Market Timing Brief™ for the 5-25-2018 Close: Bulls Have a Slight Edge. Small Caps Hold Their Breakout. Gold Below Support. 10 Year Yield On the Line.

A Market Timing Report based on the 5-25-2018 Close, published Sunday, May 28th, 2018…

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

1.  SP500 Index Market Timing (S&P 500 Index®; SPY, SPX): What did the Intel-igent Signal say this week? INTC closed at 55.44 for the week with the breakout at 54.36.  The signal is now again positive for a continued large cap rally, but it has already reversed once before.

I warned you last week about the Bank of America signal, and the stock is even weaker than it was last week, which is correlated with rates moving back down. The chart set-up is more Bearish than Bullish with lower highs off a base.

The SP500 Index is still above that key 4-18 top at 2717.49.  The VIX volatility index closed Friday at 13.22, below the Bull 13.31 target we’ve been following.  That alone is Bullish, yet there was a reversal from earlier gains for the Bulls in volatility terms.  The “volatility decision” has yet to be fully made about which way the market will turn from here.

The earnings season was strong, and yet companies like Intel have said they are not sure how solid the second half of the year will be.  This uncertainty is leading to tentative trading, but overall, the Bulls have a slight edge.  Until that changes, I would recommend maintaining a Bullish stance, perhaps with somewhat less exposure, as is the case for me at the moment.  You can see my recent messages on my exposure level at the links just below.

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 33,480 people are joining in…

Follow Me on Twitter®.  Follow Me on StockTwits®.

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

sp500-index-market-timing-chart-2018-05-25-close

SP500 Index still, but barely, above the pivot.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +13.40% vs. +16.10% the prior week.  Sentiment is not at an extreme, so it is not particularly useful at this point.

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
38.56% 36.27% 25.16%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): The breakout is intact, and I have added to my position on the small pullback.  I would not like to see a reversal below the last breakout at this point.

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

iwm-russell-2000-small-cap-index-market-timing-chart

Small cap breakout still there.

3. Gold Market Timing (GLD): The US dollar has moved up, but rates have eased just slightly, and that was enough to move GLD up a bit, but not enough to matter.  GLD will have to rise above 124.10 to change the picture.

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

gld-gold-etf-market-timing-chart-2018-05-25-close

Gold Chart Bearish still.

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX):  Rates have eased back below the 2.944% low, but further progress is needed below 2.911%. The 30 Year Treasury Bond Yield is in the same position and is within 0.01% of breaking to a new low.

First review the rate chart below and then look at the signal updates…

U.S. 10 Year Treasury Note Yield (click chart to enlarge; TNX, IEF, TYX,TLT,TBF):

tnx-10-year-treasury-note-market-timing-chart-2018-05-25-close

Rates easing.

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 SIGNAL AND TREND SUMMARY for a Further U.S. Stock Market Rally with GDP Growth and Low Inflation:

Stock Signal GREEN with a Bullish SP500 Index trend.  The SPX retook the 4-18 high and the VIX dropped below 13.31. 

Gold Signal  GREEN with a Bearish Gold Trend.  Gold broke down to new lows and the trend is down. See test above.

Remember GLD is being used as an indicator for the ECONOMY here.  The new recent LOW in GLD turned the signal GREEN. 

Rate Signal YELLOW with a Bullish 10 Year Yield Trend.  The loss of the last breakout is significant, but another push lower is needed to take out the last low. 

I have been calling rising rates a “positive” thing for U.S. stock market gains as that is what normally happens in the late stage of recovery, yet the current situation is very abnormal.  For this reason, I will call rates above my 2.676% number, but below the 3.036% prior breakout YELLOW.  “Bullish” for yields is Bearish for bonds and vice versa. There is a twist here.  This level of the 10 Year Treasury Yield, which is too high for current conditions as explained HERE, will eventually slow the economy.  The market will likely be far happier if rates stay within a lower range, while not too low and not too high.

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. 

Explanation: Note that a BEARISH signal does not mean we should not buy.  A BULLISH 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 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.

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question…  Pay it forward too by sending the link to MarketTiming.Blog (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 to my “Other Resources” page here:  Other Resources   It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.  Check it out with a free trial at the link above.

Finally: Excuse and report all typos if you are so moved.  I do my best to pick up most of them, but can’t find them all.  Shoot me a comment (I don’t have to post your typo report as I filter them, but I’ll be grateful to you!)

Copyright © 2018 By Wall Street Sun and Storm Report, LLC All rights reserved.

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

Market Timing Brief™ for the 5-18-2018 Close: Small Caps Lead Large. Gold Breaks Down. Rates Spike. More to Come?

A Market Timing Report based on the 5-18-2018 Close, published Saturday, May 20th, 2018…

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

1.  SP500 Index Market Timing (S&P 500 Index®; SPY, SPX): What did the Intel-igent Signal say this week? INTC closed at 53.50 for the week with the breakout at 54.36.  The signal is NEGATIVE for a continued large cap rally in other words, but can reverse back up from here, so keep following it with me.

I warned you last week about the Bank of America signal and when rates eased a bit on Friday, BAC rolled over below the 50 day moving average.  Remember that average is not a great trading signal, just a landmark that gives you a quick idea of how strong a stock is.  Generally stocks are weak if they are rolling over and falling below that moving average line, especially if the line is falling rather than flat or rising.

What about that “Big Picture” this week?  The Big Picture is that of a second set of LOWER double tops, lower than the last double top back in the end of Feb. into March.  But the large caps are still in the upper part of the 2017 channel, which says they are still on trend in that sense, despite the big loss off the over-exuberant top we saw back in January.  (Read last week’s issue to catch up on that: HERE.)

Furthermore, with the small cap breakout out to new highs, there is hope for large caps.  Small caps had a very strong earnings season, and as they carry greater risk (“high beta”), we would expect them to lead the way down if the market were about to fall apart.  They are not.  They are leading instead.

Interest rates did hit fresh highs this past week as I’ll cover below in more detail, but then eased.  I believe that if the 10 Year Treasury Rate continue to climb next week toward 3.25%, stocks will be pressured.  You need to read the last few issues to really hear this, but it’s not the rate LEVEL that is important; it is the rate of change of rates that is key.  A fast climb in rates will cause another episode of “Rate Shock” as I discussed here back on February 11th.

Volatility is burning off as I’ve been telling you for weeks now. The VIX Volatility Index close was at 13.42 on Friday.  I would have preferred a close below 13.31 with a stronger close above the 4-18 high of 271.30.  The SPY close was 271.33.  The SP500 Index itself closed at 2712.97 vs. a 4-18 high of 2717.49.  Not good enough, although only 0.17% below that high.  That is a lower high and a failed breakout, despite the SPY close. Long time readers and social media followers know that these numbers are discerned by carefully watching the behavior of the market.  These closes are what I call “cute.”  A little above on the VIX, a negative, and a little above for the SPY, a positive, but with the SP500 Index below its 4-18 high, this is not a pattern that says the market’s decision has been made.

I recently adjusted my exposure down a bit by taking off some profits in Google and Netflix as examples.  My exact exposure is something I publish fairly soon after each trade in or out of the market on social media (be sure to follow me on Twitter as well as StockTwits as sometimes there are access issues, and I cannot post to one or the other – links are below).

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 33,480 people are joining in…

Follow Me on Twitter®.  Follow Me on StockTwits®.

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

sp500-index-spx-market-timing-chart-2018-05-18-close

Large caps are trailing small caps.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +16.10% vs. +7.98% the prior week.  This is still not too Bullish to prevent more upside from here, and the percent of Neutrals is Bullish for prices 6 months from now as loyal readers know well.  The latter fact was proven by AAII research on the sentiment patterns that matter.  The Bears are getting low in number, which is one cautionary sign, but there are plenty of neutrals to convert. 

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
36.68% 42.74% 20.58%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Small caps have broken out to a new all time high.  Still, midcaps, which I favor over the long term are leading small caps vs. the 2009 low.  Small caps took a bigger hit in the 2015 and 2016 downdrafts and fell behind. This also does not take the larger dividend of the midcaps into account.  The returns including dividends of the three major indexes each starting with $10,000 on 3-06-2009 are:

SPY IJH IWM
375.82% 433.66% 417.88%
$47,582.00 $53,366.00 $51,778.00

The winner since 2009 is IJH, the midcap ETF, but since Feb. 27th, the small caps have been outperforming the midcaps by a significant margin, while both have left SPY in the dust.  The data is from this handy calculator you may want to check out HERE.

SPY IJH IWM
-0.73% 3.37% 6.21%

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

iwm-russell-2000-market-timing-chart-2018-05-18-close

Small caps are strong. New Breakout.

3. Gold Market Timing (GLD): The U.S dollar kept moving up and pushed GLD below important support and even below the line I drew in the sand after Trump was elected, saying that gold should go below there if the economy is strong.  There is something different though now with rates where they are and that is that real interest rates are higher.  Gold hates rising real rates as much as it hates a rising U.S. dollar.  We have both.  You should have exited trading gold positions by now.  If you haven’t, I would sell on the first new high in TNX  (see chart below) or in the first new high in the US dollar .

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

gld-gold-etf-market-timing-chart-2018-05-18-close

Breaking down on strong dollar and higher real rates.

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX):  Rates are too high for current economic conditions.  As I said HERE last week, the Federal Reserve is likely to be the cause of the next economic contraction as it seeks to put a brake on inflation, which is its sole mandate now that unemployment is low in their view.  The Treasury/Bond Bulls need to see a reversal below that top green line for starters. 

Any encouraging signs?  Yes.  The 30 Year Yield just gave up a new breakout this past week, closing at 3.210% below the prior tops at 3.221% and 3.219%.

If the opposite happens, and rates rise to a new high this week, I predict the U.S. stock markets will choke, and emerging markets will gasp. 

First review the rate chart below and THEN I’ll go over signal updates…

U.S. 10 Year Treasury Note Yield (click chart to enlarge; TNX, IEF, TYX,TLT,TBF):

tnx-10-year-treasury-note-market-timing-chart-2018-05-18-close

Rate trend is still up. A reversal of any breakout is important to watch for though.

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 SIGNAL AND TREND SUMMARY for a Further U.S. Stock Market Rally with GDP Growth and Low Inflation:

Stock Signal Neutral with a Bullish SP500 Index trend.  The higher high above the 4-18 high was lost for the SPX, but not for SPY; however, the price is still in the upper part of the 2017 upward channel, so the trend is still up.  VIX must move below 13.31 on Monday, and SPX must retake the 4-18 high. 

Remember the small caps are GREEN already, but I cannot give the entire market a GREEN light when the large caps have not confirmed the small cap signal.  Buy pullbacks in small caps but do not buy a reversal below the highs shown.  Use stops on new purchases on a close below those highs – meaning get out if the small caps fail.

Gold Signal  GREEN with a Bearish Gold Trend.  Gold broke down to new lows and the trend is down. See test above.

Remember GLD is being used as an indicator for the ECONOMY here.  The new recent LOW in GLD turned the signal GREEN. 

Rate Signal  GREEN with a Bullish 10 Year Yield Trend.  A new high cannot be refuted.  Bears need a reversal.  

Remember this GREEN signal is a signal for a “further stock market rally” as it’s being used here.  Remember also “Bullish” for yields is Bearish for bonds and vice versa. There is a twist here though.  This level of the 10 Year Treasury Yield, which is too high for current conditions as explained HERE, will eventually slow the economy.

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. 

Explanation: Note that a BEARISH signal does not mean we should not buy.  A BULLISH 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 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.

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question…  Pay it forward too by sending the link to MarketTiming.Blog (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 to my “Other Resources” page here:  Other Resources   It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.  Check it out with a free trial at the link above.

Finally: Excuse and report all typos if you are so moved.  I do my best to pick up most of them, but can’t find them all.  Shoot me a comment (I don’t have to post your typo report as I filter them, but I’ll be grateful to you!)

Copyright © 2018 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 5-11-2018 Close: The One Thing that can End the Bull Market. Gold Bounces per Script. Rates Rising More or Not?

A Market Timing Report based on the 5-11-2018 Close, published Saturday, May 12th, 2018…

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

1.  SP500 Index Market Timing (S&P 500 Index®; SPY, SPX): What did the Intel-igent Signal say this week? INTC closed at 54.67 for the week with the breakout at 54.36.  The signal is positive for a continued rally in other words, but cannot reverse from here, so keep following it with me.  The prior Bank of America signal does not look that good as it is barely above the 50 day moving average and rates seem to have eased a bit off 3%.  Higher rates are what banking investors want most.  I have to admit that with inflation rising for another 1-2 quarters, investing in the banks may work here.  Since it will be short lived, it’s a trade though, not a static investment proposition.

What is the truly BIG chart picture?  The Big Picture is this: The SP500 Index is back on trend.  The big picture is that the run up into the end of January was hyper-enthusiasm at work due to the one time “earnings growth benefit” of the tax cuts.

What do I mean?  It’s simple math.  The tax cut gives many corporations, though not all, a big tax break, but it’s a one time adjustment to the earnings capacity of the company, rather than a continued source of growth with one caveat I’ll get to in a moment.  It allows companies to retain and then share more of their earnings, which is very positive, but it does NOT necessarily add to growth of earnings in the subsequent year.  In fact, companies will be reporting a deceleration of earnings due to the loss of the tax cut benefit in earnings GROWTH throughout 2019, unless they invest the new money productively in growing enterprises, which immediately add to earnings, which only some companies will end up doing successfully.  The new enterprises have to immediately spin off cash that can be reinvested in further new enterprises that immediately spin off cash once again to keep the earnings growth ball in the air.

If a company made 10 million in earnings in 2017, let’s say their tax benefit under the Tax Bill was 1 million, so they’ll make 11 million in 2018.  That added 10% earnings growth for 2018 without the company doing anything, but the base earnings for next year assuming zero growth this year will be 11 million, not 10 million, and it must go up due to top and/or bottom line earnings growth for their growth numbers to be better.

Investors pay for current earnings yield for sure, as companies who make lots of money can successfully invest it in new business, in dividends, in debt retirement, and in share buybacks, but investors also pay for growth of earnings and revenue.  They will have to come up with new tricks for 2019 to keep the earnings ball in the air.  They cannot invest the money in enterprises that will take years to show a profit to keep that earnings growth ball levitated.

Going back to the chart, we see that what happened on 2-09, 4-02, and 5-03 was a test of the rising 2017 long term channel base, which is the lower magenta line in the chart below.  What happened is the added premium investors placed on the SP500 Index from the very end of November to January 26th was lost and stocks went into a series of volatile moves each time testing the rising 2017 lower channel line.

NOTHING REALLY HAPPENED!  is my astounding conclusion if you take both the crazy rise of stock prices and their fall into equal account.  Overvaluation of stocks vs. trend went away, but there is no evidence of a “Bear Market” in the making…yet.   There was a “Rate Shock” as I told you back in February, but the markets have readjusted for now and are back on trend. 

The current VIX reading at 12.65, below all useful support levels and below the peaks achieved in Nov. and Dec. 2017, says “it  is likely over.”  If Trump is impeached, because of something we don’t know now, the quiet will be over, but as I said on social media, you cannot protect yourself from the unknown.  If you do that as a plan, you will have lousy results as an investor. Remember, I am not saying here that there are no risks; in fact, I name the number one risk facing the stock markets just below…

As I like to say, when the market changes, I change, because stubborn = dumb.  Bears have things to gripe about including global slowing showing up in China (vs. prior growth rates) and Europe, but it’s not recessionary.  PE ratios could be challenged, but there should be no Big Bear Market as I defined it HERE, until financial conditions deteriorate.

Let’s look at the major threats:

Trade Wars: As I predicted last week, the market is already quickly forgetting the ongoing process of trade negotiation with China, our NAFTA partners and Europe.  I will call Trump’s bluff on this one and say it will all come down to a negotiated win win series of agreements.  It has to be resolved positively, as everyone realizes selling into a smaller market does not increase opportunity for anyone!

• Recession: Not in the picture, though slower growth moving from China and Europe to the U.S. could be, which would contract PEs (bring prices down) but not cause a “Big Bear” as I just said.  We could be dragged below the 2017 trend however, because our multinationals depend on foreign markets.

• War with North Korea: Not happening apparently any time soon.

• War with Iran: Trump won’t allow it to get to that. He actually hates the idea of money wasting wars and bloodshed more than some other Presidents despite his bluster.  The U.S. will have to watch the current tiff between Israel and Iran however and not let it get out of control.  He’ll renegotiate the nuclear deal somewhat – enough for him to save face and Iran to continue to sell their oil.  He is right that Iran is a regional negative and destructive force that must be contained, be he won’t be easily led into a war with Iran as some say Bolton would like.

• Runaway Inflation: One thing that HAS happened is that the inflation rate has moved up to a point fairly close to the Federal Reserve’s target of 2.0% PCE Index inflation.  This in turn did shock the stock markets via “Rate Shock” as I called it HEREBut runaway or even more rapidly rising inflation is not likely in near term due to economic slowing in China and Europe. Their slowing puts less pressure on input prices.  In addition, the Federal Reserve learned its lesson under President Jimmy Carter, when rates went up to 15%!!!  They know they cannot allow that to happen again.  They will be proactive on inflation and that is their main focus now, not jobs as it was before.

• Rising Interest Rates: This is the number one threat I see, namely, the Federal Reserve ending or seriously damaging the Bull market.  The Federal Reserve will be reacting to a rising CPI Index for the next quarter or two, before inflation falls again.  I have said several times that current interest rates are contractionary as detailed HERE.  They are probably something stocks can withstand at these slightly elevated levels, but NOT is they continue much higher than the current range to 3.036%.

Under different global circumstances, rates of above 3% would mean nothing, but not in the current context.  So I disagree with Jim Cramer on that as he said the market no longer fears rates above 3%. Look where they are now…back below 3%.  Let’s talk again if they hit 3.5%. 😉

Note the breakout above the triangle and the higher high…and review the signal summary below please.  The next test for the Bulls to the upside will be the top of that key 2017 Channel (ascending orange line).   This maps out to about 2757 for the SPX and about 274.90 for SPY.  Remember the number changes daily as the top of the channel is slanted up.

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

sp500-index-spx-market-timing-chart-2018-05-11-close

SP500 Index breaks up above the triangle with another higher high..

See what my exposure is at the social media links just below… I raised it a bit more this past week.

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 33,466 people are joining in…

Follow Me on Twitter®.  Follow Me on StockTwits®.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +7.98% vs. -1.85%.   This does not change my stance on sentiment from last week.  Read what I said HERE (scroll past the SP500 Index chart).

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
33.51% 40.96% 25.53%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Small caps are just a bit behind big tech in terms of leadership.  The rising dollar trend should moderate though as the global economy slows and U.S. rates stay relatively low vs. where they would be in a normal world without ridiculously low rates abroad supporting economies that are growing very slowly.  I am continuing to hold my mid cap allocation as noted before, although the outperformance vs. large caps is a bit less than for IWM.  Small caps have more debt than large caps, so the exposure to rising rates is higher for small cap companies pressed to meet their interest rate payments.  Keep an eye on the debt level and the expense line associated with it for individual companies you own of all sizes.

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

iwm-russell-2000-market-timing-chart-2018-05-11-close

Small caps still leading large.

3. Gold Market Timing (GLD): The U.S dollar had a 3 day lull in its rise, so gold caught a break off the prior lows.  This dance will continue unless as I reminded you last week “all heck breaks loose!”

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

gld-gold-etf-market-timing-chart-2018-05-11-close

Gold rises off its lows just in time.

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX):  I said 2 weeks ago: “If inflation is still heading up as mentioned, rates should NOT break down below the 2nd green line from the top.”  There was no breach.  There was a bounce.  If inflation is going to rise for 1-2 quarters, rates could rise as well. This could pose problems for stocks as the Federal Reserve would be likely to continue raising rates as its focus is now exclusively on inflation, not jobs.  They would tolerate more inflation if the jobs numbers were bad, but they are not.

First review the rate chart below and THEN I’ll go over signal updates…

That top line was a 12/31/2013 intraday high of 3.036% that I was referencing.  The 4/25/18 high was 3.035%.

U.S. 10 Year Treasury Note Yield (click chart to enlarge; TNX, IEF, TYX,TLT,TBF):

tnx-10-year-treasury-note-market-timing-chart-2018-05-11-close

Rates did not make it through 3% but could as inflation creeps 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 SIGNAL AND TREND SUMMARY for a Further U.S. Stock Market Rally with GDP Growth and Low Inflation:

Stock Signal GREEN with a Bullish SP500 Index trend.  There is now a higher high and this must NOT reverse.  Last week I said: The SPX must break the triangle shown to the upside to become Bullish again…  It’s done that and gone to a higher high with the VIX collapsing below 13 to 12.65.

Gold Signal  YELLOW with a Neutral Gold Trend.  Same advice: “Now the advice is “Buy the low” if we get back there for more aggressive traders, OR preferably buy when you see the dollar falling for the 2nd or 3rd day.”  We are near a key low now.  If you bought the low, you are already a bit ahead, but watch rates and the U.S. dollar like a hawk!

Remember GLD is being used as an indicator for the ECONOMY here.  A new recent LOW in GLD will turn the signal GREEN. 

Rate Signal  GREEN with a Bullish short term 10 Year Yield Trend but barely this week, as we’re just 0.01 above a key number as discussed above.  Rates fell from the 2014 high of 3.036%, but the TNX is still above the prior breakout level of 2.943%.  If it breaks that level, it becomes Neutral Trend. 

Remember this too is a signal for a “further stock market rally” as it’s being used here.  Remember also “Bullish” for yields is Bearish for bonds and vice versa. There is a twist here though.  This level of the 10 Year Treasury Yield, which is too high for current conditions as explained HERE, will eventually slow the economy in my view (not to mention Gundlach’s view).

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. 

Explanation: Note that a RED signal does not mean we should not buy.  A GREEN signal does 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 profits should be taken.  YELLOW does not mean the end of the Bull or Bear. It means look for possible 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-election period.

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question…  Pay it forward too by sending the link to MarketTiming.Blog (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 to my “Other Resources” page here:  Other Resources   It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.  Check it out with a free trial at the link above.

Finally: Excuse and report all typos if you are so moved.  I do my best to pick up most of them, but can’t find them all.  Shoot me a comment (I don’t have to post the comment as I filter them, but I’ll be grateful to you!)

Copyright © 2018 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 5-04-2018 Close: SP500 Bull Bear Fight Continues. Gold Ready to Bounce or Break? Rates Teetering.

A Market Timing Report based on the 5-04-2018 Close, published Sunday, May 5th, 2018…

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

1.  SP500 Index Market Timing (S&P 500 Index®; SPY, SPX): Did the Intel-igent signal from Intel flash this week either Bullish or Bearish?  I would say no as it was 52.73 on the close the prior Friday and this Friday it was 52.78.  Hardly progress.

A major question being asked by Bears is “Is this as good as it gets?”  And these people don’t eat with plastic forks and harass their waitresses either.  Well, maybe they do the latter.  But are profits as good as they will get this cycle, or is there more to come?  If there is less to come, that means growth is slowing, and if growth is slowing the valuations of growth stocks in particular must come down.  If a stock is selling at a PE ratio of 25, well above the market, and does not have growth to match it of roughly 25%, it no longer deserves that PE ratio (that is a very rough approximation of course).

Facebook, for example, according to Yahoo Finance has a PEG ratio of 0.87 vs. 5 year expected growth, while it sports a PE ratio of 20.23 on a forward basis and a PE of 32.77 on a trailing twelve month basis (TTM).  Skyworks (SWKS), which recently fell on speculation Apple would fall short in its earnings report, has a PEG ratio of 0.88 with a forward PE of 11.86 and a TTM PE of 21.79.  If Facebook earnings were to start growing at a lower rate due to increased costs of kicking terrorists off its network, while Skyworks’ prospects remained constant, it would be logical for Facebook’s price to fall vs. Skyworks’.

If earnings have peaked out, because there are no more tax benefits to accrue and adding to that, Europe and China are slowing vs their prior growth rates, so our multinationals cannot sell as much into those markets, then PE’s should adjust downward, and the hit will be most brutal for the high growth companies with expectations that have been inflated by the recent extraordinary conditions of loose monetary policies around the world.

Speaking of China, the Trump negotiators headed by Sec. Mnuchin failed to secure any meaningful concessions from China on first report.  This could continue to pose downside risk to the markets, should Trump decide “we need to take a hit” for the long run and wage a trade war.  The current state of things, namely the huge deficit we have with them goes back many years and should have been dealt with structurally long ago, but politicians just don’t have the insight or guts to do it.  So here we are….

My view of things is that they could stretch out the trade yapping long enough that the market will cease caring about it.  If they bring it to a head by instituting the big tariffs right away, things could get messy.  Americans will pay in the form of higher prices if we do have a trade war, which means less income to buy things, which means a slower U.S. economy.

Let’s assume the best outcome.  Even if there is no all out trade war, instead, a gradualist approach, Trump is not impeached (no clear evidence to date whatever you or I think of him), and the U.S. economy slows but does not move into negative GDP status (recession), the markets could easily see more PE compression particularly in high growth companies, which means prices fall.  Stocks that are better valued vs. their growth will come down less hard and bounce sooner.

But that does not mean you can avoid all losses by being in value stocks.  Markets become highly correlated during big declines.  In addition, valuation is relative and as tech companies actually become reasonable in valuation after falling, and investors do buy them eventually.  Off the 2000-2003 Tech Crash lows, you made more by buying growth stocks than value stocks.

In 2006-2007 as the SP500 was peaking, value stocks were doing better, but then did worse during some periods after the market started to fall apart due to the housing crisis.  The overvaluation of tech stocks in that period was not as extreme as it was for the dot.com stocks. Moral of the story?  You won’t be able to hide in value stocks if the market goes into a true “Big Bear Market” or even a “Mini Bear Market” as I’ve called them (see definitions HERE in BLUE).

What actions should be considered?  I’ll summarize that at the end of this brief, but first, have a look at the SP500 Index Chart and then we’ll move on to investor sentiment…

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

sp500-index-spx-market-timing-chart-2018-05-04-close

Stuck in a triangle.

See what my exposure is at the social media links just below… I raised it a bit more this past week.

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 33,466 people are joining in…

Follow Me on Twitter®.  Follow Me on StockTwits®.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -1.85% vs. +11.36% a week ago.  As my long term readers know by now, generally, only the extremes of sentiment are helpful in predicting turns in the market such as the January signal that flashed a big warning.

One number, not the spread, is actually Bullish.  The high neutral number has an above 80% correlation with the stock market being up 6 months from now per AAII.  Remember, this is just one signal I follow and other things need to fall into place before I will add to my current exposure (revealed at links above).   But this week’s data do say “Be cautious about selling now.”

If you sell, sell the stretched points in the charts, not the lows.  And consider adding back exposure when the charts are stretched to the downside, as I did several times over the past couple of months.  My last timestamped buys were on 4-24 and 4-25, right at the prior low with additional adds this week.  Because I had already added back enough exposure, there was no reason to add broad market exposure on 5-03, in case you were wondering.

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
28.40% 41.36% 30.25%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Small caps have been leading off the 1-26 all time SP500 Index high.  They have both fallen less and risen more quickly off the lows.  Recently off the April 2nd low, IWM is up 5.13% vs. SPY, up 3.32% including dividends (per a site that is “not secure,” although Norton rates it as safe: HERE).  IF the U.S. dollar continues up, which will occur IF rates keep going up in the U.S., THEN small caps will continue this out-performance.  Meanwhile, small caps are also stuck in a triangle, but leaning UP.

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

iwm-russell-2000-market-timing-chart-2018-05-04-close

Small caps still triangulating too.

3. Gold Market Timing (GLD): As I explain in a prior article on this site (Google “When does gold shine and when does it decline?”), gold only goes up WITH the U.S. dollar when there is financial panic.   Since the dollar started going up on 4-19, gold has gone down.  Rates have slowed their rise, so the dollar has too.  Gold MUST hold its obvious base of support.  Otherwise…it heads down another notch.  Selling now is “selling late” most likely.  If rates keep climbing, GLD will likely fall well below the orange line shown.

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

gld-gold-etf-market-timing-chart-2018-05-04-close

Gold and the dollar are linked arm and arm.

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX):  I said last week: “If inflation is still heading up as mentioned, rates should NOT break down below the 2nd green line from the top.”  In dog terms, the market “peed on my number.”  For those adverse to canine urinary analogies, “it verified 2.943% as an important target this past Friday.”  Falling back below that level is a sign of possible economic slowing in the U.S.  as mentioned.  Rates should keep climbing IF the expansion is continuing based on current policies…and your hard work! 

First review the rate chart below and THEN we’ll talk strategy:

U.S. 10 Year Treasury Note Yield (click chart to enlarge; TNX, IEF, TYX,TLT,TBF):

tnx-10-year-treasury-note-market-timing-chart-2018-05-04-close

Rates should stay at these levels or move higher until the inflation rate falls.

How about actions to consider? (I wrote about some other ideas on a prior action list on How to Beat This Market HERE) This list is updated for the current circumstances, but the prior list still applies.)

  1. Lowering your exposure to tech stocks and other highly valued companies if they begin to report softer numbers. Do it quickly when weakness arises, because you’ve seen how fast the market can punish stocks these days. Don’t think you’ll “ride it out.”
  2. Preserving profits that you have using trailing stops. You must consider volatility in doing so. Give more volatile stocks more room than less volatile stocks. Using trailing stops based on volatility, you can avoid giving up all of your hard earned profits.  One suggested trailing stop I saw at the SP500 top was around 9.5% from the top, for example, but for the much more volatile Amazon, at that same time, the trailing stop suggested was about 18.5% below the market price.   I don’t use any single system to determine exits, but I use a specific system, which I pay for, as a wake up call especially for individual stocks that are much more volatile than the indexes.  I must at least have a clear idea as to why I am staying in the stock or index if my chosen alarm system goes off…  If you would like access to a better system to determine volatility adjusted stops like this, please send me a note via the contact box HERE.
  3. If you lower your exposure in one market, consider moving those assets to markets that are working, but be careful not to move from one slowing market to another.  “XYZ Country is cheap, so I can buy it” is a dumb approach unless you can wait 10-15 years to get your money back. Cheap can remain cheap for years.  And cheap can become cheaper!
  4. Simply raising your cash level by taking some profits on the swings up in particular. You can sell lower on breakdowns in charts, OR you can sell the bounces to lower highs. Your choice! Holding more cash will reduce your gains if the market goes straight up from here, but holding none does not allow you to buy back lower should the market fail miserably.  If you aren’t sure about this, take a small amount out of the market such as 10% vs. what you normally hold – if you normally hold 60% stocks, you would move to 54% for example.  Even that will give you more flexibility on a big decline.  Some of you will choose to be more aggressive, especially if you need to preserve college funds or if you are overdoing it as far as your stock exposure is concerned.  To each, his or her own…
  5. Realize that inflation can create the illusion of having your stocks “do OK,” while after inflation you are actually losing real net worth.
  6. Realize that investing in a time of higher inflation is NOT like investing in a time of lower inflation. Right now inflation is rising. Inflation sensitive businesses are being hit hard right now (consumer staples), because they cannot immediately raise their prices as their input prices go up. Eventually they do, however, because they are forced to in order to survive and their competitors are also raising prices anyway.
  7. Realize the period of higher inflation may be a brief window, because the world could move back into a deflationary, low growth mode after the near term period of rising inflation. In other words, higher inflation and Federal Reserve tightening can lead to profit recession and disinflation and then to economic contraction and deflation. The upshot of this is that I am going to lengthen the duration of my Treasury holdings/bonds when I see interest rates peaking and stick to individual bonds. If interest rates move straight down from here, then I’ve missed this window already, although I did go out as far as 1 year with new cash.
  8. Whatever you do, as I said on my prior list, in general, DO NOT CHASE STOCKS. If you chase them, please be willing to SELL them if your thesis fails, in order to limit losses.  Buy Low, Sell High!  That is the current game we’re in. In these Bearish periods, it’s usually wise to “let that one go,” if you fail to buy something fast enough, such as buying Apple at the high on Friday AFTER the Buffett news. That would have been a BAD trade regardless of the outcome!  If Jack makes money by being dumb, good luck to him in making that work in the long term.  If you have no system, you won’t be able to reproduce your good results consistently based on random thoughts leading to stock chasing.

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 SIGNAL SUMMARY for a Further U.S. Stock Market Rally with GDP Growth and Low Inflation:

Stock Signal YELLOW with a Neutral SP500 Index trend.  For 2 weeks I’ve said: “The S*P*Y must reclaim 266.77 (S*P*X 2674.78), which it could do Monday to turn back to neutral.”  The close was at SPY 266.02, still below that number.  The SPX must break the triangle shown to the upside to become Bullish again, but a close above 266.77 is the next step for the Bulls. 

Gold Signal  YELLOW with a Neutral Gold Trend. Last time I said: “Now the advice is “Buy the low” if we get back there for more aggressive traders, OR preferably buy when you see the dollar falling for the 2nd or 3rd day.”  We are near a key low now.  If you bought the low, you are already a bit ahead, but watch rates and the U.S. dollar like a hawk!

Remember GLD is being used as an indicator for the ECONOMY here.  A new recent LOW in GLD will turn the signal GREEN. 

Rate Signal  GREEN with a Bullish short term 10 Year Yield Trend but barely this week, as we’re just 0.01 above a key number as discussed above.  Rates fell from the 2014 high of 3.036%, but the TNX is still above the prior breakout level of 2.943%.  If it breaks that level, it becomes Neutral Trend. 

Remember this too is a signal for a “further stock market rally” as it’s being used here.  Remember also “Bullish” for yields is Bearish for bonds and vice versa. There is a twist here though.  This level of the 10 Year Treasury Yield, which is too high for current conditions as explained HERE, will eventually slow the economy in my view (not to mention Gundlach’s view).

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. 

Explanation: Note that a RED signal does not mean we should not buy.  A GREEN signal does 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 profits should be taken.  YELLOW does not mean the end of the Bull or Bear. It means look for possible 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-election period.

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question…  Pay it forward too by sending the link to MarketTiming.Blog (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 to my “Other Resources” page here:  Other Resources   It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.  Check it out with a free trial at the link above.

Finally: Excuse and report all typos if you are so moved.  I do my best to pick up most of them, but can’t find them all.  Shoot me a comment (I don’t have to post the comment as I filter them, but I’ll be grateful to you!)

Copyright © 2018 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 4-27-2018 Close: S&P 500 Index Back to Mid-Channel and Triangulating. Gold Stuck in a Range. Rates Retesting Breakout.

A Market Timing Report based on the 4-27-2018 Close, published Sunday, April 29th, 2018…

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

1.  SP500 Index Market Timing (S&P 500 Index®): I told you last week that despite great earnings for the SP500 Index in general, the market was not able to hold a close above a key number (revealed HERE).  This week the close was again just below the key numbers for the SP500 and SPY despite blowout earnings by many companies including Facebook, Amazon, Microsoft, and Intel.

Intel is the case study of the week as it shot up in a big way in the afterhours session after their earnings release to 57.75, but then closed down 0.60% at 52.73, a discount off the top of 7.5%.  It was also a failed breakout.  This happened because the company’s CFO said that Intel expected another strong quarter of growth for Q2 2018, but was not as certain about growth going into the latter part of the year.

The reason for this slowing for Intel in the 2nd half is likely that growth is slowing in Europe, China, and Japan on an incremental basis, and U.S. growth may be about to slow in turn after the rest of the world slows.  For China and the U.S. at least, growth may slow, but is not likely to turn to recession in the near future.  The Fed does not see that for the U.S. out to 2020.  It sees slowing growth, but not recession.

As for US GDP released this week, it showed a steady climb over the past numerous quarters to a Year over Year rate of growth of 2.9%.  Take a look at the chart HERE.

Below is the data for the headline GDP number, which fluctuates more wildly, released by the U.S. B.E.A.  Growth has re-accelerated while Trump has been in office.  Remember businesses were the biggest winners in the Tax Bill.  You can see GDP for this past quarter more than doubled that seen in 2017’s first quarter:

2018-Q1-GDP-gdp1q18_adv_chart

U.S. GDP Seasonally Adjusted Annualized Rate of Growth. Rising still ,year over year.

Can the SP500 Index return at least a modest amount this year without another wild period of volatility?  Volatility (VIX) must break down further, but it’s headed in the right direction for a Bullish outcome – down.  Growth will be slower into the last half of the year, but still will be positive.  Earnings will keep growing for that reason, but at a lower rate with tougher comparisons vs. the prior year.  This will cause some stocks to fall to recognize slower rates of growth.

Make sure the individual stocks you own are not shaky in their earnings outlook this year and set stops on your profits in them rather than do what I call “Ride the pony back down the hill.”  If you have huge profits, why give them all back? 

The chart?  It’s really looking better with gradually higher lows being made off the Feb. low.  We are back to the middle of the channel formed in 2017, and climbing…a bit.  The close was not terribly strong as it was below my breakout number, which is shown at the green arrow.  The up trend must take out that number and continue with volatility falling in turn.

I have been sharing the key volatility numbers with my followers on social media (links below).  Don’t disregard them when you are considering entering the market or exiting.  They have been useful guides in this higher volatility period we’ve been in.

When volatility is very high, you need to be more careful than ever about where you buy and sell.  And you need to have stops on any new buys in case you are wrong.  (Always keep them to yourself, rather than put them in the market unless you need to step away. Realize they can be triggered by swoons (computer driven flash crashes), so never put a protective stop far below the market!  It’s one of the dumbest things an investor can do.)

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

sp500-index-spx-market-timing-chart-2018-04-27-close

SP500 Index back in mid-channel but below my pivot number on Fri.’s close. Still, rising off a low.

SP500 Index Triangulating (SPY): You can see the same thing on the chart above, but I pointed this out on 4-25 for SPY.  Follow the direction of the move!  This is an old version of the chart. We are now at 266.56, right smack in the middle of this market timing triangle…

spy-sp500-etf-index-market-timing-chart-2018-04-25-close

Follow the resolution of the triangle.

See what my exposure is at the social media links just below… I raised it this past week.

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 33,461 people are joining in…

Follow Me on Twitter®.  Follow Me on StockTwits®.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +11.36% vs. +8.56% a week ago.  This level of sentiment is not that helpful, as it is not at an extreme.  Individual investors are still more Bullish than are the advisor group.  The advisor group led the market up, and we have to wonder whether they will lead it down, but for now, individual investors are taking down some exposure (outflows from stock funds/ETFs recently), but are not expressing extremes of optimism or pessimism.

I warned you HERE in January about extreme optimism among individual investors and the fallout came to pass just as predicted.  We are not at such a tradeable extreme at the moment.

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
36.91% 37.54% 25.55%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing: Small caps have been leading for a while, possibly related to the stronger U.S. dollar, as mentioned last week.  You can see the same sort of triangle forming here as for the large caps.  Follow the resolution of the triangle.  The rising 200 day moving average is a reasonable approximation for the lower part of the triangle formed by the prior major lows.  The yellow line shown is the top of the triangle.

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

iwm-russell-2000-market-timing-chart-2018-04-27-close

Follow the resolution of the triangle.

3. Gold Market Timing:  Inflation is still set to rise for the next two quarters, which means higher rates, which means a rising dollar at this point as the rest of the world experiences slower GDP growth with falling bond yields.  Dollar up, gold down continues.  My trading advice has preserved your profits if you listened. 

For the immediate term, rates are pulling back a bit, which will weaken the dollar and strengthen gold.  It may be the time or about time to add back to trading gold positions, but watch that market timing low.  It MUST hold.  I personally would not add gold until inflation slows again in 1-2 quarters – if it does.  I would also not fight the U.S. dollar trend until it rolls over more definitively.  If the U.S. dollar trend resumes in the upward direction, GLD will fall…

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

gld-gold-etf-market-timing-chart-2018-04-27-close

Trade the range!

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX):  If inflation is still heading up as mentioned, rates should NOT break down below the 2nd green line from the top.  A market timing break below there would be one confirmation that U.S. GDP deceleration is in the cards for 2018, which would cause the Federal Reserve to turn dovish. 

U.S. 10 Year Treasury Note Yield (click chart to enlarge; TNX, IEF, TYX,TLT,TBF):

tnx-10-year-treasury-note-market-timing-chart-2018-04-27-close

Rates slip a bit. Will the up trend resume?

In the last issue I reviewed “How to Beat This Market” HERE

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 SIGNAL SUMMARY for a Further U.S. Stock Market Rally with GDP Growth and Low Inflation:

Stock Signal YELLOW with a Neutral SP500 Index trend.  Last week I said: “The S*P*Y must reclaim 266.77 (S*P*X 2674.78), which it could do Monday to turn back to neutral.”  I am going to shift from that view to recognize that being mid-channel and mid-triangle is about as neutral as you can get.  I would see the reversal UP through that level as Bullish if it sticks.  A quick test above means nothing.

Gold Signal  YELLOW with a Neutral Gold Trend.  Now the advice is “Buy the low” if we get back there for more aggressive traders, OR preferably buy when you see the dollar falling for the 2nd or 3rd day.

Remember GLD is being used as an indicator for the ECONOMY here.  A new recent LOW in GLD will turn the signal GREEN. 

Rate Signal  GREEN with a Bullish short term 10 Year Yield Trend.  Rates fell from the 2014 high of 3.036%, but the TNX is still above the prior breakout level of 2.943%.  If it breaks that level, it becomes Neutral Trend. 

Remember this too is a signal for a “further stock market rally” as it’s being used here.  Remember also “Bullish” for yields is Bearish for bonds and vice versa. There is a twist here though.  This level of the 10 Year Treasury Yield, which is too high for current conditions as explained HERE, will eventually slow the economy in my view (not to mention Gundlach’s view).

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. 

Explanation: Note that a RED signal does not mean we should not buy.  A GREEN signal does 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 profits should be taken.  YELLOW does not mean the end of the Bull or Bear. It means look for possible 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-election period.

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question…  Pay it forward too by sending the link to MarketTiming.Blog (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 to my “Other Resources” page here:  Other Resources   It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.  Check it out with a free trial at the link above.

Finally: Excuse and report all typos if you are so moved.  I do my best to pick up most of them, but can’t find them all.  Shoot me a comment (I don’t have to post the comment as I filter them, but I’ll be grateful to you!)

Copyright © 2018 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 4-20-2018 Close: Markets Rolling Over? Gold Falling into Rising CPI? Rates Rising to the Sky?

A Market Timing Report based on the 4-20-2018 Close, published Saturday, April 21st, 2018…

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

1.  SP500 Index Market Timing: The US equity markets were trending up for 6 out of 8 days in the last run up.  Volatility was coming down gradually from well above 20 after peaking at 50.30 on 2-6-18.  The markets first major low off the all time high was on 2-09-18 three days later.  At the last high of the market on 4-18, volatility was rising rather than falling, which was a hint of things to come.  The market then fell Thursday and Friday, importantly, below the high of the previous prolonged consolidation (sideways move).  The top of that move was S*P*Y 266.77 and the close was at 266.61.  (I add the * signs here and on my social media feed to avoid bots finding the numbers.  May as well not make it easy for them!)

Earnings were not enough to keep the market above this key level, which is a negative.  On the positive side, professional investors at least are maximally Bearish at this point, which is one sign things are getting too negative.  I’ll get to individual investor sentiment later, which is NOT as Bearish.  Advisor sentiment LED individual sentiment on the way up, and I suspect it’s now leading on the way down.

The close below that level is negative, but not necessarily lethal, though my measures of buying strength did not show enough buying interest off the low on Friday to make the market a buy.  The S&P500 Index needs to recapture that level early on Monday to avoid further damage.

As I said on StockTwits/Twitter (links below) on Friday, the most Bearish intepretation is that the chart is the perfect picture of a market rolling over once again after a failed rally to just above the 50 day moving monkey average.  “Monkey,” because using it as a trading signal is not very useful.  It’s just a marker along the way and one has to assess market strength in any one moment to know whether a marker means something or not.  Notice how the market tested above this moving average twice before this for the two prior lower highs.  Some investors are pulled in as the market moves above the line and then the big boys and girls come in and “Sell, sell, sell!” as my friend Jim Cramer likes to say (not a drinking buddy no; just exchange comments from time to time).

The really big economic number coming out this next week (Fri. April 27th, 8:30 am ET) is GDP, the first estimate for Q1 2018.  Econoday says HERE that headline U.S. GDP (Seasonally Adjusted Annualized Rate of Growth) will be:

Real GDP – Q/Q change – SAAR Prior 2.9 % Consensus 2.0 % Consensus Range 1.3 % to 2.8 %

Two independent sources stated last week that they expect the headline GDP number to fall at the low end of that range, which could be taken negatively by the market.  You see, we know profits will remain strong throughout the year for the SP500 on a quarter by quarter basis vs. the same quarter of 2017, but we don’t know if revenues will continue at the prior growth level.  In fact, GDP is supposed to slip into the end of 2018 even according  to the Fed’s dot plots.

Remember, Trump/GOP Tax Reform has given companies an instant pass on earnings for the entire year.  That creates a much higher earnings bar for 2019  This means that immediate earnings are not as important going forward as are revenue growth and company profit projections into 2019. 

You had better be sure the companies you own shares of have more to say than “Profits are up for this year, but…as for 2019, it’s not going to be as hot or we see lower revenues in Q3 and Q4 of 2018 than we expected.”  Those stocks will tank.

Let me turn now to the potential drag of slowing growth around the world outside the U.S.  This will hurt U.S. multinationals.  This chart of France’s PMI is just one example showing how things are slowing already in Europe as shown HERE.  The same slowing is reported in China a major source of U.S. multinational sales growth.

The point of this?  U.S. GDP growth is slated to decline into the back half of 2018.  If interest rates rise much further AND oil prices continue to climb, profits will be hit from both the revenue side and the cost side, especially for companies with the most debt.

Trump and the GOP are successfully generating inflation, because they chose to engage in a late economic cycle stimulus.  When you push an economy already running at 4%ish unemployment, you create inflation.  As a fiscal conservative, I never liked the idea.  If they wanted to cut taxes, they should have cut spending along side the tax cuts!  I am very happy to be an independent as BOTH parties are now being led by big spenders!  Trump warned the electorate that he “loves debt.” And here it is…piling up in a massive National Debt that he intends to dump on our kids and grandkids!

The upshot of TrumpFlation is higher gas and other prices that will compete away dollars received in the form of higher wages in a tight labor market.  This will in turn drive down corporate profits, leading to a profit recession and as GDP slumps, possible stagflation or a return to deflation if the economy rolls over and the Fed is forced to lower rates to zero again.  The economy can stand mild inflation, but not high inflation, and global slowing is likely to dampen U.S. multinational profits and even create a profit recession.  Outright economic recession could follow that, but we’ll have to let time pass to see the trajectory of U.S. GDP.

All that said, what do I expect in the near term? (one or two quarters)

I expect somewhat higher inflation with corporate profit growth slowing (except for energy and commodity companies).   Profits will initially stay positive and that alone will help markets from falling to a brand new low.  This means that stocks could hold up OK and stay in a trading range between the 200 day moving average or the February low at the low end and the all time high at the high end.

On the Bullish side, I cannot rule out a complete re-topping of the market, short of any big negative events such as a Trump impeachment (unlikely in my view at this point despite the speculation; plenty of people could fall around him without Trump himself being impacted).  Investors will be looking for higher yields in both stocks and debt.  As inflation rises, bonds will take somewhat of a hit, and dividend bearing stocks will be pressured despite the attempts to chase returns.

Then as GDP growth and inflation slows into year end 2018, yields will ease and provide a better trading opportunity in bonds and Treasuries of longer term duration.  Stocks will could then slump further on decreased growth.

Summary: A range bound U.S. stock market for one to two quarters, then a fall to new lows as the U.S. economy slows on a lag to the rest of the world.  The risk is that the U.S. stock market starts to discount foreign slowing early.  This would hit multinationals hardest and then small and mid caps if/as such slowing continues.  On the plus side would be a GDP growth surprise from the tax cuts.   This is why we consider the fundamentals, but then follow the charts!  😉

The top of the range we were following was between 2672.08 and 2674.78.  Let’s follow the higher of the two as the “switch point.”

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

sp500-index-spx-market-timing-chart-2018-04-20-close

Rolling over to the prior low?

See what my exposure is at the social media links just below…

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 33,400+ people are joining in…

Follow Me on Twitter®.  Follow Me on StockTwits®.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +8.56% vs. -16.66% TWO weeks ago.  Sentiment did not become Bearish enough over the prior two weeks to say we hit a reasonable sentiment low.  Unlike advisor sentiment which is extremely Bearish by reports, individual sentiment was mildly BULLISH at last check.  This favors more immediate downside at least to the prior levels of support.  This is, however, only ONE factor I follow and these non-extremes have to be discounted vs. the true massive extremes such as the one I spotted in January before the big decline.

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
37.78% 33.00% 29.22%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing: Beginning March 2nd, small caps have been outperforming.  BUT they are now forming another lower high, which is not great.  The out-performance may be due to a feeling that international slowing is leading U.S. slowing, which will pinch U.S. multinational profits first.  However, small caps will not do well if inflation rises further than expected, as they tend to carry more debt.  That gives small caps a mixed risk picture vs. large.  If you intend to stick with a small cap position, continue to follow their leadership over large and rotate when that fails.

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

iwm-russell-2000-market-timing-chart-2018-04-20-close

Small caps still leading large…so far since the 1-26 top.

3. Gold Market Timing:  Still following the U.S. Dollar like a little puppy.  

The same trading advice applies as well: Preserve gold profits if you have them and ADD to your positions only if gold can break the obvious lid to the upside. 

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

gld-gold-etf-market-timing-chart-2018-04-20-close

Dollar up, gold down.

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX):  Rates are already much too high for the current economic conditions.  They went higher this week, so this adds further “cost input pressure” to stocks.  Higher rates and oil prices both lead to higher input costs.

U.S. 10 Year Treasury Note Yield (click chart to enlarge; TNX, IEF, TYX,TLT,TBF):

tnx-10-year-treasury-note-market-timing-chart-2018-04-20-close

Challenge of 2014 high ahead?

 

In the last issue I reviewed “How to Beat This Market” HERE

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 SIGNAL SUMMARY for a Further U.S. Stock Market Rally with GDP Growth and Low Inflation:

Stock Signal YELLOW with a Bearish SP500 Index trend.  The S*P*Y must reclaim 266.77 (S*P*X 2674.78), which it could do Monday, to turn back to neutral.  I would see that reversal as somewhat Bullish actually if it sticks.  A quick test above means nothing.  Testing the prior low sooner rather then later could still be constructive, but buying there would require a reasonably tight stop!

Gold Signal  YELLOW with a Neutral Gold Trend.  Same as before: “You may as well wait to buy a breakout in gold as the distance to the top is not that great.  Preserve gold profits if you have them.”

Same Idea as Last Time: The failure to make a new high makes the trend “Neutral” for me rather than Bullish.  To Repeat: Remember GLD is being used as an indicator for the ECONOMY here.  A new recent LOW in GLD will turn the signal GREEN. 

Rate Signal  GREEN with a Bullish short term 10 Year Yield Trend.  Yes it changed since my last issue.  Resistance is just overhead at 3.036% though.  The market may signal being overbought when we get there.  We shall see.  

 To Repeat: “Remember this too is a signal for a “further stock market rally” as it’s being used here.  Remember “Bullish” for yields is Bearish for bonds and vice versa. 

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. 

Explanation: Note that a RED signal does not mean we should not buy.  A GREEN signal does 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 profits should be taken.  YELLOW does not mean the end of the Bull or Bear. It means look for possible 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-election period.

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question…  Pay it forward too by sending the link to MarketTiming.Blog (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 to my “Other Resources” page here:  Other Resources   It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.  Check it out with a free trial at the link above.

Finally: Excuse and report all typos if you are so moved.  I do my best to pick up most of them, but can’t find them all.  Shoot me a comment (I don’t have to post the comment as I filter them, but I’ll be grateful to you!)

Copyright © 2018 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 4-06-2018 Close: Stock Market On the Edge. How to Beat the Market Now. Gold Since the SP500 Top – a Smaller Loss. Rates In Downtrend.

A Market Timing Report based on the 4-06-2018 Close, published Sunday, April 8th, 2018…

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

1.  SP500 Index Market Timing: What’s changed in a week?  Not much. We are dealing with the same old range that has held our attention for 10 market trading days now.  This is day trading heaven, if you catch the swings correctly.  It’s sort of like “swing trades” compressed into single days!

During the ups and downs of the last 2 months, I’ve been taking off exposure on some of the breaks and more recently on the bounces and putting on exposure at the lows.  But not at the Friday low.  I was not convinced by the VIX volatility index that the water was safe to re-enter.  At the same time, on a technical market timing basis, adding near the low Friday was a reasonable thing to do, provided you are willing to SELL that exposure if support fails.

I discussed last week that earnings could well save the S&P500 this coming week.  Earnings start in earnest on Friday with a couple of large companies reporting Weds. and Thurs. (detailed on social media; links below)  They had better save it, because you can see the alignment of support in the chart below at the lower yellow up trend line, which is very close to the 200 day moving average as well as to the recent lows of the wild consolidation we’ve been in for two trading weeks. That triple support had better hold.

As said, the 200 day moving average is just a guide and not a trading signal.  In fact, if you used it as a signal over the past two weeks, you’ve experienced whiplash.  I assess what the market is doing in other ways at a given level, rather than key off the level itself.

We are now at the decision point and the lines in the sand are easily seen.  The first transition is from a “correction” to a “Mini Bear” should the market fall from here.   A “Mini Bear Market” will occur by my definition if we close and continue below the ultimate support (Feb. intraday low is the final checkpoint).  A quick test below is not enough.  A “Mini Bear” will in turn only becomes a “Big  Bear” under the conditions that I laid out in detail HERE (Bear Types defined there too! See the blue text).

Trump Tariffs are not a market killer yet, just a market maimer.  The best Bulls can hope for (I am a market and political independent, not a Bull, Bear etc.) is very strong earnings and projections.  Watch the reaction to early earnings and especially Friday earnings carefully.  It could define an early pattern of what to expect with other companies and especially the market as a whole. 

I promised to tell you the best ways to WIN in this rough, volatile market, but I’ll save that for the end… Let’s review the SP500 Market Timing chart and then look at the small caps…

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

sp500-index-spx-market-timing-chart-2018-04-06-close

Recovery vs. Bigger Drop?

See what my exposure is at the social media links just below…

Keep up-to-date during the week at Twitter and StockTwits (links below), where a combined 33,400+ people are joining in…

Follow Me on Twitter®.  Follow Me on StockTwits®.

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -4.74% vs. -3.39% last week.  The change is almost insulting to the volatility in the market!  😉  This raises a note of caution about the probability of a strong rally from here, even if a bounce occurs.  The data is not decisive however, as it is not at an extreme of Bullishness either.  It’s mildly Bearish.

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
31.90% 31.47% 36.64%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing: Small caps are still outperforming SPY both from the 1-26 high and from the last high.  Comments from last week still apply HERE.  The Friday close was just off the low of the current consolidation range just as it was for SPY.  The market timing setups are about the same with IWM floating at a higher level vs. the Feb. low.

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

iwm-russell-2000-market-timing-chart-2018-04-06-close

Down Friday, but what will earnings bring?

3. Gold Market Timing:  The Gold ETF (click chart to enlarge the chart; GLD): is following the U.S. Dollar like a little puppy.  Gold is not following rates well now, and it makes sense that the dollar and rates are less correlated as well.  The market does NOT see rising rates as good for the U.S. dollar or the U.S. equity market, which it would be if the economy were going to be even stronger going forward.

Preserve gold profits if you have them and ADD to your positions only if gold can break the obvious lid.  Gold is holding up better than SPY during this correction, but is still down about 1.5% from the 1-26 SPY top.

gld-gold-etf-market-timing-chart-2018-04-06-close

As the U.S. Dollar goes, gold goes opposite!

4. Interest Rate Market Timing – U.S. 10 Year Treasury Note Yield (TNX):  Rates are still moving in the wrong direction.  They rose to resistance on Friday and fell.  This is why we are avoiding financials in general – until the situation changes.

U.S. 10 Year Treasury Note Yield (click chart to enlarge; TNX, IEF, TYX,TLT,TBF):

tnx-10-year-treasury-note-market-timing-chart-2018-04-06-close

Rates rose to 2.795 and fell.

How Do You Beat the Market in this Volatile Period?

NOT BY:

  1. Holding the SP500 while it is going up and down, and lately mostly DOWN.
  2. Sector selection when all sectors are selling off.
  3. You may beat the SP500’s loss, but you won’t make a real return by holding either gold or the more recent “craze” among some pundits of commodities, when they are actually still falling with the SPX, just less.
  4. Holding bonds when rates will likely rise into the CPI rise over the next few quarters.
  5. Selling the lows!  (meaning DO NOT DO THAT!) We could be at a big turn up or down from here, so selling SP500 Index correlated stocks/ETF’s at this low could be as wrong as it could be right.  If you are overexposed to the market, you could still of course sell some on bounces. The point is, it’s late to sell the current decline without another breach of support (HERE!).  If the Bull market recovers from here, I’ll be adding exposure back.  But I am not taking off more exposure unless the market weakens further or on a weak/failed bounce. 

You do it (beat the S&P500 and counteract at least some of the losses in broad market exposure you continue to hold) by:

1. Holding more cash at highs and less cash at lows: that is what “Passive Shorting™” is about as described HERE.  (If you like that page, please “Like” that page using the Facebook Like button please.)  Buy low, sell high and repeat…

2. A corollary of #1: Preserving profits, especially on bounces, but on falls if you have to.  If you give up big profits so you can be “a good buy and holder,” you won’t beat the market!  Defend them at a reasonable level.

3. Selling FIRST all holdings (stocks and ETFs) you have that are failing vs. the SP500 Index on a relative basis vs. the 1-26 high or the lower recent high.  Otherwise, you’ll have no hope of beating the SP500.  Move some of that cash back into the SPX (or stronger stocks) on the lows and sell it at the highs.  If you have some reason for ignoring this advice for an individual stock, fine.  But be clear in your decision making process.

4. Buy stocks that you know will produce strong earnings growth even in a slowing world economy.  Not as easy a task as most companies do worse when the economy is worse.  They must be outperforming the SPX for this to work, and buy them off their lows, not their highs.  If they start to weaken, sell them as close to the highs as you can.

5. Speculate with a very small part  of your assets on the double or more baggers that will result from buyouts, such as biotech companies, but there may be others that you will discern from your own personal background in business.  Growth will be sought after by larger companies in a slowing world economy.

6. Do NOT sell stocks that remain stronger than the market (SPX) off the 1-26 high and/or off the most recent lower high.  Sell your SPY correlated exposure (after selling the worst!) before you sell your strongest positions! 

7. Don’t chase stocks or ETF’s when it’s actually “too late,” such as when the SPX is back testing a prior high.   Buy low, sell high.  Don’t chase high and try to sell higher or you’ll end up booking losses to protect capital or just ride further losses down.

8. If you have even more time, you can try shorting individual stocks/the market at the peaks, but for those of us who do not like betting in both directions at the same time, we’ll stick to Passive Shorting™ as the next best approach.  You can fall behind quickly when you have not only reduced your exposure, but are also partially short the market.  Alternatively follow someone who shorts stocks well and stick to their plan, not yours if you are not an advanced trader.  You may have to eat some large losses on the bounces if Trump comes out suddenly with a new idea on a Sunday night!  Take profits quickly when short for that reason.  Riding shorts for long periods is fraught with error.  Even the worst diseases heal in time.  So do companies.  Look at the miserable hedge fund performance around headline names for examples.   There are exceptions of course, but watch out for the traps.

Why don’t I short stocks in general?  I have the feeling of greater responsibility to be glued to the screen when I’m short something.  If you miss one news item, you can miss a 5% move.  I don’t like losing 5% of my money in anything in one day.  It happens, but I don’t set myself up for it.

9. Store some cash simply as plain old 100% liquid cash, so you can move it quickly to buy the lows, and some you may want to park in short term (1-12 mo) Treasuries.  Realize you may have to take a small loss if you want to sell some of these to buy stocks.  Don’t buy any bond that is NOT liquid!  Buy individual bonds, NOT bond funds, whenever possible as the funds could all sell off together if inflation goes the wrong way.  Fleeing investors can drive illiquid bonds down quickly as they did in 2008.  Otherwise use a “cash account” instead with a fixed rate of interest.

Of course, decide for yourself what you are comfortable with, but I for one will apply “Passive Shorting™” and don’t intend to watch the market give up 20% without taking further action and then move to the -50% level vs. the high without further action.  I share my exposure level on social media (links above), as mentioned.  Some of my regular readers are more aggressive in trading the swings than I am and will at times outperform my allocations.  If you find that works for you, great! 

Decide what you want your exposure to be to stocks, bonds, gold, etc.  Some day…maybe this year, but maybe 2-3 years from now, the “Big Bear” could happen.  We don’t know how low this move can take us yet. If you have no clue what your percent exposure is to various sectors and countries, you had better get organized with a spread sheet.  Otherwise you are flying blind.  Compare your results to the market regularly, even daily.  Otherwise plan to work your butt off for an extra ten years or so to make up for it!   I’m tough.  😉

We may be ready for a bounce and an exclamation of “that was it,” but regardless, prepare your plan.  If it is to do nothing and ride your investments up and down, fine.  At least do what you do consciously!

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 SIGNAL SUMMARY for a Further U.S. Stock Market Rally with GDP Growth and Low Inflation:

Stock Signal YELLOW with a Neutral SP500 Index trend.  The market will have to break further to change the signal.  Others are reporting “trend breaks.”  I do not agree, but I will admit to the possibility of a full 3rd wave down (covered last week), which would define a Bear Trend for me. 

Gold Signal  YELLOW with a Neutral Gold Trend.  You may as well wait to buy a breakout in gold as the distance to the top is not that great.  Preserve gold profits if you have them. 

Same Idea as Last Time: The failure to make a new high makes the trend “Neutral” for me rather than Bullish.  To Repeat: Remember GLD is being used as an indicator for the ECONOMY here.  A new recent LOW in GLD will turn the signal GREEN. 

Rate Signal YELLOW with a Bearish short term 10 Year Yield Trend.  Lower highs, lower lows make a Bear trend in general.  Negative (one factor) for the stock market rally.  Bonds are rallying.  I would change the signal to RED if/when 2.621% is broken in a real way. 

 To Repeat: “Remember this too is a signal for a “further stock market rally” as it’s being used here.  Remember “Bullish” for yields is Bearish for bonds and vice versa. 

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. 

Explanation: Note that a RED signal does not mean we should not buy.  A GREEN signal does 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 profits should be taken.  YELLOW does not mean the end of the Bull or Bear. It means look for possible 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-election period.

Thank you for reading.  Would you please leave your comments below where it says “Leave a Reply”… or ask a question…  Pay it forward too by sending the link to MarketTiming.Blog (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 to my “Other Resources” page here:  Other Resources   It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.  Check it out with a free trial at the link above.

Finally: Excuse and report all typos if you are so moved.  I do my best to pick up most of them, but can’t find them all.  Shoot me a comment (I don’t have to post the comment as I filter them, but I’ll be grateful to you!)

Copyright © 2018 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