend, or the report reveals it when it’s released with a lot of black redaction lines in it no doubt.  Barr promised to share highlights of the report by Sunday; he says now per CNN, it won’t be on Saturday.  (And then there is the Southern District, which I will get to in a moment.)  The reason Trump is not yet off the hook is that current DOJ rules say Trump cannot be indicted as President.

Although it’s a promising sign that no one else will be indicted by Mueller per the DOJ, that leaves the President the remaining question mark, since he cannot be indicted by Mueller, yet Mueller could have evidence Trump committed a crime.  The odds say to doubt that will be the case.

Parenthetically, the fact remains by the way that Russia was proven by Mueller to have actively hacked into our election in an attempt to elect Trump over Clinton, whom Putin hated. That does not mean Trump colluded other than openly in his campaign appearances (he encouraged Russia to hack Clinton in a speech), and the fact that no other collusion by others has reached the level of indictment is promising.

The stock market closed flat in the afterhours trade despite the news of “no new indictments.” I expect the markets will integrate in some “happiness” over Trump being cleared more fully in the coming days.  The Southern District of New York may not let that happen however.  And they are not prevented from indicting Trump.  If the market thought Trump was in the clear, it did not act that way Friday night.  As a political independent, I will state that just because he’s “not in the clear,” does not mean he has broken the law. 

2020 Election Risk:  Read my comments on this HERE

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

Now take a look at the SP500 chart.  The orange lines are the 2017 up channel.  I give you my first downside target in the small cap section below…

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

sp500-index-spx-market-timing-chart-2019-03-22-close

Coming down a fourth time???

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Neutral short term. Chart is still Bullish.  Can fall to 50-51-ish and still be in an uptrend.  Reporting earnings supposedly on 4-25-2019.   

Bank of America (BAC) Market Timing Signal:  Bearish.  Last week I said, “Vulnerable to lower rates.”  It fell 4.15% in one day on Friday as rates plunged lower.  XLF is broken too of course, and Warren Buffett is losing a lot of money with his 39% exposure to financials. 

Now let’s go on to review investor sentiment…

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 33,914 investors are following the markets with me…

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Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +13.89 vs. +1.36% last week.   The poll closed right after Fed Day on Wednesday.  That sentiment does not match the level of the market on Wednesday.  We are not coming off the ultimate top of this Bull Market run in my view.  Yet we may be headed into another earnings recession (2 negative quarters of earnings growth; not negative earnings – negative earnings GROWTH), which will drive the market down into a correction or even eventually if the slowing is enough into a Mini Bear Market status again.

The “New Rules” on what the various pullbacks are in dips, corrections and Bears are HERE (scroll down to “New Rules”).   They are rough guidelines, but useful I think.

Bulls Neutrals Bears
37.30% 39.29% 23.41%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): I said last week,

“Small caps are showing negative divergence vs. large caps.  With the SP500 Index making new market timing highs, the small caps should be doing the same, but they are not!”  Small caps led the market down from the Sept. 2018 all time high, and they could do it again right now.”

Hope that helped.  Small caps are in an officially confirmed DOWNTREND as of Friday on a massive volume spike.  The divergence with large caps is why I’ve avoided small caps in the last few buys, which yes, may have been too early.  But realize I have been adding slowly along the way, and have plenty of cash to put to work in a bigger sell-off.  This looks like it could be a decent sized 7% SP 500 Index correction (to my first target at the October low) at the least given the stats on Friday.  Small caps could easily fall more than that.

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

iwm-russell-2000-market-timing-chart-2019-03-22-close

Small caps leading the way DOWN!

 3. Gold Market Timing (GLD):

Last week I said, I’ll change my mind if we see the upside reversal noted in the chart below.”  Meaning I’d recommend a trading position (vs. insurance position) for GLD/GDX.  GLD was up 0.23% with the market down 1.90%, which is good, but the reaction to crashing interest rates was muted.  I’d like to see gold perk up this week.  Maybe the gold market thinks even a whiff of stagflation will box in the Fed to the point of having to raise rates.

GLD attempted a move back through my “reversal number” shown on the chart on 3-15 and then failed.  It is now back above the reversal # for the fourth day, which is positive, but it’s barely above the 3-15 high, which is not as impressive.  Not a strong Bull, at least not yet.

And the GLD trend line remains broken, so I’m skeptical considering the interest rate action on Friday.  I do have some mining exposure that was hedged.  When the stock fell on Monday, I bought back the call I was short (pocketing about 84% of the original credit from selling the call), and the stock bounced nicely on Friday, causing call prices to rise nicely.  I should be able to sell another call for about the same amount if gold cooperates Monday, though I remain skeptical.  I’m fine with holding my “gold insurance” GLD in the meantime.

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

gld-gold-etf-market-timing-chart-2019-03-22-close

Not exactly excited about falling rates.

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX):

The triangle broke LAST week.  This week rates crashed further.  I’ve gone over the implications for stocks and gold above…

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):

tnx-10-year-treasury-note-market-timing-chart-2019-03-22-close-final

Breaking lower…

Now let’s review three key market timing signals together…. 

Do not use these signals as a trading plan.  They are rough guidelines.  I currently share my own moves on social media (links above).

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

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

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!) closed at 16.48 vs. 12.88 last week, which means the Bears  have captured 4/7 targets.  The level reached on the spike Friday which topped out at 17.52, below the 7th Bear target, is similar to the spike in volatility from early Feb. forward.  This means the Bulls could rally back a bit before giving up target 7.  Below the “fulcrum,” which is the midpoint VIX target, the Bulls regain control.  

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

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

Gold Signal YELLOW  for a further U.S. stock market rally with a NEUTRAL Gold Trend.  What gold does mostly as I’ve written HERE is follow real interest rates.  STILL HOLDS 3-15-19: G*LD has to rise above 123.19 on an immediate basis (* added to throw off the “crawlers,” as I don’t like being part of “consensus.”)  It did but with an anemic response after rates crashed on Friday.  The trend line is also broken.  The uptrend may not be over, but it’s wounded. 

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

Rate Signal RED for a further stock market rally with a BEARISH 10 Year Yield Trend.  Last week I said the slightly lower rates were being taken well by the stock market, but If rates fall to new lows (substantially toward 2.554% or lower), however, that will mean something else, namely a worsening economy, and stocks would likely react negatively.” THEY DID on Friday!  FALLING rates are BAD for stocks at this point in the cycle, when rates should be rising as explained.

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”  WTI closed at 59.04 vs. 58.36 last week.  Oil is still in an uptrend, so either rates will rise now and the oil rally will continue, OR rates will keep falling and oil will reverse. 

I previously warned about the Fed tightening process: “This level of the 10 Year Treasury Yield, which is too high for current conditions as explained HERE, will eventually slow the economy.”  I said, “2.621% was the peak back in 2017 when stocks did best.  Anything below that would be an improvement.”   The close on Friday?  2.455%! 

As for much higher rates and their possible impact, I said previously:  “All heck would break loose for equities if TNX lurches above 3.248%, particularly if the rise is rapid.  Buy long dated Treasuries as close as you can to 3.248% on the 10 Year Yield TNX (IEF, TLT, etc.).”   That’s a long way away at this point!

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

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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I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, go HEREIt makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.  Check it out with a free trial at the link above.  I am an affiliate of Worden Brothers, though oddly I’ve never been paid a cent by them.  If you HAVE subscribed to their service, please send me a message. 😉

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 3-15-2019 Close: “A New Bull Market or a Head Fake? Gold Struggling Despite Lower Rates.”

A Market Timing Report based on the 03-15-2019 Close, published Saturday, March 16th, 2019…

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

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

This was a Mini Bear Market as I explained in my “New Rules” (Oct. 26, 2018 post; the total dive top to bottom in the SPX was about 20%), but this week, actually on Friday, the SP500 Index finally climbed over the three prior Lower Highs of October, November, and December. Some may claim the market needs to make a brand new all time high (ATH) to be called a Bull again, but that’s not my view.  I recommend using the SP500 Index vs. SPY in making this judgment, since dividends effect the latter.

Is a new higher high for one day enough to say the Mini Bear is dead?  No.  It takes up to 3 days, as traders know, to confirm a move, but the way machines trade these days, that can mean leaving several percent on the table if you wait.  So I didn’t wait.  I added what amounts to about 3.6% of additional exposure vs. my usual maximum 100% exposure level (which is NOT 100% stocks; adjust to taste is the point; follow my equity exposure level as I buy/sell on social media [links below]).  My intention is to add further exposure higher or lower.  I have no need to sell this exposure should the market turn down again.  If you add when you are already invested to the gills, you may need to sell to preserve capital.

To me, this is a fledgling Bull Market, but what don’t I like?  For one thing, the NYSE based Advance/Decline % Line (T2100) that I follow on proprietary software, shows a failure to make new highs despite the SP500 Index breaking out above the triple top target levels.  That means the move on Friday could be a head fake.  There must be at least consolidation at a minimum (sideways move), and then follow through to keep the Bull ball in the air.  Also, see “small caps” below, another warning sign.

And earnings could weigh on the market when Q1 2019 results start coming in during the first half of April.  Once again this week, earnings predictions for 2019 are worse for the entire year and for Q1 2019, but seem to have stabilized for Q2 and Q3 with another tick down for Q4.  The vast majority of SP500 companies had reported Q4 2018 earnings as of last week.  These data are from FactSet, and the full FactSet PDF report will open HERE, and this is their site.

I have updated the matrix of numbers shown over the past several weeks.  These are the SP500 Index Earnings and Revenue growth (or lack thereof) numbers predicted as of the Feb. 2nd vs. the Feb. 15th vs. the Feb. 22nd vs. the Mar. 1st vs. the Mar.8th vs. the Mar 15th close by FactSet, from left to right…

“For Q1 2019, analysts are projecting a decline in earnings of -0.8% -> -2.2% -> -2.7% -> -3.2% -> -3.4% -> -3.6% and revenue growth of 5.7% -> 5.3% -> 5.2% -> 5.2% -> 4.9% -> 4.9%.
For Q2 2019, analysts are projecting earnings growth of 1.6% -> 1.0% -> 0.7% -> 0.3% -> 0.2% -> 0.1% and revenue growth of 5.1% -> 4.7% -> 4.7% -> 4.8% -> 4.5% -> 4.6%.
For Q3 2019, analysts are projecting earnings growth of 2.7% -> 2.4% -> 2.2% -> 1.9% -> 1.7% ->1.8% and revenue growth of 4.9% -> 4.5% -> 4.5% -> 4.6% -> 4.5% -> 4.4%.
For Q4 2019, analysts are projecting earnings growth of 9.9% -> 4.8% -> 4.5% ->4.1% -> 3.9% and revenue growth of 6.0% -> 4.9% ->4.9% -> 5.1% -> 5.0%.

FactSet says (showing this week and the prior two weeks for this data) …“For CY 2019, analysts are projecting earnings growth of 4.1% -> 3.9% -> 3.8% and revenue growth of 5.1% ->5.0% -> 4.9%.” 

Again, I’d say the 2019 full year guesses are overly optimistic as the earnings growth number for 2019 cited does NOT match the quarterly data above it. 

One highlight of their report this week, which is worth your time, is that Energy, Healthcare, and Communications Services had the highest percentages of buy ratings.  It’s important to look deeper into the data, because many drug companies are not expected to do well, while those who directly provide health care are presumed to be among the winners (see my comment in last week’s brief on the Pharma sector).   With lower interest rates and potential for big growth potential, biotech is considered a buy by many (multiple concordant sources).  The biotech ETF IBB is one way to play that.  

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

China Deal Risk:  There is going to be a “big, beautiful deal.” It’s taking longer than most had hoped, but this is an attempt to correct years of abuse by the Chinese.  If Trump walks away, it would greatly upset the market however.

Mueller Risk: We are STILL told his report is imminent, so the risk of a surprise is imminent. This is a coin toss for Trump himself as I’ve said, but not for players like Don Jr.  I’d say they are still very much at risk, but the market could care less about them.

2020 Election Risk:  Read my comments on this HERE.  Remember, I’m an independent who seeks the best ideas of both parties.  I’ve voted for both parties’ candidates, even in the 2018 midterms.  In my view, the election of a liberal Democrat would be an immediate, intermediate and longer term disaster for the U.S. markets.  Luckily, so far, our country does not support a shift to socialism/communism, which has proven severely lacking on the innovation side of things. 

Many of the greatest and most innovative companies are in the United States. They mostly are not in Europe, China, India, or even Japan. They spend their time attacking our great companies and fining them.  China has kept U.S. tech companies from entering China, so they could rip off and essentially duplicate Amazon, Google and other companies from within.  The number of people you have does not create innovative thinking.  China has only recently started to understand that it must innovate to lead.  Hence the huge AI research effort.   Trump is right that China must stop ripping off U.S. tech immediately.  I give him credit for that.

Given then that the failure of any socialist candidate is likely, even if the more liberal candidates push a moderate Democrat strongly to the left in their platform, we could easily end up with Trump as a two term president.  Sanders is dead-on-arrival as he will scare seniors half to death when they find out the lines to see their doctors will run out the front door and around the corner.   (I do agree all human beings deserve decent healthcare, and the underprivileged deserve a break on college costs, but how we get there is another thing.  Zero loans?  Why?  I completely disagree with Sanders that all kids should go to college for free.  Many should have a vocational education, not a general and impractical BA from a college.  Beer sales would definitely go up under a Sanders Free College program. Buy BUD, if you think he’ll win!) 

The only type of Dem who can beat Trump cleanly would be Biden, or Klobuchar in theory only, because she’s not getting early traction that proves her candidacy as viable.  John Kasich was the same sort of candidate.  Both of them are probably very good people to have as President, but a candidate with little charisma is not going to be elected.  Nice, honest, intelligent, and self-aware is not enough unfortunately. 

Our choice will likely be Biden vs. Trump (if Mueller has nothing big on Trump).  Biden’s grief process after his son’s death from brain cancer is what gave us Donald Trump.  If Trump is booted (not in the cards at this point) Biden would beat Pence by 10-20%.  Pence is old school and barely likeable.  Voters like “likeable.”   

By the way, a President Biden may end up being indebted to people far more left than he is and do things the market may dislike, especially a roll back of tax cuts for corporations and individuals.  The stock market would correct strongly if that were done IF the net effect were a fiscal drag on the economy.  If they take from the rich and give to the middle class and keep the corporate rates low, that may not happen.

Fed Rate Hike Risk: Lower this week as rates have fallen.  If TNX is below the January Fed day low of 2.688%, I consider it Bearish for rates (bonds higher, rates lower).  As I said last week, “The risk of a Fed hike with easing in China and Europe…is LOWER.”

Before we look at the chart, I’ll answer… Why did I also add on March 7th, after the market was down about 3%?  Because pullback levels are not predictable except for short term moves, and it was my intention to take advantage of pullbacks in the rally when they appeared.  It worked.  We will see early next week whether the buy on 3-15 also worked.

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

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

sp500-index-spx-market-timing-chart-2019-03-15-close

Will the rally continue higher now that we’re above the triple top?

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Bullish.  The low was 51.70, so it never got back down to the prior breakout level.  Intel itself has warned about another weak quarter for Q1, so we will see if it can hold up through that report supposedly on 4-25-2019.   

Bank of America (BAC) Market Timing Signal:  Neutral and vulnerable to lower rates.  XLF is still stalled below the 200 day moving average (mav). BAC is stalled too.

As I said last week, the “Only Way Up” is # 1 below.

  1. “Break out to new highs with SLOWLY rising OR stagnant interest rates.  This is the ONLY way UP for the U.S. stock market.

I added the word stagnant, since that would also satisfy the stock market.  My immediate Bear target if the rally folds, would be the Oct. low, which is now 7.76% lower from the Friday SPX close.  We are just 4.19% from the prior intraday all time high (ATH).  In that sense, a Bear would tell you the downside is greater than the upside.  I would say they may be right in the short (a quarter or less) or intermediate term (a few quarters), but I doubt they are right in the longer term.

Now let’s go on to review investor sentiment…

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 33,914 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.

Join the Conversation in the StockTwits “MarketTiming” Room

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +1.36% vs. +10.64 last week.   When sentiment falls as the market rises to test a top, investors are simply getting nervous as they see the market as being fully valued vs. that prior high.   It also says “That is not THE top.”  We have not been at exhaustive sentiment levels since I pointed one of those out just before the highly volatile Jan. 2018 correction.

The top is yet to come!  There may be pullbacks still as we work through very negative earnings data for a few quarters (buying opportunities IMO), but the market will work its way back from any correction, as long as our economy does not slip further toward a recession.

Bulls Neutrals Bears
32.42% 36.52% 31.06%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Small caps are showing negative divergence vs. large caps.  With the SP500 Index making new market timing highs, the small caps should be doing the same, but they are not!  They need to rise soon and confirm the SP500 Index buy signal.   Small caps led the market down from the Sept. 2018 all time high, and they could do it again right now.  Note: I’ve added large cap exposure, not small, on the recent dip and again on the breakout of the SP500 Index. 

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

iwm-russell-2000-market-timing-chart-2019-03-15-close

Small caps lag large.

 3. Gold Market Timing (GLD): GLD is now 0.80%, vs. 0.69% last week, above my sell point.  Interest rates falling should be helping GLD more than it is.  That’s a negative for GLD.  The chart below shows you the reversal level I’d be following if you are trading GLD.

Why has the recent trend been damaged?  What gold does NOT like is rising real rates, so if the Fed whiffs more inflation than it wants, that could pressure real rates higher.  A proactive Fed means rates rising AHEAD of inflation, which means rising REAL RATES – the thing gold hates. Rising oil prices also often means higher rates.   The gold market is signalling that the Federal Reserve is, as I’ve contended, at best going to “act neutral,” not dovish.

I’ll change my mind if we see the upside reversal noted in the chart below.

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

gld-gold-etf-market-timing-chart-2019-03-15-close

Gold rally on pause still. Looking for a reversal UP.

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX):

TNX closed Friday at 2.593%, now below 2.688%, or what I am calling the “Fed’s gone dovish number.”  It also broke the triangle (yellow line) to the downside.  The Fed is actually neutral as I said, which is enough to move rates down a bit more than they were.  If TNX were to make a brand new low, the stock market will likely enter a dip/correction, as that is NOT what is supposed to happen in a real recovery The Fed would have to move to an outright dovish position if that were to happen, at least in time they would.

Rates RISE in a recovery.  Rates fall as the Fed moves to a dovish stance and keeps lowering rates as the economy falls off a cliff.  That is not what is supposed to be happening.  The rosy scenario is that rates are low because the Fed is dovish, and they’ll even cut rates to help the stock market stay up.  They won’t cut rates if inflation is too high, as long as the stock market is not “doing badly,” which it definitely is not.

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):

tnx-10-year-treasury-note-market-timing-chart-2019-03-15-close-final

Rates fall below the recent range. Bullish for Treasuries and bonds.

Now let’s review three key market timing signals together…. 

Do not use these signals as a trading plan.  They are rough guidelines.  I currently share my own moves on social media (links above).

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

Stock Signal NEUTRAL for a further U.S. stock market rally with a Bullish SP500 Index trend.  The signal here is based on small caps, as they often lead the market down.  Small caps are signalling some relative weakness this week, but I’ll move the signal to neutral given the bounce over the last 5 days in small caps. 

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!) closed at 12.88 vs. 16.05 last week, which means the Bulls have reached “Nirvana.”  That implies there could be more immediate upside for the SP500 Index.

There are now 7 Bear targets and the score is Bulls 7 to Bears 0.  The targets are 13.31, 14.04-14.08, 15.04, middle point = [15.94-15.95 to 16.09], 17.06, 17.27, and 17.89. 

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

Gold Signal YELLOW  for a further U.S. stock market rally with a NEUTRAL Gold Trend.  What gold does mostly as I’ve written HERE is follow real interest rates.  STILL HOLDS 3-15-19: G*LD has to rise above 123.19 on an immediate basis (* added to throw off the “crawlers,” as I don’t like being part of “consensus.”)

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

Rate Signal  NEUTRAL  for a further stock market rally with a BULLISH 10 Year Yield Trend.  The only reason I am not chasing Treasuries here is that over the subsequent several quarters, inflation is predicted to tick up a bit.  I prefer to be in short term paper (< 1 year) with my cash with that inflation outlook.  Rates will rise slowly and so will the yield in short term Treasuries and money market funds.  Of course, rising oil prices is also a reason to be cautious on the move to lower rates.  I am calling rates NEUTRAL for the stock market rally, because the market likes lower rates. If rates fall to new lows (substantially toward 2.554% or lower), however, that will mean something else, namely a worsening economy, and stocks would likely react negatively. 

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”  WTI broke out again this week, closing at 58.36.

I previously warned about the Fed tightening process: “This level of the 10 Year Treasury Yield, which is too high for current conditions as explained HERE, will eventually slow the economy.”  I said, “2.621% was the peak back in 2017 when stocks did best.  Anything below that would be an improvement.”   The close on Friday?  2.593%! 

Equity buyers feel lower rates are better at this point, but that’s not true for financials, so avoid that sector for now.

As for much higher rates and their possible impact, I said previously:  “All heck would break loose for equities if TNX lurches above 3.248%, particularly if the rise is rapid.  Buy long dated Treasuries as close as you can to 3.248% on the 10 Year Yield TNX (IEF, TLT, etc.).” 

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

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… 

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, go HEREIt makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.  Check it out with a free trial at the link above.  I am an affiliate of Worden Brothers, though oddly I’ve never been paid a cent by them.  If you HAVE subscribed to their service, please send me a message. 😉

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.

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 3-08-2019 Close: “Back to the Mini Bear Or Is This Just a Dip for the Bull? Gold Gyrates with Rates.”

A Market Timing Report based on the 03-08-2019 Close, published Saturday, March 9th, 2019…

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

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

As I’ve explained in my “New Rules” (Oct. 26, 2018 post), we’ve been in a Mini Bear Market, which occurs during slowdowns that do not lead into a deep recession.  That does not mean the drawdowns cannot be sizeable as investors learned in December, but the question is, “Are investors in for yet another ride down the hill as earnings slide around the world?” 

This week, earnings predictions for 2019 are AGAIN worse (for ex., Q1 2019 earnings projections have weakened EVERY week for the past month!), and revenue projections slipped as well.   These data are from FactSet, and the full FactSet PDF report will open HERE, and this is their site.

I updated the matrix of numbers shown over the past several weeks.  These are the SP500 Index Earnings and Revenue growth (or lack thereof) numbers predicted as of the Feb. 2nd vs. the Feb. 15th vs. the Feb. 22nd vs. the Mar. 1st vs, the Mar.8th close by FactSet, from left to right…

“For Q1 2019, analysts are projecting a decline in earnings of -0.8% -> -2.2% -> -2.7% -> -3.2% -> -3.4% and revenue growth of 5.7% -> 5.3% -> 5.2% -> 5.2% -> 4.9% .
For Q2 2019, analysts are projecting earnings growth of 1.6% -> 1.0% -> 0.7% -> 0.3% -> 0.2% and revenue growth of 5.1% -> 4.7% -> 4.7% -> 4.8% -> 4.5%.
For Q3 2019, analysts are projecting earnings growth of 2.7% -> 2.4% -> 2.2% -> 1.9% -> 1.7% and revenue growth of 4.9% -> 4.5% -> 4.5% -> 4.6% -> 4.5%.
For Q4 2019, analysts are projecting earnings growth of 9.9% -> 4.8% -> 4.5% ->4.1% -> 3.9% and revenue growth of 6.0% -> 4.9% ->4.9% -> 5.1% -> 5.0%.

FactSet says (showing last week and this week for this data) …“For CY 2019, analysts are projecting earnings growth of 4.1% -> 3.9% and revenue growth of 5.1% ->5.0%.” 

That earnings growth number for 2019 cited does NOT match the quarterly data above it.  I did the math.  I took the SP500 Index earnings for every quarter in 2018 and calculated the year/year values for each quarter, added them up, and divided 2019 total E by 2018 total E.  The answer is earnings growth of 0.694%!  Analysts who believe the earnings growth for the SP500 will be 3.9% for the year are delusional according to the analysts who came up with the data set in the prior paragraph. 

Where will the greatest strength be in earnings growth for Q1?  Factset says only 4 of 11 sectors will show earnings growth with the highest growth for Gas Utilities and Multi-Utilities and second place goes to Healthcare Providers and Services.  Pharma by comparison will show an earnings contraction, which is why I warned you last week to check the earnings and revenue estimate projections week by week at least to see if your companies are among those that will be hit by further earnings growth slowing (or absolute slowing, meaning NEGATIVE Earnings growth).

The weakest sectors are not what you may expect.  Energy, materials and Tech will be the worst companies in terms of earnings contraction (negative growth) and within Tech, Apple and Micron will be the worst.  Read the entire PDF at the link above.

I warned you last week that the earnings issues that are fast approaching the market as we are only 3 weeks to the end of Q1 2019 should keep a lid on further upward progress for the U.S. stock market.  If not, it tells you something completely different about the trajectory of the economy as far as the market sees it.

I gave you my strategy last week HERE.   I bought a bit more equity exposure on the dip this week and added to my growing but still modest position in China.  Realize however that I’m still only 20% or so exposed to emerging markets (EM) vs. my “usual max. exposure” for a Bull market in the corresponding market.  This gives me an opportunity to add more exposure at lower or higher prices.  I can hold a 20% of max. exp. position in China even if it goes down by 50% from here.  My paper loss would be a small percentage of my total investable net worth (that means not including one’s home).

I don’t share my raw exposure numbers, because I know it would throw many investors off the path that is best for them.  If you are 30, your equity exposure should be much higher than mine, probably 80-90% given you have a safety net that is liquid should something come up in your life.  You can use my % of max. exposure numbers to adjust your exposure to taste – to your life and your personal needs. 

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

China Deal Risk:  There is going to be a “big, beautiful deal” after all, we are told. No change in the assumed endpoint, but the negotiations seem to be slowing down.

Mueller Risk: We are told his report is imminent, so the risk of a surprise is imminent.  To reiterate, I am an independent and for the purposes of investing, I could care less who the President is.  I simply look at the risks to the markets should Trump be impeached OR removed, as a policy risk issue.

The risk itself is unchanged and could throw the markets into a decline if there is anything surprising in the report that would threaten a second Trump term.  Even an impeachment would not be good for the markets as I’ve stated.  Conviction by the Senate (an elusive hope so far for Dems) would be very Bearish for the market.  None of that is assumed!  There is to date no evidence of collusion, although I expect from what has been reported, the coast may be muddy, not clear, for Don Jr. and others close to Trump.

2020 Election Risk:  Read my comments on this HERE.  As I said, “Markets hate uncertainty, and the re-election of Trump is a great uncertainty.”  The election of a liberal Democrat would be an intermediate term disaster for the U.S. markets. 

Whether you like or hate Trump’s policies, and I do not like some of the aspects of his policies, particularly in terms of environmental harm, favoring the wealthy over the middle class in the tax cuts, and exploding the deficits and national debt, it is clear the financial system is fine with a moderate Democrat, but would not be fine with a socialist like Bernie Sanders. 

I agree with certain of Bernie’s principles such as decent health care for all (you should not have to ration insulin vs. food for example!) , but how you get there is another matter.  It matters a lot to the markets, whether you maintain enough profit for drug companies, so they will be incentivized to continue SUCCESSFULLY (as they have been!) to find cures for things like cancer. 

I debated Bernie on Healthcare Reform while he was campaigning on a busy road in Vermont, when he first ran for the House in 1992.  I was then on the faculty at the University of Vermont Medical School.  We parted amicably, and he saved my life by preventing me from walking into oncoming 55 MPH traffic as I turned to leave the conversation!  Thanks for that!  But Bernie, I’d advise against campaigning on narrow median strips.  😉

Fed Rate Hike Risk: Last week, the risk appeared to be rising with the stock market, but of course, as the market pulled back a bit, rates eased as investors plowed more funds into Treasuries.  That even helped gold/gold miners on Friday.  If TNX is below the January Fed day low of 2.688%, I consider it Bearish for rates (bonds higher, rates lower).  The risk of a Fed hike with easing in China and Europe (Euro dove this week on Draghi comments) is LOWER.  

Let’s get back to the technical picture, and how to invest/trade around it….

Two weeks ago: Still true! In my view, the SP500 Index would have to scale all THREE highs of Oct. 17, 2816.94, Nov. 7, 2815.15, and Dec. 3 2800.18, the latter just 8 points away, before saying the Mini Bear Market is dead.”  The S&P500 Index close Friday?  2743.07.  It had been above only the Dec. high, and now it’s back below all three highs.

The old adage, at least 360 years old, applied to the current market goes like this “Fool me once, shame on you!  Fool me twice, three, or four times, shame on me!”  It’s not impossible with the trajectory of earnings shown, that things will get progressively worse, which is why I’m not increasing my exposure dramatically yet. 

IF things do worsen vs. get better by the second half as the Bulls are counting upon, we’ll be able to add more exposure at full correction prices or better.  My practical definitions of pullback levels were posted in Oct. 2018 search on “New Rules” “Mini Bear Market” on Google and click on the Oct. 27, 2018 Issue).   Why did I bother adding at about a 3% SPX discount at week’s end?  Because you never know how low these pullbacks will go. 

Now take a look at the SP500 chart…. Orange lines are the 2017 up channel.

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

sp500-index-spx-market-timing-chart-2019-03-08-close

Coming off a lower high – again.

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Neutral, but in a pullback.  It cannot be said to be in a downtrend yet, but must hold the prior breakout of 50.60 on the pullback.  The SPX is down 5 days in a row, while INTC was down the past 4 days. 

Bank of America (BAC) Market Timing Signal:  Negative.  It fell this week and bounced on Friday from the 2-08-19 low.  Rates closed AT the bottom of the current range on Friday, so why BAC was up is curious.  Someone is wrong as I like to say!  XLF, the financial SPX sector ETF, was down just barely on Fri., but also held above the Feb. 8 low.

As I said last week, the “Only Way Up” is # 1 below.  I want to keep this here for reference…

  1. “Break out to new highs with SLOWLY rising interest rates.  This is the ONLY way UP for the U.S. stock market.
  2. Fall back to at least the October 2018 low or worse on RAPIDLY rising interest rates (which I will then call Rate Shock III).
  3. Fall back to at least the October 2018 low or worse on FALLING interest rates as the market begins to realize the economic slowing is real and as estimates of earnings continue to fall.”

The Oct. low is now is 5.09% lower from the Friday SPX close.

Now let’s go on to review investor sentiment…

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 33,889 investors are following the markets with me…

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Survey Says! 

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +10.64 vs. +21.63% last week.   Last week I said: “Every one is as cheery as they’ve been since the high in the market on Oct. 3, 2018, a high just shy of the all time high on 9-21-2018.”

I also said, “CONCLUSION on SENTIMENT: Sentiment is at a level that could point to a pullback, but it does not have to be a big one.”  I also warned that if the market moved higher than the triple top of lower highs, sentiment could rally further. 

This week sentiment is not particularly helpful, other than showing that the Bulls dwindled and the Bears grew in numbers after just a very slight pullback through Wednesday, the day the poll closes.  I favor more downside based on that, but in truth there is now room for sentiment to rise or fall.  The news on Mueller or China could cause sentiment to react significantly. 

Bulls Neutrals Bears
37.39% 35.87% 26.75%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): I pointed out previously: “Stalled out barely above the 200 day moving average.”  I also warned you it was higher beta and it has in fact fallen more to date off its high. 

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

iwm-russell-2000-market-timing-chart-2019-03-08-close

Small caps also down 5 days in a row, and down more than large caps.

 3. Gold Market Timing (GLD): GLD is now 0.69% above my sell point.  I was hoping for more downside in order to get back in at a better price than my sell price.  For GDX, I’m 2.85% behind.  I kept a covered call on a miner that is slightly under water.  I also have about 4% GLD insurance (% of investable assets) I do not touch.  I was protecting these positions vs. the rate bounce that fizzled back to the prior low.  I think it would be reasonable to increase trading exposure to gold, depending on where rates open on Monday, and IF GLD moves above a level I mention at the base of this report.

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

gld-gold-etf-market-timing-chart-2019-03-08-close

Gold falls then bounces as rates jump around.

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX):

I am now 0.25% behind on my IEF sell and 0.30% ahead on my TLT sell.  The direction of the 10 Year Treasury Yield could be decided early this coming week.  The close was right on the screws – 2.625, which is the low of the recent consolidation.  Below there, the bond Bulls are in charge. 

TNX closed Friday at 2.625% as mentioned, now below 2.688%, or what I am calling the “Fed’s gone dovish number.”  My concern is the wage growth that occurred despite the lousy 20K jobs created last month was 3.4% Y/Y, which means some inflationary pressure.  Admittedly the inflation picture is very mixed and hard to predict when world growth is slowing while U.S. wages are rising.  Follow the market and trade in the direction of the trend.  Right now?  Sideways, but testing a low!

Remember: Rates are still ridiculously low for a strong recovery scenario. 

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):

tnx-10-year-treasury-note-market-timing-chart-2019-03-08-close-final

Rates back down at the low end of the range.

Now let’s review three key market timing signals together…. 

Do not use these signals as a trading plan.  They are rough guidelines.  I currently share my own moves on social media (links above).

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

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

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!) closed at 16.05 vs. 13.57 last week, which means the Bulls and Bears are about evenly matched.  This is the fulcrum point.

UPDATE 3-11-19 10:00 am: I am going to compress the 15.94 to 15.95 and 16.09 numbers into one data point (a range as a single “point”), and it is the middle point/fulcrum by the way.  So there will now be 7 targets: 13.31, 14.04-14.08, 15.04, middle point = [15.94-15.95 to 16.09], 17.06, 17.27, and 17.89 (updated 3-11-19).  The Bulls failed to retain the 13.31 prize this week and the market fell.  The “VIX Game” at the Friday close was Bulls 3/Bears 3, as the VIX closed right in the middle of the middle VIX target at 16.05 on Friday.  As of Monday am VIX =15.38 so the score is now Bulls 4/Bears 3. 

The ‘Bull Nirvana Target’ is our V*IX # of 2018: 13.31.”  (That # is target #8 for the Bulls.)  This is not a guarantee for more gains, but it’s one goal the Bulls must attain. 

Gold Signal YELLOW  for a further U.S. stock market rally with a NEUTRAL Gold Trend.  The uptrend is broken, although the 10 Year Yield fell, which is a positive.  What gold does mostly as I’ve written HERE is follow real interest rates.  G*LD has to rise above 123.19 on an immediate basis (* added to throw off the “crawlers,” as I don’t like being part of “consensus.”)

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

Rate Signal  YELLOW  for a further stock market rally with a NEUTRAL 10 Year Yield Trend.  Follow the next move “out of the box.” 

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”   Oil is having trouble getting above the Feb. high, but WTI it is above 55.63, which was the prior breakout, closing at 55.96.

I previously warned about the Fed tightening process: “This level of the 10 Year Treasury Yield, which is too high for current conditions as explained HERE, will eventually slow the economy.”  I said, “2.621% was the peak back in 2017 when stocks did best.  Anything below that would be an improvement.”   The close on Friday?  2.625%!  Higher rates only work in a strong economy, NOT a slowing U.S. and global economy.

As for much higher rates and their possible impact, I said previously:  “All heck would break loose for equities if TNX lurches above 3.248%, particularly if the rise is rapid.  Buy long dated Treasuries as close as you can to 3.248% on the 10 Year Yield TNX (IEF, TLT, etc.).” 

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

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… 

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, go HEREIt makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.  Check it out with a free trial at the link above.  I am an affiliate of Worden Brothers, though oddly I’ve never been paid a cent by them.  If you HAVE subscribed to their service, please send me a message. 😉

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.

Posted in Bonds, gold, investment, investor sentiment, large cap stocks, S&P 500 Index, small cap stocks, Treasuries | Tagged , , , , , , , , , , , , , , , , , , , , , | 4 Comments

Market Timing Brief™ for the 3-01-2019 Close: “The Only Way Up for the U.S. Stock Market. How to Play the Move. Gold Falls Hard as Rates Shoot Up.”

A Market Timing Report based on the 03-01-2019 Close, published Saturday, March 2nd, 2019…

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

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

The Bull is in “tired mode.”  The small caps (IWM) have gone sideways for the past 6 trading days and have barely moved up for 8 trading days.  For the SP500 Index, it has been 5 days flat.  Now a review of the current risks to the market…

China Deal Risk:  There is going to be a “big, beautiful deal” after all, we are told.  What we still don’t know whether it will substantially boost U.S. GDP and hurt China by raising their import costs, or be of net benefit to China by opening up our markets even more to them.  I cannot imagine China is going to be the net GDP winner on this on in terms of the import/export component of GDP, as the whole point of the talks is to improve the situation for the long “ripped off” U.S.  I do expect China will benefit despite its bad behavior in the past as, for example, it has a huge AI effort underway that needs patent protection as much as our work in the U.S. does.

Chinese capital markets will get a huge infusion as they are included in the MSCI Indexes as has been telegraphed now even by the mainstream media.  I have been building up my China exposure, following the charts, not simply keeping tabs on the negative economic narrative.  See my social media stream over the past few weeks to see what I’ve been buying.  I am adding slowly, in steps due to the slowing in China.

Mueller Risk: To reiterate, I am an independent and for the purposes of investing, I could care less who the President is.  I simply look at the risks to the markets should Trump be impeached OR removed, as a policy risk issue. 

Mueller is still on the table as a risk to Trump tax policies, most importantly to the stock market, but even Cohen had nothing substantial to offer on collusion.  That does not mean Mueller won’t however.

Oddly enough, the risk of impeachment went DOWN on existing evidence this week as some senior Democrats say they won’t pursue it on charges for which the Senate would not convict Trump.  For example, for breaking campaign finance laws, normally there is just a fine for a breach of such laws, so removing a President on that basis would be viewed as political.   Direct collusion with the Russians by Trump would be required to impeach and convict him.  There is to date no public evidence of that.

2020 Election Risk:  Read my comments from last week on this HERE.  This is a risk that is present and will be rising as time passes toward the 2020 elections.  Markets hate uncertainty, and the re-election of Trump is a great uncertainty.  

Fed Rate Hike Risk: Rising!  I said last week:  “With the market already in full recovery as the Fed would view it, the risk of a rate hike is HIGHER now in my view.”  Rates rose quickly off a higher low this week, and the jump looks like it will continue.  The Fed is not done hiking in my view, which is completely non-consensus as virtually no one expects the Fed to hike rates.  This is why I sold my long dated Treasury holdings for a profit on 2-11-19 (see social media posts).  Yes, I walk my talk.  And it’s why I sold nearly all of my gold/gold mining position on Friday, one day later than I would have liked. But I’ll cover that in the gold section below….

Let’s get back to the technical picture…

From Last Week: This still holds! In my view, the SP500 Index would have to scale all THREE highs of Oct. 17, 2816.94, Nov. 7, 2815.15, and Dec. 3 2800.18, the latter just 8 points away, before saying the Mini Bear Market is dead” …or wounded.  The close Friday?  2803.69.  Above only the Dec. high.

GDP RISK: GDP surprised to the upside, proving once again that the Atlanta Fed does not know how to predict GDP.  Nor do other private players who pretend to know, because there are too many variables to predict.  GDP came in at 3.08% Year/Year, meaning it was up that much for the trailing one year period.  The Quarter/Quarter SAAR GDP came in at 2.6%, 44% higher than the Atlanta Fed’s prediction of  1.8% and the NY Fed’s closer guess of 2.35%.  Read more on the GDP report HERE

At this link is Econoday’s Year over Year (Y/Y) Chart (Blue Line): U.S. GDP Y/Y (Blue Line) at Econoday.com.  Note the progression of Q/Q results is not as impressive. Remember, it is the % Real (inflation adjusted) GDP change from the preceding quarter annualized, which is why the headline figure jumps around more than the Y/Y number.

2018-12-Q4-GDP Chart

Year over Year curve is OK, but the Q/Q results are slipping.

Get this!  Now the Atlanta Fed predicts Q/Q SAAR Q1 2019 GDP to be 0.3% and the NY Federal Reserve says 0.88%!  Now that they’ve proven themselves to be wrong countless times, will they finally simply by chance win the “Price is Right”!!!?  They may as well run a show called “The GDP Number is Right” every quarter and have each Fed district play on live TV.

So what gives?  If the Y/Y number is about to roll over as the comparisons to 2018 become harder, can the market simply look the other way and say “It’s transitory slowing”?  I repeat the all important point that growth stocks are only going to work if they are actually growing their earnings on an inflation adjusted basis.

If costs start rising due to rising inflation, then only companies both insulated from inflation, with sustained earnings and revenue growth are going to prosper in the stock market from here.  They will be the big winners, and we need to do our work to find them.  Throwing darts won’t work going forward. 

Take EVERY SINGLE STOCK YOU OWN and plug it in HERE at Yahoo Finance to see whether that is true for your company.   Are earnings AND revenues going up for them in 2019 and 2020?  Check your stocks!  This is something we should do for all of our stocks EACH week to follow revisions, but it’s particularly critical when the economy is slowing around the world.  Numbers keep being revised lower, and lower, and lower, week, by week, by week.

So how are earnings estimates doing for Q1 2019 after the first two months?  BAD! 

Look at the 3rd chart in the FactSet PDF HERE (it will pop up and it’s safe being a PDF), and you’ll see a DOWNTREND of earnings estimates as the SP500 Index RISES!  This cannot go on forever unless these estimates are magically raised over the next four weeks due to the stupendous China deal/whatever.   Since the SP500 Index overall has been doing badly in terms of these earnings estimates, be sure to CHECK YOUR OWN STOCKS! 

Now take a look at the SP500 chart, and then we’ll review the earnings data, which are now 96% reported…. Orange lines are the 2017 up channel.

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

sp500-index-spx-market-timing-chart-2019-03-01-close

Stalling as earnings estimates fall.

This week, earnings predictions are AGAIN even worse, while revenues have been holding up for two weeks.   That has to mean either companies are being forced to cut prices, or their input costs are rising, or both.  Check these possibilities out for the stocks you own.  The full FactSet report is HERE, and this is their site.

These are the SP500 Index Earnings and Revenue growth (or lack thereof) numbers predicted as of the Feb. 2nd vs. the Feb. 15th vs. the Feb. 22nd vs. the Mar. 1st close by FactSet, from left to right…

“For Q1 2019, analysts are projecting a decline in earnings of -0.8% -> -2.2% -> -2.7% -> -3.2% and revenue growth of 5.7% -> 5.3% -> 5.2% -> 5.2% .
For Q2 2019, analysts are projecting earnings growth of 1.6% -> 1.0% -> 0.7% -> 0.3% and revenue growth of 5.1% -> 4.7% -> 4.7% -> 4.8%.
For Q3 2019, analysts are projecting earnings growth of 2.7% -> 2.4% -> 2.2% -> 1.9% and revenue growth of 4.9% -> 4.5% -> 4.5% -> 4.6%.
For Q4 2019, analysts are projecting earnings growth of 9.9% -> 4.8% -> 4.5% ->4.1% and revenue growth of 6.0% -> 4.9% ->4.9% -> 5.1%.”

FactSet says…“For CY 2019, analysts are projecting earnings growth of 4.1% and revenue growth of 5.1%.”  That seems a stretch for earnings growth, given the numbers above, does it not?   They believe the energy and communications sectors of SPX will rise the most in price over the next year.  These two sectors surprised analysts the most for the Q4 2018 results with beats of 12.9% and 8.2%, respectively per FactSet. 

Maybe…  But as I said last week,

“This deterioration ‘should’ put the breaks on the market prior to making new highs (for SP500 Index) above those three prior lower highs given above.

If not, the market will be sending a strong message (right or wrong) it intends to move still higher.

This key pivot point is now noted in the mainstream financial press.  (Everyone now sees the 3 prior tops vs. where we are….)  My strategy?  Buying if the market can take out all three prior SP500 Index tops, and letting go of that exposure with a fairly tight stop should it move back below in a fake-out move.  You may want to take that loss if you are going to buy if the breakout occurs, and you also want to trade it more aggressively.  Or, alternatively, if your time horizon is long, you may simply choose to hold the new exposure and add again even lower.  We SHOULD see confirmatory volume on such an up move in the SPX.  If not, it could be a fake-out.  Watch for that…

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Very positive.  Bulls can say “Semis run the world, so how slow is the world going to be if there is a big semi rally led by Intel?”  There was no “island reversal.”  Yet, the stock has gone sideways for the last four market days mimicking the overall market.  A decision on the market’s direction is imminent. 

For now, the uptrend in Intel is intact…

Bank of America (BAC) Market Timing Signal:  Negative.  It has gone nowhere since 1-18-2019.  This lack of response does not confirm the higher rates we saw in the market over the past few days by the way, which is why the TNX move COULD reverse.  Read this again from last week….

“Remember the problem for the entire market:

  1. If the economy is getting better, rates generally should rise, at least over the short term, not fall.
  2. The market believes the Fed will go slower on hiking rates, because the global economy is slowing!  That means rates would fall, not rise.”  There were two more points made after this one…(find them at the link to last week’s issue to the upper right).

The Only Way UP!

The SP500 Index will either…

  1. Break out to new highs with SLOWLY rising (added 3-16-19: OR stagnant) interest rates.  This is the ONLY way UP for the U.S. stock market.
  2. Fall back to at least the October 2018 low or worse on RAPIDLY rising interest rates (which I will then call Rate Shock III).
  3. Fall back to at least the October 2018 low or worse on FALLING interest rates as the market begins to realize the economic slowing is real and as estimates of earnings continue to fall.

That means there are two bad routes for the stock market, each portending a potential 7.14% drop (to Oct. 2018 low) or worse, and one path to success.  Those who think the economy is going to be accelerating with stocks rising, without inflation, and the Fed LOWERING rates are delusional.  Rates will optimally rise slowly and the Fed will optimally hike rates slowly…

Now let’s go on to review investor sentiment and why it confirms this as a key pivot point…

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Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +21.63% vs. +13.93% last week.   Every one is as cheery as they’ve been since the high in the market on Oct. 3, 2018, a high just shy of the all time high on 9-21-2018. The spread was 23.1% on 6-13-18 at a temporary high in the market followed by a pullback of only about 3.5%.  That was in the middle of a long recovery back toward a brand new all time high.  Sound familiar to the Bulls out there?  It could happen again yes, and, yes, there is plenty of room for more sentiment upside.

And no, 20% Bears is not a key number.  That was seen (20.58%) on 5-16-18 and the market pulled back only about 1.7%.  This means the current sentiment IF we can make it over the prior lower highs noted, can continue on up and support a further rally.  You cannot use sentiment alone to trade. Only when truly extreme is it of major value, as it was in January 2018 before the market dropped precipitously.   I reported that data here as those of you who are long time readers know.

CONCLUSION on SENTIMENT: Sentiment is at a level that could point to a pullback, but it does not have to be a big one.  If the market moves higher, sentiment could also move higher, so the key is to follow the direction of the next critical move in relation to the prior THREE LOWER HIGHS in the SP500 Index. 

Bulls Neutrals Bears
41.63% 38.37% 20.00%
Thurs. 12 am CT close to poll

 

2.  U.S. Small Caps Market Timing (IWM): Stalled out barely above the 200 day moving average.  Remember this is high beta, so you will be hurt more than in large caps should the triple top become a quadruple top. 

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

iwm-russell-2000-market-timing-chart-2019-03-01-close

Stalled out. Waiting for a decision…

 3. Gold Market Timing (GLD): I dropped my exposure in terms of GLD and miners from 5.3% of investable assets to around 3.9%.  I could have kept the exposure at 5%, which is my normal “insurance” target for gold holdings, but I did not.

I said last week: “Realize any big jump in interest rates could knock down our profits.  At some point, protect your profits as it’s been a good trade, but be willing to get back in if you are wrong on any exit.”  I could have been at least a day earlier, but hesititated, which was wrong.  When you see what you see, do not hesitate.   Trade your own plan.

I will be back quickly to 5% gold exposure if I’m wrong, but what I saw on Friday was:

1. A big volatility spike with a large move by GLD by 1.70% to the downside on Friday (as well as GDX -2.43% etc).

2. a. This happened as rates shot up over a 3 day period to an extent that challenges the current 10 Year Yield trend and the view that the “Fed went dovish.” 

It did not.  Not really.  They just became less ignorant about global slowing.  The Fed went neutral and is watching and has one game left as I’ve harped upon, but the mainstream press does not understand.  They have only inflation to fight from here.  Employment is NOT an issue.  That means they will hike if they have to to contain the rising Core PCE Inflation index at a certain level.  It was at 1.9% Y/Y on Thursday.   Their target is 2%.  They say they may let it slide up a bit more, but we’ll see.  Asset prices are reinflated to levels barely below the prior high for the SP500 Index.  They have no worries about U.S. investors being sad any longer.  😉

2. b. The rate rise means higher real rates, if inflation is relatively subdued as Treasury yields rise.  Gold HATES that combination.  Why?  Because gold HATES rising real rates beyond all else. Read my article on what gold hates and loves HERE.  I can say confidently “It is worth gold!”

The Gold ETF (click chart to enlarge the chart; GLD):  Look at that obvious breach of the uptrend line….

gld-gold-etf-market-timing-chart-2019-03-01-close

Gold hates rising rates and they are attempting a new up trend.

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX):

I DID bail on long dated Treasuries on time (no need to sell short dated Treasuries out a year or so; just let them mature and extend your ladder forward in time).  OK, we’ll see what the next week brings, but for now, my sale of IEF and TLT on 2-11-19 from the lower high was just about perfectly timed.  I did not hesitate, despite all media talking the opposite way.

I wrote in a prior post:  If so [the Fed is now dovish], why are rates barely lower than when they concluded that, which was at a TNX of 2.688%?  SOMEONE IS WRONG ON RATES!   That is why I’m standing clear until I see the next big move, and sticking with short term Treasuries (see last week’s post on what I actually did!).”

TNX closed Friday at 2.755%, above that 2.688% “the Fed’s gone dovish” number.  If rates break to the next level, you can make money on following the new trend.  Yes, there is one more level to be taken out to confirm my impression and turn this nascent uptrend into an obvious uptrend. Follow me on social media (links above) to learn when this happens.

Remember: Rates are still ridiculously low for a strong recovery scenario. 

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):

tnx-10-year-treasury-note-market-timing-chart-2019-03-01-close

Rates rising in new uptrend or just another fake-out blip up?

Now let’s review three key market timing signals together…. 

Do not use these signals as a trading plan.  They are rough guidelines.  I currently share my own moves on social media (links above).

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

Stock Signal GREEN for a further U.S. stock market rally with a Bullish SP500 Index trend. (signal here is based on small caps) 

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!) closed at 13.57 vs. 13.51 last week, which correlates with the lack of progress this week for the Bulls. 

The Bears have lost ALL prior 7 targets: 14.04-14.08, 15.04, 15.94-15.95, 16.09, 17.06, 17.27, and 17.89 (updated 3-02-19).  The Bulls are approaching a big Bullish number….

The ‘Bull Nirvana Target’ is our V*IX # of 2018: 13.31.”  (That # is target #8.)  This is not a guarantee for more gains, but it’s one goal the Bulls must attain. 

Gold Signal NEUTRAL  for a further U.S. stock market rally with a BEARISH Gold Trend.  The uptrend is broken and rates are rising.  Those are Bearish for gold.  What gold does mostly as I’ve written HERE is follow real interest rates.  LAST WEEK: “If we see rates break lower, gold will keep trending up.  If not, there will be trouble ahead for all metals.”

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

Rate Signal  NEUTRAL  for a further stock market rally with a nascent BULLISH 10 Year Yield Trend. Follow the move.  I call the signal “Neutral,” because rates can move up a little if they move slowly and don’t rise too high.  With a slowing economy at present, higher rates are not a positive. 

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”   Oil is having trouble getting above the Feb. high over the past week, but unlike gold, there is no breach of the uptrend…yet.  Oil was down on Friday, while XLE was UP. 

I previously warned about the Fed tightening process: “This level of the 10 Year Treasury Yield, which is too high for current conditions as explained HERE, will eventually slow the economy.”  I said, “2.621% was the peak back in 2017 when stocks did best.  Anything below that would be an improvement.”   The close on Friday?  2.755%!   Higher rates only work in a strong economy, NOT a slowing U.S. and global economy.  Global economic growth had better pick up fast!

As for much higher rates and their possible impact, I said previously:  “All heck would break loose for equities if TNX lurches above 3.248%, particularly if the rise is rapid.  Buy long dated Treasuries as close as you can to 3.248% on the 10 Year Yield TNX (IEF, TLT, etc.).” 

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

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Note: I’ve updated my criteria for the equity signal for a further U.S. stock market rally to the following: GREEN = Bullish, YELLOW = Neutral, RED = Bearish.  In other words, the colors tell you whether the signal supports the stock rally or not, while the Bullish, Neutral, and Bearish designations are about the trend. 

A BEARISH trend signal does not mean we should not buy.  A BULLISH trend signal does not mean you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold, 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 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 2-22-2019 Close (2-25-19 China Update!): “Could a Big, Beautiful, Amazing Trade Deal Boost U.S. GDP and Send U.S. Stocks to New Highs? Gold Glimmers as Rates Stay Neutral.”

A Market Timing Report based on the 02-22-2019 Close, published Sunday, February 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.

UPDATE on China (2-25-19 10:10 am):  KBA (China A Share ETF) is now above the prior 2016-2017 consolidation band (top line of that is the horizontal red line).  It is testing a breakout with some still claiming the stimulus China is using is too small to make enough of a difference to stop the slowing trend in their economy (yes, it’s acceleration that matters, not “growth” alone in determining valuations per Ray Dalio). 

IF the trade deal is only good for the U.S. short term and long term (Trump claims its good for both countries, but we’ll see), and only good for China longer term, this trend could change quickly.  That’s the risk.  China wants “in” in terms of being a big boy/girl on the world financial scene (it’s a toddler so far, but wants to be an adult).  To do that, it has to follow patent rules etc. to protect its own scientists and engineers, and not force U.S. companies to give up their secrets to do business in China (forced tech transfer).  Plus they will have to employ more Americans to make their products for U.S. markets as the Japanese do, although I’ve heard nothing like that other than Alibaba saying it will hire Americans in 2019.  If the deal is more U.S. sided in the short term, it could cause short term pain that may haunt the Chinese stock market. 

Let’s let the market guide us! Follow me on social media to see when I start biting harder on the China trade.  No guarantees as the above indicates, but the market often leads reality…

kba-china-a-shares-index-market-timing-chart-2019-02-25-1007

China trend turning? Close!

Now back to this week’s important issue….

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

The Bull still lives, but looks tired.  This past week was a continuation of the prior uptrend in U.S. stocks, but at a slower pace.  Let’s review the current market risks…

China Deal Risk: The market is tired of the Bullish China Trade Deal narrative.  Anything that does not impact U.S. GDP in a very real and big way will be a disappointment.  If we smell a rat of a deal with China in the Year of the Rat by the way, the market will not like it.  It could fall right away.

But get this Mr./Mrs/Ms. Bull:  If it is a strong deal in GDP growth terms (or a true Trumpian “big, beautiful, amazing deal,” there would be a reason to expect economic activity to accelerate.  Then watch out for 3-5% upside on a single trading day and a continuing uptrend.  Is President Trump bringing the GDP bacon home from China or not?

For China watchers, realize this deal could HURT China short term and help them long term.  If so, the Chinese market could DROP in the short term on a deal with the U.S.  Reporters need to get at the net economic impact on both China and the U.S.

Mueller Risk: Other current risks include Mr. Mueller’s report, which if it leads to a Trump impeachment (not a given), could send the markets int0 a tailspin (from which it would recover, but it would take a while in my view).

2020 Election Risk: Like it or not, the biggest risk to the market is the election of a liberal Democrat like Bernie Sanders (said as a confirmed independent).  He will go after “wealth” in many different ways, and bring a wrecking ball to estate plans already made. Above 3.5 M, he’ll take a big chunk of every estate for the governments coffers.  Election years are a nervous time for markets, precisely because they do not know what to expect.  Few expected Trump to win, yet here he is…. 

The coming election for the Democrats is about “sweet revenge.”  They will not coast into 2020 as Hillary Clinton did.  They will go on the stump throughout the Midwest too, unlike Hillary.  Look for market turbulence (7-15% down market move or two) in late 2019 to 2020.  If Democrats put up a newbie, far left liberal like Kamala Harris (seems from appearances like a good person, but definitely green and far left), Trump will have a good shot at winning again.  I am giving you my view of the risks, not an opinion on how much you should like/dislike given candidates.  Politics matter big-time! 

Fed Rate Hike Risk: thoroughly covered for weeks now, and quickly reviewed in the rate section, #4, below…  With the market already in full recovery as the Fed would view it, the risk of a rate hike is HIGHER now in my view.

Let’s get back to the technical picture…

The Dow, which I do not regularly follow (though the media loves it by tradition), has moved above two of the three lower highs in Oct., Nov, and Dec., respectively, not to mention it’s up NINE full weeks in a row. That is a 19.45% return off the Dec. 24th closing low, a bit better than the SP500 Index’s 18.78%. That is a big return in a short period of time. 

If the market’s YTD return is replicated for the rest of the year, the annual return would be 129.33% for the SP500 Index.  Do you believe that is likely? 

Despite the Dow’s success in rising above 2/3 targets, the Dow Transports, remain below all three, which means the Dow “Buy” signal is unconfirmed in Dow Theory terms. The same is true for the S&P 500 Index.  It is within spitting distance of the December high as the chart shows, and that is its first goal.   In my view, it would have to scale all THREE highs of Oct. 17 2816.94, Nov. 7, 2815.15, and Dec. 3 2800.18, the latter just 8 points away, before saying the Mini Bear Market is dead.  

Even with that, it is theoretically possible of course, for the market to retop yet again and then fall apart as the first recession in over a decade begins.  The problem with that?  Recession is not in the data according to some of the most Bearish firms out there.   The argument that any period of time is “too long,” is a dumb argument.  History repeats itself in very rough form, but the so-called experts can be years too early with a call for a recession based on history.

This is considered a slowing period, not slowing headed to recession, though there are never guarantees trends cannot snowball in a bad way.  Inflation would be one way for trouble to break out, and it is due to rise slightly over the next few quarters.  Still, the predicted acceleration in inflation (second derivative; simple calculus) is not enough to take the markets down by itself.

The market appears to be discounting an entire 4 quarters of slowing including the one it’s already looked past, which is Q4 of 2018.  There are now three more quarters of unpleasant results to look past, although you all know the big secret don’t you?  The analysts lower their estimates and then when earnings come out, the company beats them, and then the media proclaims “They’re better than expected!”  And the stock goes up.

For the SP500 Index, there are FOUR more quarters of earnings slowing to contend with despite recovery for 6 of 11 sectors from their slump in Q4 2019 as I pointed out last week HERE

GDP RISK: Finally, drum-roll please, the government shut down GDP reporting for Jan. 28th, and that means it will be released on Feb. 28th, which is this coming Thursday.  Better be awake on Thursday, and watch the response of the market after the 8:30 am ET report on Q4 GDP.  Is a horrible number close to the Atlanta Fed’s estimate going to rule the day or will it be closer to the NY Fed’s higher number?  (both numbers are cited on my social media streams)…

Now take a look at the SP500 chart, and then we’ll review the earnings data, which are now 89% reported…. Orange lines are the 2017 up channel.

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

sp500-index-spx-market-timing-chart-2019-02-22-close

Is the Bear market over or is this one of the greatest Bull Traps of all time?

This week, earnings predictions are even worse, while revenues are holding up after the prior week’s drop.   The full FactSet report is HERE.

These are the SP500 Index Earnings and Revenue growth (or lack thereof) numbers predicted as of the Feb. 2nd vs. the Feb. 15th vs. the Feb. 22nd close, from left to right…

“For Q1 2019, analysts are projecting a decline in earnings of -0.8% -> -2.2% -> -2.7% and revenue growth of 5.7% -> 5.3% -> 5.2% .
For Q2 2019, analysts are projecting earnings growth of 1.6% -> 1.0% -> 0.7% and revenue growth of 5.1% -> 4.7% -> 4.7%.
For Q3 2019, analysts are projecting earnings growth of 2.7% -> 2.4% -> 2.2% and revenue growth of 4.9% -> 4.5% -> 4.5%.
For Q4 2019, analysts are projecting earnings growth of 9.9% -> 4.8% -> 4.5% and revenue growth of 6.0% -> 4.9% ->4.9%.”

This deterioration “should” put the breaks on the market prior to making new highs (for SP500 Index) above those three prior lower highs given above. 

If not, the market will be sending a strong message (right or wrong) it intends to move still higher.  And as you’ll see below, sentiment is not yet in the way of a further rally….

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Very positive, but I don’t like the possible setup for an island reversal (Google it please).  Hold it if you own it now, but protect your profits if the trend reverses.  As long as it stays above 50*60 (* vs. . used to throw off web crawlers!), the breakout is intact.  If you see a big reversal Monday, however, the run could be over for INTC.

For now, the uptrend in Intel is intact…

Bank of America (BAC) Market Timing Signal:  Negative.  It looks this week as though it’s forming another slightly lower high off a top.

Remember the problem for the entire market:

  1. If the economy is getting better (it’s slowing, but expected to pick up in multiple sectors by year end), rates generally should rise, at least over the short term, not fall.
  2. The market believes the Fed will go slower on hiking rates, because the global economy is slowing!  That means rates would fall, not rise.
  3. Financials’ lifeblood is the rate spread between their cost of money vs. their customer’s cost.  They make more money with higher rates vs. lower rates, not to mention the fact that many instruments out there guarantee 3-5% interest by contract.  Low rates are a big problem for the industry.
  4. A strengthening economy is the other key for financials.  It means more competition for their money, so they can charge more to customers expanding their businesses.  The global economy is slowing, and so is the U.S. economy.  No help here!

One reason for the pause in BAC is the 10 Year Yield is pausing also. Remember that IF rates rise from here rather than fall as the bond market expects (at least the media does from their Fed comments), financials will get a bit of a boost.

I will discuss rates further below, and you need to read it.  Remember two of the last negative moves in the market were due to rates rising faster than the stock market liked.  Rates going up slowly is good for financials, but rates going up rapidly is bad for the entire stock market.  The “Rate Game” is more complicated than meets the eye! 

Now let’s go on to review investor sentiment and why that could be of help…

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 33,889 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.

A Heads Up…  This week I covered in the “Room” (link just above), why you must manage your cash properly!  You should be making at least 2.3% on your cash. If you are making less, you have gone to sleep on your cash.  Bad idea, because it hurts your overall return. Click the link just below to find out more…(but don’t forget to read the rest of this issue!)…

Join the Conversation in the StockTwits “markettiming” Room

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +13.93% vs. +10.03%.   The Bear # did not budge.  The Bulls are not maxed out here.  Recent highs in sentiment have been around 20.  This means there is still room for the market to rise.  Investors are becoming a bit less fearful each week, which helps sustain the rise.  When everyone is cheery again, watch out, because the next dip/correction will hit the fan.

Bulls Neutrals Bears
39.32% 35.29% 25.39%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Still climbing, now with less than 10% upside to the all time high (ATH).  Remember this is a higher beta index than the SP500, so the swings down will be bigger – if the market ever goes down again.  😉

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

iwm-russell-2000-market-timing-chart-2019-02-22-close

Less than 10% from the top.

 3. Gold Market Timing (GLD):  I bought covered calls on a gold mining company this week (Bought the stock and sold calls against it to generate a 13.7% simple annualized return).  (If you want access to my private picks, email me using the contact box on this site.  If there are enough of you, I may be able to arrange discounted access.  Thanks.)  My exposure to metals via GLD/GDX/miners is now 5.3% of investable assets (rounded to 0.1%).  5% is often recommended, though I’ve never heard anyone say whether their 5% was vs. investable assets, or all assets including one’s house.  Adjust to taste!  If you have a lot of money in real estate, you may need less metal exposure for example, although real estate is obviously less liquid in a pinch.

Realize any big jump in interest rates could knock down our profits.  At some point, protect your profits as it’s been a good trade, but be willing to get back in if you are wrong on any exit.  Read the summary blurb at the bottom on gold to understand that the success of gold could be a warning sign for the U.S. stock market…

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

gld-gold-etf-market-timing-chart-2019-02-22-close

Gold uptrend intact.

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX):

Last week’s comments still hold.  Rates are in a holding pattern despite the fact that per every guru on Wall Street, Powell and the Fed have turned into full fledged doves, and many believe the Federal Reserve won’t hike this year!

If so, why are rates barely lower than when they concluded that, which was at a TNX of 2.688%?  SOMEONE IS WRONG ON RATES!   That is why I’m standing clear until I see the next big move, and sticking with short term Treasuries (see last week’s post on what I actually did!).

When rates make their next move, you may be able to make some money by following the bouncing ball…  On the chart below, TNX is barely above that green down trend line.  It’s also below the uptrend line in yellow.  Resolution?  Follow the move…

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):

tnx-10-year-treasury-note-market-timing-chart-2019-02-22-close

Rates are going to make a move soon!

Now let’s review three key market timing signals together…. 

Do not use these signals as a trading plan.  They are rough guidelines.  I currently share my own moves on social media (links above).

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

Stock Signal GREEN for a further U.S. stock market rally with a Bullish SP500 Index trend. (signal here is based on small caps) 

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!) closed at 13.51 vs. 14.91 last week. 

The Bulls have made tremendous progress and these targets are now targets for the Bears: 14.04-14.08, 15.04, 15.94-15.95, 16.09, 17.06, 17.27, and 17.89 (UPDATED 2-22-19).  The Bulls are approaching a big Bullish number….

The ‘Bull Nirvana Target’ is our V*IX # of 2018: 13.31.”

Gold Signal RED for a further U.S. stock market rally with a BULLISH Gold Trend.  A further GLD rally will be subject to interest rates, which will impact the U.S. dollar as explained above.  Gold can run up with stocks as it did from 2003 to 2007 and then again from 2009 to 2011.   But what it does mostly as I’ve written HERE is follow real interest rates.  If we see rates break lower, gold will keep trending up.  If not, there will be trouble ahead for all metals. 

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

Rate Signal  NEUTRAL  for a further stock market rally with a NEUTRAL 10 Year Yield Trend.  Follow the move out of the triangle.

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”  Oil made another higher high this week, so I continued buying oil stock exposure (…on the social media stream!  Links above.). 

I previously warned about the Fed tightening process: “This level of the 10 Year Treasury Yield, which is too high for current conditions as explained HERE, will eventually slow the economy.”  I said, “2.621% was the peak back in 2017 when stocks did best.  Anything below that would be an improvement.”   The close on Friday?  2.655%!

As for much higher rates and their possible impact, I said previously:  “All heck would break loose for equities if TNX lurches above 3.248%, particularly if the rise is rapid.  Buy long dated Treasuries as close as you can to 3.248% on the 10 Year Yield TNX (IEF, TLT, etc.).”  In the Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.  That’s what I called ‘Rate Shock.'”  The period of rising rates in early October was #RateShockII as I called it.

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… 

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, go HEREIt makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.  Check it out with a free trial at the link above.  I am an affiliate of Worden Brothers, though oddly I’ve never been paid a cent by them.  If you HAVE subscribed to their service, please send me a message. 😉

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, 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 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.

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 2-15-2019 Close: “They’ve Been Buying Everything! Stocks, Bonds, Treasuries, Gold, and the U.S. Dollar.”

A Market Timing Report based on the 02-15-2019 Close, published Sunday, February 17th, 2019…

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

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

If you look at the trends in the stock market since the 12-24-2018 close, the U.S. indexes are all still in strong up trends.  Then look at rates, which are falling (Bonds/Treasuries rising) and gold is rising too, along with, you guessed it, the U.S. Dollar.   If you “Bought Everything” on Dec. 24th at the close, meaning U.S. stocks (with by far the best return at 18.36%), Treasuries/Corporate Bonds (TLT and LQD 0.54% and 3.70%, respectively plus interest), gold (GLD 3.98% and GDX +6.35%),  and even U.S. dollars (0.93%), you made money vs. the close on Friday! 

Take a look at the chart (remember rates down means Bonds/Treasuries UP…

uup-us-dollar-vs-gld-gold-etf-vs-tnx-10-year-treasury-yield-market-timing-chart-2019-02-15-close

U.S. Dollar vs. GLD vs. TNX.

But, back on the ranch…here is what has happened to earnings and revenue projections in the past couple of weeks.  The full FactSet report is HERE.  These are the numbers for the Feb. 2nd close vs. the Feb. 15th close noted in parentheses…

“For Q1 2019, analysts are projecting a decline in earnings of -0.8% (-2.2%)  and revenue growth of 5.7% (5.3%).
For Q2 2019, analysts are projecting earnings growth of 1.6% (1.0%) and revenue growth of5.1% (4.7%).
For Q3 2019, analysts are projecting earnings growth of 2.7% (2.4%) and revenue growth of 4.9% (4.5%).
For Q4 2019, analysts are projecting earnings growth of 9.9% (4.8%) and revenue growth of 6.0% (4.9%).”

In other words, the market has gone higher as earnings and revenues estimates for Q4 2019 have fallen by 51.5% and 18.3%, respectively.  That’s the all important fourth quarter!  The market is supposed to be a discounting mechanism is it not?  This means investors bidding up stock prices must, if the market is not purely an emotionally driven entity, believe the U.S. economy is going to turn around fairly soon, and the earnings/revenue downturn was discounted into the December collapse, and now recovery is close at hand.

Note that the quarter over quarter numbers shown above do indicate a rise in earnings growth sequentially vs. each prior quarter in 2019. But that is not true for year over year numbers…

Recovery on a year/year basis is not expected by analysts to occur until Q4 2019, when some sectors such as materials, both consumer sectors (disc. and staples), financials, tech, and utilities are expected to a show year/year acceleration in earnings growth in the 4th quarter of 2019, although a Year/Year deceleration in earnings growth will be seen for the SP500 Index itself in Q4, as the other five sectors show earnings growth deceleration for Q4 2019.  (Ray Dalio and others have discovered that earnings growth acceleration/deceleration rule stock prices, not “earnings growth.” Please review calculus 101 to understand the difference.)

The question remains, if the market is in fact being bid up against the grain of downward earnings estimates, how high can it go?  My answer is back to the September 21st high or higher, although the catch is, the market could easily start discounting things like a Democratic sweep (both houses and the Presidency) in 2020, which would destroy everything and more than Trump and the GOP did to the tax code.   That means the U.S. stock market could as easily start declining here, at any of the 3 prior lower highs you see on the chart below, at the lower 2017 channel line, or at the 9-21 all time high.  Short term swings can be timed if the technical signals are strong (very poor or excellent buying at certain prices for example), but the longer term target cannot. 

It’s a guessing game as those of us who are wise (not old, wise ;)) enough to remember from the late 1990’s Bull run and the 2000 tech crash that followed, markets can get very, very, giddy even on the way to the slaughter house.   Things are not nearly as extreme, but determining how far Bulls can run in an up leg is not worth focusing upon.

The chart shows the prior three failures for SPY (SP500 Index ETF).   The market is still below all three of those highs, but may not be for long…

spy-sp500-index-spx-market-timing-chart-2019-02-14-1113am

Happy Valentines Day Master Market. The Fourth Kiss Goodbye?

What to do?  I would continue to add stock exposure as we rise on a stock by stock basis if you are able to invest that way.  If you must use index ETFs or funds, then add in steps and be willing to get out of any new index positions on a serious reversal.  What is serious?  It is what is serious FOR YOU.  As I like to say, “It’s your money.”  Set any mental stop you are comfortable with and stick to your plan.  Heck, based on the technical action in the market, you could buy Intel this week, but I’d trade it, rather than holding it, at least until the current slowdown reverses abroad.

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Very positive.  I state my trading set-up just below here.  We’re above there at the Friday close which was 51.66.  That move came on slightly increased volume.

Here was my advice last week: “The Bull Goalpost still remains: ‘A rise above 50.60 would change the current picture of a down trend since the June high.’  Consider buying the stock on a close above there or a move through there depending on what the market looks like if you like Intel as an investment.   I am using it here as a technical signal.”

Bank of America (BAC) Market Timing Signal:  Negative.  Rates rose just a bit on Friday, but not enough to change the trend either way really (see rate discussion in section #4 below).  Despite that, BAC rallied 2.54%.  It appeared that the market was beginning to rotate out of some tech exposure like FANG, and financials could be a sector that will benefit IF rates begin to rise again.

However, I will say for the umpteenth time as parents like to say, rates should be headed DOWN if in fact the Fed has “gone dovish.”  Rates have gone down since Dec. 24th, yes, but they are not yet crashing to new lows.  You know my take on that point from last week, so review it HERE if needed.   The discussion of rates and the Fed on “financial TV,” and their view of the Fed is beyond ignorant.

If the market climbs above the three lower highs shown in the chart above, the “Mini Bear Market” will officially be over in my view (Caveat?  NOT if the economy continues to slow into an actual recession; in that case, the bounce will lead to a Big Bear Market). 

Some may say we’d need a brand new high to kill the Mini Bear Market, but I would not wait for that.  I still favor some sort of retest toward if not to the Dec. low, but it could be a 50% retracement instead.  That may be enough to allow the Big Bull Market (Secular Bull Market) to reassert itself from what is so far, a Cyclical Bear Market (my term = Mini Bear Market).

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 33,889 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.

Join the Conversation in the StockTwits “markettiming” Room

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

LAST WEEK: “Notice the magenta downward sloping trend line coming down from the prior highs?  It’s just above the 200 day moving average.  If the market is going to fail, this looks like a good spot.  If it does not fail, the Bulls could make some nice gains.”   >>> I have been making suggestions as this market has risen on how to manage the bounce.  Read past issues for more on that… Decide on your plan and execute it.

sp500-index-spx-market-timing-chart-2019-02-15-close

Bulls winning.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +10.03% vs. +17.09% last week.  I listed 3 prior pullbacks at around +20% sentiment last week and indicated there could be a shallow pullback, and it was over in two days with an up day on Friday the 8th.  I also said the Bulls had room to run and they did, but oddly enough Bullish sentiment FELL rather than rose as the market rose, which is very atypical for a top.

My conclusion is:  We are not yet at a top.  I would not trade on sentiment alone, but it’s supportive.  Sentiment has plenty of room to run to the Bullish extremes, and on top of that, a prior AAII study showed that a Neutral % of 40% or more (close enough at 39.82%), correlates with a higher market about 80% of the time, 6 months later.  Those are two reasons sentiment can further support this bounce.

Bulls Neutrals Bears
35.10% 39.82% 25.07%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Still climbing though still selling at  a discount to the Sept. high (10%+ upside).  If the economy is in fact not going to deteriorate any further, small caps could keep plugging along to the upside.

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

iwm-russell-2000-market-timing-chart-2019-02-15-close

Small caps still trending higher.

 3. Gold Market Timing (GLD):  I bought more GLD this week.  My exposure to GLD/GDX is back up to 5% of investable assets as mentioned on social media this week.

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

gld-gold-etf-market-timing-chart-2019-02-15-close

Uptrend continues…

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX):

Rates began rising on the 11th, and I sold my TLT/IEF exposure.  All of it.   I’d rather make the 2.31% in a money market account or ladder short term T bills (buy some to mature for each month over the next year is one example) than guess where rates will go next.  Why?  Because if the market’s prior assumption is right, and the Fed expects further slowing, then rates will fall further, while if the economy is going to turn to the upside by Q4 2019, rates could start to rise again in anticipation of needed Fed action.

Rates have actually simply moved sideways since the end of January, and are triangulating now.  Follow the next move out of the triangle if you want to trade it aggressively.  I’ll let you know if I “get back in” on social media (links above).

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):  Note the bounce up off the down trend line!

tnx-10-year-treasury-note-market-timing-chart-2019-02-15-close

Rates are stuck in neutral, but about to decide on a direction.

Now let’s review three key market timing signals together…. 

Do not use these signals as a trading plan.  They are rough guidelines.  I currently share my own moves on social media (links above).

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

Stock Signal GREEN for a further U.S. stock market rally with a Bullish SP500 Index trend. (signal here is based on small caps)  I said last week, “I will call the trend Bullish when small caps rise above the Dec. 3rd high,” and they did, so I will.  The trend could end at any point as any trend can, but it’s up for now.

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!) closed at 14.91 vs. 15.72 last week.  The Bulls have made real progress and these targets are now targets for the Bears: 14.04-14.08, 15.04, 15.94-15.95, 16.09, 17.06, 17.27, and 17.89 (UPDATED 2-22-19) If the VIX spikes on Tuesday and takes all those targets back, beware!  The top could be in.  The Bulls cannot afford to backtrack much if they want to keep the rally going.

The ‘Bull Nirvana Target’ is our V*IX # of 2018: 13.31.”

Gold Signal RED for a further U.S. stock market rally with a BULLISH Gold Trend.  A further GLD rally will be subject to interest rates, which will impact the U.S. dollar as explained above. 

From before: “Remember GLD is being used as an indicator for the ECONOMY here.”

Rate Signal  NEUTRAL  for a further stock market rally with a NEUTRAL 10 Year Yield Trend.  Follow the move out of the triangle.

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”  Oil was back up testing the recent high on Friday, closing near it.

I previously warned about the Fed tightening process: “This level of the 10 Year Treasury Yield, which is too high for current conditions as explained HERE, will eventually slow the economy.”  I said, “2.621% was the peak back in 2017 when stocks did best.  Anything below that would be an improvement.”   The close on Friday?  2.666%!

As for much higher rates and their possible impact, I said previously:  “All heck would break loose for equities if TNX lurches above 3.248%, particularly if the rise is rapid.  Buy long dated Treasuries as close as you can to 3.248% on the 10 Year Yield TNX (IEF, TLT, etc.).”  In the Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.  That’s what I called ‘Rate Shock.'”  The period of rising rates in early October was #RateShockII as I called it.

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… 

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, go HEREIt makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.  Check it out with a free trial at the link above.  I am an affiliate of Worden Brothers, though oddly I’ve never been paid a cent by them.  If you HAVE subscribed to their service, please send me a message. 😉

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, 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 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.

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

Market Timing Brief™ for the 2-08-2019 Close: “Bigger Pullback Ahead? The Wall Street Earnings Game: Beating Low Expectations. Gold and Treasuries Strong.”

A Market Timing Report based on the 02-08-2019 Close, published Saturday, February 9th, 2019…

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

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

As I discussed last week, Master Market and his spokespeople think “the Fed went dovish.”  Not really.  Cramer’s gushing about what “a good guy” Powell is this week vs. when he was basically using his “They know nothing!” line on him just weeks before is silly. Powell will raise rates if his mandate tells him to, Jim or no Jim on his side.

The Fed has a single mandate with employment at the current level and that is to prevent inflation much above their 2.0% PCE Inflation Index number.  They won’t hike unless they have to, so perhaps that’s a minor win, but they won’t lower rates to “save the stock market” without economic data to support it.  Otherwise they become the President’s puppets.  He’s trying to stack the Fed with easy money people he can manipulate.

And get this straight please!  The Fed going dovish IS NOT GOOD!  Rates are supposed to rise in a recovery, so if in fact this is a recovery, rates should be rising!  If they do rise, good for the Bulls.  If not, good for the Bears.  The Fed lowers rates after raising them when the economy is already going to heck in a handbasket.  Watch Treasury Rates!  Specifically, watch the 10 Year Yield as we do here every single week…

The China Trade Deal was back in the danger zone this week with rumblings that China and the U.S. were far apart in coming to an agreement.  Trump won’t hike tariffs to 25% though I do not believe, because it would provoke the Chinese.  The Chinese leaders are not the most flexible souls in the world, and they are not going to bend too far for Trump.  Trump needs the markets to calm down so the capitalists love him more than the socialists now running for President hate him.  Everybody is looking for love. He’ll feel pressured to make a deal.  If he does not, and he brings on the 25% tariffs, the markets will dive.  That would mean Economic World War III. 

No news on Trump colluding even after the indictment of Roger Stone.  Lots of talk out there, but nothing to bet on…

Speaking of Liberals…  The single biggest threat to the market other than global economic slowing is the election of a liberal Democrat along with a  Democrat sweep of both House and Senate.  The danger is a politically violent reaction to everything Trump has done taxwise.  Everything will be out the window in terms of what the market cares about most.

Back to the old estate tax levels or worse.  Back to the Obama tax rates or worse.  Back to the old corporate tax rates, which were already not competitive with the rest of the world, though the cuts did not promote much besides buybacks!  I would have written the bill differently.  The bill should have forced them to invest the repatriated money in the U.S. in order to bring it back at the low tax rate.

Extreme conservative choices are about to give birth to extreme liberal choices, and if this happens, the reaction of the market to a Democratic sweep will be harsh, because all the tax law changes will drive earnings down in a big way.

Speaking of Slowing Earnings Growth. It’s Especially Bad for Companies with More Sales Outside the U.S. 

Read the details HERE from FactSet.  From their report:  “The blended (reported and estimated results) earnings growth rate for the S&P 500 for Q4 2018 is 13.3%. For companies that generate more than 50% of sales inside the U.S., the blended earnings growth rate is 16.6%. For companies that generate less than 50% of sales inside the U.S., the blended earnings growth rate is 8.4%.”

In other words, the companies that are inside the U.S. have earnings growth rates that are about double those doing business outside the U.S.  And that is just the average, so be sure to determine where the companies you own as a shareholder lie on this curve!  The FactSet revenue numbers were 7.0%, 7.2% and 6.7%, respectively, so earnings were hurt more than revenues in percentage terms.

But that was just 2018!  2019 numbers are even worse as they detail with the three earnings numbers (same order as above) 5.0%, 6.7%, and 1.9%, respectively.  Revenues are expected to be 52.5% for the companies focused outside the U.S. vs. those focused at home.

If the economy accelerates, good.  Then stock prices deserve to rise.  If not, they will fall further. 

Additionally, FactSet reports that the blended results and predictions are…

For 2018, companies are reporting earnings growth of 20.2% and revenue growth of 8.9%.

For 2019, analysts are projecting earnings growth of 5.0% and revenue growth of 5.1%.

If a PEG (PE to Earnings Growth Rate) ratio means the PE of a company is related to its earnings growth rate, then what do you think a drop of earnings growth from 20.2% to 5.0% means?  Trouble.  Do you really believe the stock market can ascend back to the prior highs based on those numbers, or a wild guess that things will be better “later”?  If you do, back up the truck.  If not, trade cautiously from here.  If you buy, buy the companies that will maintain earnings growth!  Do not buy the dogs hoping for a generalized economic recovery in the next 6 months… 

No one can truly explain why this bounce has been as vigorous as it has been given the economic facts ahead.  The lousy GDP results from Q4 have yet to be reported due to the shutdown by the way.  Some said the market was just so oversold, it HAD to bounce.  Well, be sure not to anchor on the past.  As you read in the sentiment section shortly, there could be more to this pullback even if it’s to a higher low.  The economic data suggests to me we’ll retest the prior Dec. 26th intraday low or penetrate it.

Read my comments on the VIX near the end of the report and my brief from last week on my trading strategy in case of a further rise in the market HERE.

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Negative. My goalpost was dead on!  The market rose intraday on 2-05-19 to 50.72 and then fell back below the 200 day moving average (mav).  

The Bull Goalpost still remains: “A rise above 50.60 would change the current picture of a down trend since the June high.”  Consider buying the stock on a close above there or a move through there depending on what the market looks like if you like Intel as an investment.   I am using it here as a technical signal. 

Bank of America (BAC) Market Timing Signal:  Negative.  The stock fell further from Tuesday to Thursday and bounced a bit when rates FELL on Friday.  That makes no sense in terms of the impact of spreads on banks, so don’t expect much from BofA until rates start to rise consistently.

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 33,829 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.

Join the Conversation in the StockTwits “markettiming” Room

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

Notice the magenta downward sloping trend line coming down from the prior highs?  It’s just above the 200 day moving average.  If the market is going to fail, this looks like a good spot.  If it does not fail, the Bulls could make some nice gains.

sp500-index-spx-market-timing-chart-2019-02-08-close

Pivot point.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +17.09% vs. +0.00% last week.  This compares to (NOTE: The percent losses are all quick estimates using charting software, so they are rough):

6-13-18     23.1%    High followed by 2.39% pullback

8-29-18     19.1%     High followed by 1.13% pullback

10-03-18    20.5%   High followed by 6.4% pullback

2-06-18    17.1%      2.0% pullback so far

More Bulls showed up this week.  Each of the past highs at similar levels has come with a pullback.  Sentiment at this level however is not at an extreme, so there is more room for the Bulls to play if they choose.

Bulls Neutrals Bears
39.87% 37.34% 22.78%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): It’s a very risky choice to buy a stretched bounce in the small cap realm due to the higher beta of these stocks.  They rise more on bounces, sometimes with a lag, but when they fall, they fall very hard…

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

iwm-russell-2000-market-timing-chart-2019-02-08-close

Above down trend, but is this a lower high?

 3. Gold Market Timing (GLD):  I’ve been buying GDX as a proxy for GLD with more beta as the trend is up for now.  I bought GLD on Tuesday during a slight dip.  Buy the dips in gold and gold stocks until the trend changes in my view. 

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

gld-gold-etf-market-timing-chart-2019-02-08-close

Gold uptrend continues, but watch rates and the US dollar.

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX):

Dumb Master Market gave us rising rates in a counter trend move Friday and Monday, when it had previously responded by falling when the Fed turned more dovish with its tail between its legs.   Now it’s back down testing the prior low.  Rates moving higher would signal a turn in the economy is indeed coming OR inflation is coming, which is why we follow both GDP and inflation!  For now, I’m holding my Treasury exposure.  

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):  Note the bounce up off the down trend line!  DATE ON THE CHART SHOULD OBVIOUSLY BE FEB. 8TH.

tnx-10-year-treasury-note-market-timing-chart-2019-02-08-close

Held at higher low. Market decision pending.

Now let’s review three key market timing signals together…. 

Do not use these signals as a trading plan.  They are rough guidelines.  I currently share my own moves on social media (links above).

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

Stock Signal NEUTRAL for a further U.S. stock market rally with a NEUTRAL SP500 Index trend. (signal here is based on small caps)  I will call the trend Bullish when small caps rise above the Dec. 3rd high.

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!) closed at 15.72 vs. 16.14 last week.  The Bulls have made progress and these targets are now targets for the Bears: : 15.94-15.95, 16.09, 17.06, 17.35 and 17.98.  V*IX is now barely below its recent downtrend line.   The market has a decision to make, likely as early as Monday morning.

The immediate Bull target is 15.04.  The ‘Bull Nirvana Target’ is our V*IX # of 2018: 13.31.”

The V*IX Downtrend Line is at 15.84ish barely above the close on Friday at 4:15 pm ET.

Gold Signal RED for a further U.S. stock market rally with a BULLISH Gold Trend.  A further GLD rally will be subject to interest rates, which will impact the U.S. dollar as explained above. 

From before: “Remember GLD is being used as an indicator for the ECONOMY here.”

Rate Signal  NEUTRAL  for a further stock market rally with a NEUTRAL 10 Year Yield Trend. Because it fell to the prior higher low and stopped, I’ll call it neutral for now.  The bias is down, but the market is expecting a recovery based on the jump in stock prices.  But won’t estimates for future 2019 quarters to be reported come down even more as Europe and China continue to slow? 

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”  Oil fell back from a failed breakout which is Bearish, but the recent end of Jan. pullback has held its fall so far.  50ish could hold the fall and provide the next bounce if it breaks further however.

I previously warned about the Fed tightening process: “This level of the 10 Year Treasury Yield, which is too high for current conditions as explained HERE, will eventually slow the economy.”  I said, “2.621% was the peak back in 2017 when stocks did best.  Anything below that would be an improvement.”   The close on Friday?  2.632%!

As for much higher rates and their possible impact, I said previously:  “All heck would break loose for equities if TNX lurches above 3.248%, particularly if the rise is rapid.  Buy long dated Treasuries as close as you can to 3.248% on the 10 Year Yield TNX (IEF, TLT, etc.).”  In the Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.  That’s what I called ‘Rate Shock.'”  The period of rising rates in early October was #RateShockII as I called it.

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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, go HEREIt makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.  Check it out with a free trial at the link above.  I am an affiliate of Worden Brothers, though oddly I’ve never been paid a cent by them.  If you HAVE subscribed to their service, please send me a message. 😉

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, 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 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 , , , , , , , , , , , , , , , , , , | 2 Comments