Market Timing Brief™ for the 2-22-2019 Close (2-25-19 China Update!): “Could a Big, Beautiful, Amazing Trade Deal Boost U.S. GDP and Send U.S. Stocks to New Highs? Gold Glimmers as Rates Stay Neutral.”

A Market Timing Report based on the 02-22-2019 Close, published Sunday, February 23rd, 2019…

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

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

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

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

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

China trend turning? Close!

Now back to this week’s important issue….

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

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

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

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

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

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

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

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

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

Let’s get back to the technical picture…

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

For now, the uptrend in Intel is intact…

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

Remember the problem for the entire market:

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

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

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

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

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

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

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

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

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

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

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

Less than 10% from the top.

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

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

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

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

Gold uptrend intact.

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

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

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

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

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

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

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

Rates are going to make a move soon!

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A BEARISH trend signal does not mean we should not buy.  A BULLISH trend signal does not mean you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL trend signal does not mean the end of the Bull or Bear. It means to wait and look for possible subsequent entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the charts for now as reference points only; they have historical value for us from the post-2016 election period.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Happy Valentines Day Master Market. The Fourth Kiss Goodbye?

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

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

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

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

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

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

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

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

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

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

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

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

Bulls winning.

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

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

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

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

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

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

Small caps still trending higher.

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

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

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

Uptrend continues…

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

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

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

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

U.S. 10 Year Treasury Note Yield (click chart to enlarge; TNX, IEF, TYX, TLT, TBF):  Note the bounce up off the down trend line!

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Sun and Storm Investing™

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

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

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

A BEARISH trend signal does not mean we should not buy.  A BULLISH trend signal does not mean you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL trend signal does not mean the end of the Bull or Bear. It means to wait and look for possible subsequent entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the charts for now as reference points only; they have historical value for us from the post-2016 election period.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Follow Me on Twitter®  Follow Me on StockTwits®.

Join the Conversation in the StockTwits “markettiming” Room

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

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

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

Pivot point.

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

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

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

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

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

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

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

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

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

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

Above down trend, but is this a lower high?

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

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

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

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

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

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

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

U.S. 10 Year Treasury Note Yield (click chart to enlarge; TNX, IEF, TYX, TLT, TBF):  Note the bounce up off the down trend line!  DATE ON THE CHART SHOULD OBVIOUSLY BE FEB. 8TH.

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

Held at higher low. Market decision pending.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Sun and Storm Investing™

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

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

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

A BEARISH trend signal does not mean we should not buy.  A BULLISH trend signal does not mean you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL trend signal does not mean the end of the Bull or Bear. It means to wait and look for possible subsequent entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the charts for now as reference points only; they have historical value for us from the post-2016 election period.

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

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

Market Timing Brief™ for the 2-01-2019 Close: “The Bulls Are Winning with Global Slowing? Gold Uptrend Continues. Rate Confusion.”

A Market Timing Report based on the 02-01-2019 Close, published Saturday, February 2nd, 2019…

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

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

The Risks That Have Gone Away Per the Market:

1. The Fed.  Chair Powell is now the self-declared lapdog for Trump. He’ll keep rates low. He may not ease, but he won’t hike, because too many people hate him when he’s too hawkish as he was in late 2018.  But if inflation rises significantly above their 2% PCE Index number, he’ll have to hike to fulfill the Federal Reserve’s mandate. 

2. A China Trade Deal is a done deal, because both sides need it to be.  China cannot move into the 21st Century without respecting tech patents and the like.  They want protection for their big AI effort for ex.  A deal will be done in February and victory will be claimed no matter what Trump gets.

3.  No news on Trump colluding.  The market is ASSUMING Mueller has nothing on him specifically, and he’ll pardon his son.  The market could care less about the people around Trump including Ivanka and Don, Jr.  It cares whether Trump lied/got his hands dirty.  No evidence of that yet.  No impeachment…yet.

NOT GOING AWAY …

Economic Slowing, though not for all companies: Things are worse per Intel’s new permanent bean counting CEO Bob Swan. (I have nothing against him, as he seems like a decent guy, but I’m for tech savvy leadership of tech companies, not financial whizzes.  That’s what made Intel great as explained HERE: MarketWatch.)

Microsoft had a poor response from the market to their guidance as did Amazon, which expects to spend more money trying to be more like Walmart and taking over the rest of the free world (Russia and China won’t let them play there).  Here’s the thing and you can quote me on this: Amazon is trying to be more like Walmart, while Walmart is trying to be more like Amazon.  When they converge, Amazon will be valued as Walmart is: A LOT LOWER perhaps with Walmart’s valuation significantly higher.  Perhaps…

There were exceptions to “weak earnings,” which means stock picking now matters once again.  Netflix did well and the stock is back in an uptrend though challenged around the 200 day moving average (mav) so watch what it does from there.  AMD just broke out to the upside with their success with 7 nm chip tech vs. Intel’s slow leap to 10 nm chip tech.  Xilinx is at a new all time high on their great success.  I spotted that one weeks ago, but hesitated because of the sector issues around global slowing.  That was a mistake.  Some stories break through the macro picture and drive stock prices up.  I shared that strategic point after the early Feb. decline as longer term readers recall.

OKTA is another company that is breaking to new highs with earnings out in March.  It’s a cloud based identity security company that serves massive corporations.  A buyout target too perhaps.

What does the future hold according to analysts and FactSet’s data for 2019 Earnings and Revenue Growth?

Read the details HERE, but this is the summary:  FactSet said earnings and revenues grew 20.2% and 8.7%, respectively in 2018, but those numbers will fall to 5.6% and 5.3% for 2019.  That’s a huge drop.  And earnings are due to be negative vs. the same quarter of 2018 for Q1, which we are now in.

“For Q1 2019, analysts are projecting a decline in earnings (-0.8%) and revenue growth of 5.7%.
For Q2 2019, analysts are projecting earnings growth of 1.6% and revenue growth of 5.1%.
For Q3 2019, analysts are projecting earnings growth of 2.7% and revenue growth of 4.9%.
For Q4 2019, analysts are projecting earnings growth of 9.9% and revenue growth of 6.0%.”

You can see from the above, the market may be assuming recovery of both earnings and revenue growth into Q4, and as it discounts the future 6 months out or so, it’s rallying a bit ahead of schedule.  But what if the slowdown continues to drag the U.S. lower?  Then Q2-Q4 may simply be revised lower.  That’s the risk inherent in this bounce in the U.S. stock market.  

Meanwhile the market has been rising, frustrating the Bears and economic doubters (it does not mean they are wrong, but I’ll tell you what the technical breaking point is now for me…)   We all have heard bounces in Bear markets can be huge only to have the Bear resume, but when does one go with the trend?  Answer: When the trend changes in a significant way.

Last week I said, “The market failed to rise higher than the high of Friday Jan. 18th, which remains the next Bull goal.”  This week we are just above the Jan. 18th high and just below the 200 day moving average (mav) of the SP500 Index. 

Last week: “The market is at an important pivot point.  As I explained last week in detail, rising to the 200 day moving average or just above it to suck in more stock market chasers is not impossible, but the odds are similar in my view that the market has already seen another significant lower high and will move down to test the prior low or lower.”

The SP500 Index is now at an even more obvious decision point, although not quite there yet.  If it moves over the 200 day moving average, a new count starts for the Bulls. 

What do I mean by that?  There is data which was reviewed in Feb. of last year by writer and editor Ben Morris at Stansberry Research’s Daily Wealth Trader showing that when the 200 day moving average (mav), that is the moving average ITSELF, not the price of the index, falls for one full month (which he did not define precisely; I assume calendar month of 30 days) it gives a distinct sell signal that allows investors to avoid significant further downside.

No signal is 100% effective, and there were only 9 data points (sells followed by re-entry buys)The signal is a bit too slow in my view.  Thirty days is a long time.  The thing is, it has worked over the past 35+ years.

The data Ben reviewed shows that over 35 years, the gains in using this system would have yielded 2,104% with the 200 day mav buy-and-sell strategy vs. a 1,831% gain ­– 272 percentage points less with “Buy and Hold.”  (the study end point was 2-21-18)

What do you miss by being out of the market between the sells and the re-entries?  In 1990, you missed a 16.9% gain prior to re-entry due to the signal’s built in delay.  Those who read these posts carefully will remember there was a shallow recession in 1990, from which we recovered.  The market was down in 1990 by almost the exact same amount (around 20%).  You would have bought the market back a somewhat late is the point.  And in 2011, you would have exited in late Nov. and would have bought on the Bull signal in early April 2o12 (so much for “go away in May”) missing a 17% gain between exit and re-entry. 

On the other hand, you would have avoided a 32.5% loss from Nov. 2000 to re-entry in May 2003 and a further 26.1% loss from Feb. 2008 to August 2009 when you would have re-entered the market.  There were only NINE sell signals over those 35+ years, so this does not involve a lot of trading for users of this strategy.   

On the side of “why not just still buy and hold,” Ben found that despite mostly missing single digit gains and the two roughly 17% gains and the two huge losses cited above, the average gain was 0.1% for the 9 signalsThe average gain does not tell the whole story though…

Remember the net result was 272% MORE in gains using these signals.  In addition, the time out of stocks would have been 7.5 years Ben says, which frees up the money to invest in things like gold (which I did successfully, doubling my gold position when it was at about $380 per ounce), now at $1317.10.  ( I took out my entire principle a few years ago at 1370/oz.  I’m riding the gravy and have added GDX exposure more recently.)

If you like this sort of trading strategy and want to subscribe, send me a message through the Contact tab above, and I’ll do my best to connect you to a discounted subscription (meaning I should be able to do this if enough of you respond and make it worth their while (Ben, the author and Porter, the founder of S&A); full disclosure: I may be able to negotiate a discount for you, and if so could potentially receive compensation from S&A).

TWO CHOICES: Buy as the Market Rises or Simply Start Buying Monday vs. Wait for the Slow Signal  (Buy or Wait)

What could you do at this point to take advantage of the above data?  Only if you are willing to trade your new exposure to stocks should you buy at this level in my view.

The data says there is no “Buy Signal” yet.  If you are going to follow the above signal, you don’t buy until the price is above the 200 day mav for one entire month.  It has not yet spent that first day above it with the market up 15.3% from the Dec. 26th intraday low.

If you are willing to trade out of it, then you could place your first of several buys on the first daily close back above the 200 day moving average and set a tight stop of 1-3 percent at most (or you could buy some on the open on Monday as your first buy).   In other words, you’ll sell if the price goes back below the 200 day mav AND is down 1-3% from your buy point on a close (you could use an intraday signal, but volatile markets can fake you out).

Why would this make sense, even from this elevated level?  First, you are going to average into the market.  You could even add smaller amounts higher and weight your earlier buys more as in 3, 2, 1, meaning your total purchase is the sum of those or 6 units of buying.  The SP500 Index upside from the 200 day mav is  7.27% to the prior all time high.  You could buy on the first close above the 200 day moving average or buy half of that intraday as it crosses the line.  Your choice.

Let’s now consider the stops to use for each buy.  Since the max gain to the all time high (ATH) is limited and becomes more limited with each buy, I would set each stop at 1/2 to 1/3 of the potential gain for each of your buys.  A 2-3 fold Reward:Risk ratio is usually considered acceptable to traders.  That means if the gains to the prior high are:

6% – use a 2-3% stop (1/3 to 1/2) from that buy price

4% – use a 1.33-2.0% stop(1/3 to 1/2) from that buy price….and so on.

You can see there is not that much room between “here” and “there” in this trade set-up, so you may need to add in just two stages, in a 4:2 proportion for a total of 6 buying units.  Buy 1 = 4 units.  Buy 2 = 2 units.  (If buying $6000 of SPY for ex., you’d buy 4K then 2K.)  You can follow me via the social media links below to see what I do.  Depending on the market set-up, I may add Mon. am and use that 2-3% stop.  My second add may then be a close above the 200 day mav.  Then, we’ll see.

UPDATE 10:16 am 2-05-2019:

Here is why the 200 day Moving Avcrage Tripwire May Trip You Up

SPY is up through that 271.20 high from Fri and VIX has broken down through all the key targets I set for the Bulls. The VIX is now sliding down the lower Bollinger Band rather than bouncing from it. The trend continues UP for the market with the 200 D mav facing it SPY at 273.91 and the SPX 200 D at 2741.75.  SPX is now at 2733.60 as I type this.  SPY is at 272.86.  We’re close to a decision point.

Here’s the problem with doing what I suggested as a possible trading strategy this past weekend on the blog – the last three swings up above the 200 day mav were on 10-16, 11-07, and 11-30, and they all occurred on gaps up, at which point, you would have bought the top of the swings!  My suggestion to buy earlier and then set a stop as the SP500 rose above the 200 day mav would work better if you want to trade such a move, and now it’s too late for that.  Just waiting for the slower signal or the next major pullback may be the best choice at this particular level of the market.

As I continue to type this VIX is back to green for the day at 15.35. Perhaps at this point in the run, it’s better to be patient unless there are specific stock stories that fit your bill.

Back to Saturday’s brief….

Remember, my favored scenario on the basis of economic data is that this is still a bounce in a Bear market.  Favored does not mean I’m stuck on one scenario.  The world is far too complex to be stuck believing one thing.  However, if the U.S. economy follows the rest of the world down (China and Europe both continued to slow this week as our market was rising), you will most likely be taking small losses on the above entry points.  Keep that in mind.  If the economic data continues to improve in the U.S. as the PMI and ISM Manufacturing numbers did this week, with the PMI continuing to rise and exceeding the October high, the SP500 will continue back to the prior high and even higher.

One Last Thing…

There is one last thing I will likely insist upon before adding exposure at these levels, which is a fall of the VIX through the last two immediate Bull targets of 16.09 and 15.94 (one source says that 2nd # is 15.95).  I explain this viewpoint HERE.

IN CONCLUSION:

  1. You could stick with the slower 200 day mav signal and wait for a re-entry signal.
  2. You could enter in stages on a move above the 200 day moving average (after that VIX break through both numbers noted above), or simply buy on Monday if you prefer with stops in mind should the market head back down as I am expecting it will, based on the negative data to be reported for at least 3 quarters including Q1 data to be reported in April, 2019.  If the market is already looking past that mess, I’m wrong.  

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Neutral.  The stock has been in a long consolidation, but bounced on the news that Bob Swan, bean counter in chief was made permanent CEO (see above link on that).

Remember this from last week: “Most importantly, the Intel Interim CEO Bob Swan said he was still concerned about slowing of the global economy.  Some chip companies are doing well still like Xilinx, which shot up last week, but Intel is a bellwether that says not all is well in the world’s economy.”

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

Bank of America (BAC) Market Timing Signal:  Negative.  The company reported earnings and rose further above the 200 day moving average and has now fallen back below that line.

Two weeks ago: “BUT read my note on rates below, because if interest rates don’t move higher [they didn’t; they fell on a dovish Powell] and instead fall as the market was expecting just days ago, BAC and the financial sector ETF XLF will not likely behave well.”

BAC was down even on the rate bounce on Friday. Negative.

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

Follow Me on Twitter®  Follow Me on StockTwits®.

Join the Conversation in the StockTwits “markettiming” Room

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

sp500-index-spx-market-timing-chart-2019-02-01-close

Headed toward a wall at the 200 day moving average or nirvana?

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +0.00% this week vs. +5.34% last week.  I’ve never seen +0.00% before.

Same conclusion as the past two weeks: “The market has been up strongly since the Dec. 24th low, and at a top, we’d expect more Bulls to show up.  That says to me, we are not yet at a “toppy” sentiment level.  Sentiment was in the high 20’s during the mid-bounce period off the 2014 SP500 Index low.  We are not even close now.”

Bulls Neutrals Bears
31.76% 36.49% 31.76%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): As before: “The December 3rd high followed by the 200 day moving average are the next obvious targets for the small caps.”  Once above the Dec. 3rd high (154.48), the Bulls will have the ball back.  Still, beware of another leg down as discussed above in depth.  In a slowing economy, small caps are on average more vulnerable.

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

iwm-russell-2000-market-timing-chart-2019-02-01-close

Still rising yet farther from “recovery” however.

 3. Gold Market Timing (GLD):  Four weeks ago I said: “A trading add on pullbacks.”  I also said two weeks ago, “If rates turn down from here (not clear yet), gold should start responding as the U.S. dollar weakens, unless the rest of the world turns south.  Then the USD is a place of refuge and that works against gold prices.”

I bought more GDX gold miners as a proxy for gold on the pullback Friday and they were up from my buy into the close.  I am concerned about the rise in the 10 Year Yield on Friday that occurred on improving economic data and strong employment and wage numbers. These are late cycle phenomena, but we need to pay attention to any signs of U.S. recovery. Gold does NOT do well in dollar terms when the U.S. economy is strengthening, because the dollar rises as rates rise and the Fed tightens.  But the Fed has gone “dovish” right?  😉

The Gold ETF (click chart to enlarge the chart; GLD): Look at the strength of the Gold Trend!

gld-gold-etf-market-timing-chart-2019-02-01-close

Gold still in uptrend. I’m buying the dips.

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

Two weeks ago: “A move above 2.808% will add another nail to the ‘interest rates are falling because the Fed is going dovish’ scenario coffin.”

I also made the point two weeks ago: “This is a dumb market that makes up nonsense about the Fed as it sees fit and then ignores what interest rates do the following week.  Which narrative are we going with this week people???”

The market cannot have it both ways.  The market supposedly liked Powell’s dovishness, because it believes the economy is slowing.  It also supposedly believes the economy is strengthening based on strong employment, strong wages, and a rise of PMI from the December low (it must rise above the Oct. high to matter as said this week), which is presumably why rates ROSE on Friday.  You get my point?  If lower rates = “Good” then higher rates are NOT “Good.”

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

U.S. 10 Year Treasury Note Yield (click chart to enlarge; TNX, IEF, TYX, TLT, TBF):  Note the bounce up off the down trend line!

tnx-10-year-treasury-note-market-timing-chart-2019-02-01-close

Dovish Fed or economic recovery? Take your pick!

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

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

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

Stock Signal NEUTRAL for a further U.S. stock market rally with a NEUTRAL SP500 Index trend. (signal here is based on small caps)  The small caps are now back above the down trend line, and the SPX is above the Feb. and Oct. lows, both positive, and is also now above the recent down trend line.  I will call the trend Bullish when small caps rise above the Dec. 3rd high.

The V*IX (which relates to SPX volatility) closed at 16.14 vs. 17.42 last week.  The Bulls have made progress, but are at a crossroads as discussed HERE.  It crossed 3 targets to get there: 17.06, 17.35 and 17.98.  All these are now Bear targets.

Further V*IX Bull Targets: 16.09, and 15.95 to create a new recent low.   The ‘Bull Nirvana Target’ is our V*IX # of 2018: 13.31.”

The VIX Up Trend Line is at 21.27ish.

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

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

Rate Signal  NEUTRAL  for a further stock market rally with a NEUTRAL 10 Year Yield Trend.   Despite the jump on Friday, which is almost what is referred to as a Bullish engulfing signal, rates came down after Powell went chicken-dovish.  I’d call it a consolidation off a low, which is NEUTRAL. 

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”  Oil is in fact bouncing with rates, but has reached a level it could pull back from. 

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

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

Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.  That’s what I call ‘Rate Shock.'”  The period of rising rates in early October was #RateShockII as I called it. 

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

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

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

Sun and Storm Investing™

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

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

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

A BEARISH trend signal does not mean we should not buy.  A BULLISH trend signal does not mean you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL trend signal does not mean the end of the Bull or Bear. It means to wait and look for possible subsequent entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the charts for now as reference points only; they have historical value for us from the post-2016 election period.

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

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

Market Timing Brief™ for the 1-25-2019 Close: “Will the Market Pivot Up or Down? Gold Trend is Up. Rate Rise Pauses.”

A Market Timing Report based on the 01-25-2019 Close, published Sunday, January 27th, 2019…

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

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

In the past week the shutdown was shut down and Commerce Secretary Wilbur Ross (who routinely appears barely able to speak) threw cold water on a quick China Trade War resolution.  Finally, Roger Stone was indicted in typical Justice Dept. style replete with heavy assault weapons and an overflying helicopter, supposedly to stop him from fleeing with an expired passport.  Where is the ACLU when you need them?  There is still no evidence of President Trump being involved in the Clinton Campaign infiltration by Russia. 

As said last week and this still holds as the most important perspective on what really matters: “The market has also been rising despite the fact that the next three quarters along with the Q4 quarter (sub-optimal), will show further economic slowing.  Analysts will likely further cut estimates in the coming months, which would pressure stock prices.”

The market failed to rise higher than the high of Friday Jan. 18th, which remains the next Bull goal.  The updated VIX goals are noted at the bottom of this report for those who are interested.  Hint: You should be interested, because attempting to trade high volatility can be injurious to your capital if you are leaning the wrong way.

The market is at an important pivot point.  As I explained last week in detail, rising to the 200 day moving average or just above it to suck in more stock market chasers is not impossible, but the odds are similar in my view that the market has already seen another significant lower high and will move down to test the prior low or lower.

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Much weaker after earnings induced a 7+% drop that ended at -5.47% at the close.  Last week I said: “Now re-topping near the 200 day moving average – still.  Intel is not out of the woods yet!”

Most importantly, the Intel Interim CEO Bob Swan said he was still concerned about slowing of the global economy.  Some chip companies are doing well still like Xilinx, which shot up last week, but Intel is a bellwether that says not all is well in the world’s economy.

The Bull Goalpost remains: “A rise above 50.60 would change the current picture of a down trend since the June high.”

Bank of America (BAC) Market Timing Signal:  The company reported earnings and rose further above the 200 day moving average.  This is positive, and it could return to the down trend currently at about 30.16ish and then fail based on falling interest rates.

Protect your existing profits though as said last week: “BUT read my note on rates below, because if interest rates don’t move higher and instead fall as the market was expecting just days ago, BAC and the financial sector ETF XLF will not likely behave well.”

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

Follow Me on Twitter®  Follow Me on StockTwits®.

Join the Conversation in the StockTwits “markettiming” Room

SP500 Large Cap Index (click chart to enlarge; SPX, SPY): OBVIOUSLY it was a 2019 close!

sp500-index-market-timing-chart-2019-01-25-close

Pivot up or pivot down, that is the question…

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +5.34% vs. -2.72% last week.  Same conclusion as last week: “The market has been up strongly since the Dec. 24th low, and at a top, we’d expect more Bulls to show up.  That says to me, we are not yet at a “toppy” sentiment level.  Sentiment was in the high 20’s during the mid-bounce period off the 2014 SP500 Index low.  We are not even close now.”

Bulls Neutrals Bears
37.66% 30.03% 32.32%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): Small caps are in the same pivot position as large caps, but above the down trend line  From last week: “I would still warn that during periods of economic uncertainty, small cap stocks are NOT where you want to be, unless you are trading them on a short leash.  The December 3rd high followed by the 200 day moving average are the next obvious targets for the small caps.”

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

iwm-russell-2000-small-cap-index-market-timing-chart-2019-01-25-close

Pivot for small caps too…

 3. Gold Market Timing (GLD):  Three weeks ago I said: “A trading add on pullbacks.”  I also said last week “If rates turn down from here (not clear yet), gold should start responding as the U.S. dollar weakens, unless the rest of the world turns south.  Then the USD is a place of refuge and that works against gold prices.”

Last week as well: “Note that the pullback in gold is only to the fairly steep up trend thus far… The trend is still intact in other words.”

I bought GDX gold miners as a proxy for gold on the pullback and they were up last week. The trend is up, and a gold trading position should pay off if rates fall from here.

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

gld-gold-etf-market-timing-chart-2019-01-25-close

The gold trend is up.

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

Last week: “A move above 2.808% will add another nail to the ‘interest rates are falling because the Fed is going dovish’ scenario coffin.”

I made the point: “This is a dumb market that makes up nonsense about the Fed as it sees fit and then ignores what interest rates do the following week.  Which narrative are we going with this week people???

Look for oil prices to ease, or inflation will in fact start to pick up again. 

By the way, stagflation is great for gold prices!”

I claimed last week “2.808% should stop this rally,” and and it did this week.  Keep an eye on that number.  A fall from there would indicate the “back to business notion” is a false one, and a retest of the stock market lows is on its way.

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

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

tnx-10-year-treasury-note-market-timing-chart-2019-01-25-close

Rates stopped rising at 2.808%.

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

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

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

Stock Signal NEUTRAL for a further U.S. stock market rally with a NEUTRAL SP500 Index trend. (signal here is based on small caps)  The small caps are now back above the down trend line, while SPX is above the Feb. and Oct. lows, both positive, while still being below the recent down trend line. 

The V*IX (which relates to SPX volatility) closed at 17.42 vs. 17.80 last week.  I’m still not impressed there by the Bulls effort!

From prior week and other back issues: Further V*IX Bull Targets: 17.35, then a move below 17.06, 16.09, and 15.95 to create a new recent low.   The ‘Bull Nirvana Target’ is our V*IX # of 2018: 13.31.”

NOTE: 17.98 is the immediate Bear target.

The VIX Up Trend Line is at 20.01ish and a rise above there would be the next Bear target. 

Gold Signal RED for a further U.S. stock market rally with a BULLISH Gold Trend.  A further GLD rally will be subject to interest rates, which will impact the U.S. dollar as explained above.  Note that the pullback in gold is only to the up trend thus far.

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

Rate Signal  NEUTRAL  for a further stock market rally with a NEUTRAL 10 Year Yield Trend.  I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”  Oil is in fact bouncing with rates, but has reached a level it could pull back from. 

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

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

Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.  That’s what I call ‘Rate Shock.'”  The period of rising rates in early October was #RateShockII as I called it. 

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

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

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

Sun and Storm Investing™

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

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

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

A BEARISH trend signal does not mean we should not buy.  A BULLISH trend signal does not mean you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL trend signal does not mean the end of the Bull or Bear. It means to wait and look for possible subsequent entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the charts for now as reference points only; they have historical value for us from the post-2016 election period.

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

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

Market Timing Brief™ for the 1-18-2019 Close: “Is the Market ‘Mid-Bounce’ and Is It Too Late to Buy? ‘PermaAware Investing.’ Gold Pulls Back to Trend. Rates Rise with a Dovish Fed?”

A Market Timing Report based on the 01-18-2019 Close, published Sunday, January 20th, 2019…

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

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

Before I answer in market timing bounce terms where the market is now, let’s review the backdrop.  The market has been rising despite a government shutdown that is now impacting U.S. GDP, a trade war with China that the market now believes will be reasonably resolved in the coming weeks, and a President who this week was accused of obstructing justice followed quickly by a Special Prosecutor Mueller office comment that the reporting on that was faulty.

In the end, President Trump MAY have kept himself clear of the Russia collusion, which Giuliani now admits may have occurred on the part of the Trump campaign but not by Trump himself.   If true, they will have nothing on Trump in the end, other than his public encouragement to Russia to break the law and release illegally obtained Clinton campaign emails.  Of course, that was just a joke.  😉

Importantly, the Buzzfeed report is not getting further support in the media, so we are back to waiting for “Presidential Collusion Proof” to emerge, if ever.  The market could have cared less this week as their reporting was released.  Trump impeachment/conviction risk is not zero, but it’s not meaningful until proven otherwise, and to be about facts, we have to stick to what we know and don’t know, not what anyone suspects.

The market has also been rising despite the fact that the next three quarters along with the Q4 quarter (sub-optimal), will show further economic slowing.  Analysts will likely further cut estimates in the coming months, which would pressure stock prices.

What’s the practical upshot of that?  If you are deploying new cash, don’t spend it all at once.  Buy at various levels, adding a greater amount of exposure to the stock market on more severe pullbacks.

I gave you a re-entry plan on December 30th for those of you who followed my advice to sell the lower highs such as the Dec. 3rd high, and discussed the further damage that could occur to the market on the risk side and the opportunity on the long side if “the bottom [was] already in.” 

I also counseled on Dec. 30th:On the other hand, I have plenty of cash to deploy if things go from “slow” to worse for the economy.  I will add exposure on pullbacks and will add higher if needed, mostly before I hit my prior selling points.  My prior exits were mostly higher, so there is still room to add back exposure (See my page on Passive Shorting” if you haven’t).  I coined the term to help investors consider it as a way to navigate pullbacks and increase returns.”

I also said, “If you have remained frozen to this point, I would only “sell some,” on an overextended bounce [like this one], unless we break to a new lower level.  Then you could “sell some” lower [rather than selling the highs], but slowly, because you must be willing to increase exposure on a reversal or you will fall behind the market.  The goal is to beat the market by a few percent or more.  Even a 2% improvement on SP500 Index performance is worth it.”

As of this week, I would probably only sell some only on a close back below the 50 day moving average. One possible stop at which to reduce exposure might be an S*PY price 2.5-3.0% or so lower than the Friday close of 266.46. (Avoid leaving stops in the market unless you have to due to your schedule, because the market maker will sometimes pick them off and then move the market back up!)

Read the post again to see what difference even a 2% outperformance makes in the long term HERE!

There is 10.11% upside from the close on Friday back to the 9-21-2019 intraday high.  The downside risk is a retest of the prior low, which is 12.14% below the Fri. close.  It is also possible that the market could retrace to the Feb. low of 2532.69 or just 5.17% lower.  However, if recession becomes more likely (the risk of an outright recession vs. an earnings recession and slower growth is considered low by most at this point), the market could easily fall between 25-50% from the 9-21 high. This is why we have to keep close tabs on the economic numbers. 

Now no one can give you the answer on whether the market will continue straight up from here or retest the prior Dec. 24th intraday low or move even lower.

An intensive review of the McClellan Oscillator data that measure market breath more recently vs. more remotely shows that we could be in the middle of a bounce, meaning there could be more upside, prior to the next pullback. 

I thought the massive peaks in the oscillator might mark market tops, but that was not the case.  They mark the rough middle of the bounces from the data off the 2014, 2015, and 2016 lows.  This means from this data by itself, we may be “Mid-Bounce”!

The “not so hot” news?  The 2014 bounce led to the 2015 low.  The 2015 bounce led to the 2016 low.  Get the picture?  We may be going up, but we could easily go back down and retest the prior low once or even twice. 

How high?  A revisit to the 200 day moving average (mav) for the SP500 Index is not out of question. Neither is an even higher high, which is still likely to be LOWER than the September 21, 2018 all time high.  Why is that?  Because we are in the middle of an earnings and revenue slowdown for the SP500 index, the likelihood that we’ve already reached the final low for this period of higher volatility is low in my view.  I say don’t count on this move leading to a new all time high!

However, regardless of the market’s direction, you can continue to follow this from that same Dec. 30th issue: “Have a plan for the levels you will add exposure at either higher or lower and be willing to change your plan if and when things change…and they always do change eventually.

What’s a possible plan to consider if you are Bullish and believe the Q1 through Q3 earnings reports will show an improving trend from here?  Increase your exposure level early in the week (Tues. is the market open due to holiday), and use a fairly tight stop on the new stock investments.  If the market moves down vs. up, you simply stop out of what you added and then seek to add back even lower.  Yes, you could be whipsawed by the market, but risk management does not come for free! 

Any trader will tell you to keep your potential gain 3 times or more greater than your potential loss based on your stop loss.  The target is the 200 day moving average to the upside for SPY, or 2.77% higher.  Above I told you a reasonable stop would be 2.5% to 3.0% lower than the close, so the trade has an even risk up and down – not good!  If SPY goes back to the Dec. 3rd high, that would be a 5.23% gain from here for a ratio of gain/loss of 2.092 at best with the 2.5% stop.  Better but also not great, which would be 3X gain vs. loss.

Adding “Mid-Bounce” could work out, but the set-up given the economic backdrop is poor.  If you think we’re headed back to new highs, add a bit and see what happens realizing there is market risk in making a trade with a mediocre set-up.   If you use not stop, the trade is a very poor set-up in my view.  

In any case… eventually the economy will turn for the better, which is why I say…

Don’t be a Permabull.  Don’t be a Permabear.  Be PermaAware! 

Spread the word on that would you?  It will help the average investor improve by simply not becoming stuck in one mode of thinking.  I’m sure many investors “sold everything” at the recent bottom.  Not a good practice, unless you need the money right away. But often investors don’t need the money right away and still sell everything at the lows.  Selling some at the lows is understandable.  Selling everything at one level is rarely going to be right in a market that is already as OVERSOLD as it was the day before Christmas. 

Things are never as bad or as good as they seem.  When tech earnings were off the wall high in the Q2 earnings reports, investors were giddy, and then we had a huge decline of about 20% in the SP500 Index off the 9-21-2018 top.  Stay “PermaAware” and all will be well with your investing.  You won’t get everything right.  I certainly do not, and even share my errors online, which few writers do.  I know a top newsletter that sends out their wins with the percentage gains and their losers with NO percentage loss.  Call them on it!  Write them an email and promote awareness.

Finally, review your results vs. your benchmark.  If you are about 50% invested in stocks, then find funds or managers that match that and see if they did better or if you beat them.  If they did substantially better and even more so, if they did so over several years, you may want to step back and spend your time more wisely.   Increase the assets you allow them to manage and reduce yours.  If you find the opposite is true, then take assets away from them.

If you stick with an advisor because you:

  1. Like them a lot as people.
  2. Believe in their process even when it has not worked for 10 years.
  3. Have been with them “for so long.”
  4. etc. insert any other irrelevant point….

THEN, you are being irrational and hurting your own family, because investment is not about liking your advisor.  It’s just one part of that relationship.  It’s one thing if they have a bad year or two in an otherwise great performance record.  That happened to many top advisors during the Tech Bubble of 2000.  But if they have trailed the market for the past 10 years, meaning their benchmark, then you need to strongly consider taking your money to someone else, whether another institution or a mutual fund with managers who have a top performance record dating back at least 10 years if not 15-20 years.  They have just three years of experience?   Let someone else risk their money with the green ones.

In comparing, please do not compare apples to oranges.  Do not compare a biotech fund or advisor to a U.S. Large Cap Fund advisor for example.  Compare 50-70% equity/30-50% bond invested funds to the same type of funds.

Not looking at 3 month, 6 month, 1 year, 3 year, 5 year, 10 year, and even 15-20 year results is simply dumb!  Look at yours.  Look at theirs.  Be honest and change your current plan as needed.  You can love ’em and leave ’em if the numbers don’t work.

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Stronger.  Now re-topping near the 200 day moving average – still.  Intel is not out of the woods yet!

As said: “Only a rise above 50.60 would change the current picture of a down trend since the June high. (Reminder: INTC was/is our “tell” on 2nd half earnings in tech as noted HERE.) ”  The close was 49.19 on Friday the 11th. 

Bank of America (BAC) Market Timing Signal:  I’d call it “Neutral” and ready to pivot up or down!  It was essentially at the top of the down channel it had been in as of earlier this past week, but now after earnings, it has popped just above the 200 day moving average.  Still, I am somewhat impressed, having said,  “A rise above the July low of 27.63 would be impressive…”  So I logically must be impressed….

BUT read my note on rates below, because if interest rates don’t move higher and instead fall as the market was expecting just days ago, BAC and the financial sector ETF XLF will not likely behave well.

Last week: “The next market goal for the Bulls would include a further rally above the October 29th low.”   We got that this week, so the next stop is the 200 day moving average to the upside for the SP500 Index unless a sell-off wave begins early in the week.

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

Follow Me on Twitter®  Follow Me on StockTwits®.

Join the Conversation in the StockTwits “markettiming” Room

SP500 Large Cap Index (click chart to enlarge; SPX, SPY): OBVIOUSLY it was from the 2019 close!

sp500-index-spx-market-timing-chart-2019-01-18-close

Still bouncing?

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -2.72% vs. +9.09% last week vs. -9.75% the week before that.  The market has been up strongly since the Dec. 24th low, and at a top, we’d expect more Bulls to show up.  That says to me, we are not yet at a “toppy” sentiment level.  Sentiment was in the high 20’s during the mid-bounce period off the 2014 SP500 Index low.  We are not even close now.  However, here is the catch.  Sentiment during the October 2015 mid-bounce was in the low single digits.  That bounce was only half done as well.

Bottom line?  The current sentiment level is consistent with a “mid-bounce” view of the market. Again, use a stop just in case!

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
33.53% 30.21% 36.25%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM): I said last week, “A move higher would be impressive, and could embolden the Bulls further.”  That means I have to be impressed, but I would still warn that during periods of economic uncertainty, small cap stocks are NOT where you want to be, unless you are trading them on a short leash.  The December 3rd high followed by the 200 day moving average are the next obvious targets for the small caps.

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

iwm-russell-2000-market-timing-chart-2019-01-18-close

High beta could be trouble despite the big gains off the low.

 3. Gold Market Timing (GLD):  Two weeks ago I said: “A trading add on pullbacks.”  If rates turn down from here (not clear yet), gold should start responding as the U.S. dollar weakens, unless the rest of the world turns south.  Then the USD is a place of refuge and that works against gold prices.

Lower rates could still make gold a “win” as the “real interest rate” is the ultimate driver of gold.  If inflation is set to increase a bit in the U.S. with the Fed easing, gold should be a good hedge to have on.  If the economy were on its way to recovery, we would need to be out of gold trades (I hold a core position of pure profits by buying when no one wanted gold and selling my entire principle as it came off its high), but as I’ve said, I doubt that is the case.  Read at my social media links above to see what I bought.  It’s higher risk, higher reward than is GLD.

Note that the pullback in gold is only to the fairly steep up trend thus far… The trend is still intact in other words.

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

gld-gold-etf-market-timing-chart-2018-01-18-close

Gold is easing.  Would have preferred another leg up.  Watch rates!

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

Rates are rising again!  Why do I say this?   The down trend was broken to the upside and there is also a slightly higher high in place now.  The immediate target specified last week was 2.717% and we are at 2.784% as of the close on Friday.  A move above 2.808% will add another nail to the “interest rates are falling because the Fed is going dovish” scenario coffin. 

This is a dumb market that makes up nonsense about the Fed as it sees fit and then ignores what interest rates do the following week.  Which narrative are we going with this week people??? 

With RISING rates this week, just after everyone was begging for a more dovish Fed and got it at the margin, the stock market should be selling off, should it not?  The whole idea was that the Fed was going to be lowering rates again, was it not?

You may say, “Well David, this is just a risk on rotation from Treasuries into stocks.”  It could be, but if the Fed is lowering rates supposedly, long rates (10 years and up) would not still be climbing UNLESS the market sees inflation ahead.  This may be a clue then that the Fed being more dovish, while inflation percolates up a bit more, will cause the Fed to have to pivot eventually and hike, or simply be stuck in a stagflationary position between a rock (slower economic growth) and a hard place (rising inflation).  They may chose to ignore higher inflation in favor of higher growth or not!

Look for oil prices to ease, or inflation will in fact start to pick up again. 

By the way, stagflation is great for gold prices!

This play between economic growth slowing and inflation will make it complicated to call the rate IMPACT  “Bullish” vs. “Bearish” in the coming months.  A rapid rise is proven as “bad” for the stock market.  A high value vs. the rest of the world is also “bad” for emerging markets and secondarily for the U.S. market.  Moving lower at a rapid clip could mean risk off and stocks down.  Context is therefore as important as ever and is needed in order to talk about the impact of interest rates.  Range bound rates would likely be handled best by the equity markets.  I’d like to see 2.808% stop the current rally.

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

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

tnx-10-year-treasury-note-market-timing-chart-2019-01-18-close

Rates are rising despite the begging for a dovish Fed? Huh?

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

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

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

Stock Signal NEUTRAL for a further U.S. stock market rally with a NEUTRAL SP500 Index trend. (signal here is based on small caps)  The small caps are now back above the down trend line, while SPX is above the Feb. and Oct. lows, both positive, while still being below the recent down trend line. 

The V*IX (which relates to SPX volatility) closed at 17.80, which is barely below last week’s close at 18.19.  Not impressed there by the Bulls effort!

From prior week and other back issues: Further V*IX Bull Targets: 17.35, then a move below 17.06, 16.09, and 15.94 to create a new recent low.   The ‘Bull Nirvana Target’ is our V*IX # of 2018: 13.31.”

NOTE: 17.98 was a previous target and it’s being tested 1-25-19.  Just below as I type this at 17.82.

The VIX Up Trend Line is at 20.31ish and a rise above there would be the first Bear target.  The 50 day moving average is 21.69 (Friday’s value).

Gold Signal RED for a further U.S. stock market rally with a BULLISH Gold Trend.  A further GLD rally will be subject to interest rates, which will impact the U.S. dollar as explained above.  Note that the pullback in gold is only to the up trend thus far.

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

Rate Signal  NEUTRAL  for a further stock market rally with a NEUTRAL 10 Year Yield Trend.  I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”  Oil is in fact bouncing with rates, but has reached a level it could pull back from. 

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

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

Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.  That’s what I call ‘Rate Shock.'”  The period of rising rates in early October was #RateShockII as I called it. 

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

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

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

Sun and Storm Investing™

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

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

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

A BEARISH trend signal does not mean we should not buy.  A BULLISH trend signal does not mean you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL trend signal does not mean the end of the Bull or Bear. It means to wait and look for possible subsequent entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the charts for now as reference points only; they have historical value for us from the post-2016 election period.

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

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

Market Timing Brief™ for the 1-11-2019 Close: “Nine Thorns in the Market’s Side At a Lower High. Gold Pauses. Rates Fall Again.”

A Market Timing Report based on the 01-11-2019 Close, published Sunday, January 13th, 2019…

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

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

I’ve covered the large number of issues facing the market over the past few weeks.  I count an additional ninth thorn in the market’s side this week! 

Let’s go over the issues quickly…

#1 Retail Q4…It was a strong holiday season; however, last week’s results for brick and mortar stores were mostly weak with Macy’s stock down over 20% from the 1-09-19 close!  Amazon warned on its own Q4 guidance in its Q3 earnings report, and it could have taken share away from brick and mortar and end up beating guidance.  Overall, the initial reactions in the retail sector are a negative report on the consumer.

#2 China Trade War…Vice ministerial level talks occurred Monday through Weds. of last week.  The Wall St. Journal says “Vice Premier Liu He is planning to meet with his U.S. counterparts including U.S. Trade Rep. Robert Lighthizer and Treasury Secretary Steven Mnuchin for negotiations on Jan. 30 and Jan. 31…”  It was also reported by them that the shutdown could delay those talks.  The initial assessment of progress was lukewarm at best, so this is still an unresolved thorn in the side of the market with Jim Cramer reporting that Chinese consumers are avoiding the purchase of American products in protest. 

#3.  Rates…TNX tested below 2.621% and then bounced with stocks after Powell’s jawboning to a lower high, but now appear to be moving down again.  I repeat from past weeks: “The Fed is not going to be able to avoid hiking rates if wages and employment remain strong.”  On the other hand, global slowing can push rates down lower with the Fed having to ease rates eventually.  With these opposing forces, we must follow the trend, which is still down.  That’s why I added to my Treasury holdings last week and sold stock exposure.

#4. Global Economic Slowdown…Still trouble for the market and could definitely get worse.  The Europe and China slowing are both getting worse. 

#5. Oil Price Collapse… The bounce could fail without a move through 54.50ish to the upside.  Global economic slowing means lower demand.

#6.  Tech Bear Market…XLK is still above the Feb. low, a positive, but it’s hesitating just above 63.38.  It still could be a sloppy test of the Nov. low to be followed by the next wave down.  The tech market must continue its rally on Monday.  If it does not, watch out below.

#7. Trump Impeachment/Trial Risk… Rep. Schiff, as far as I’m aware, is still hesitant to make a move on Trump without Mueller’s report providing hard evidence.  The Mueller Surprise factor is a possible threat to the stock market over the short to intermediate term.  The policy reversals of electing a Democratic President in 2020 BECAUSE of the Trump Russia issue are the real threat to markets.  More on that in a bit…

#8. Government Shutdown…Worse this week.  The Trump Shutdown, branded by him as such publicly, is now the longest government shutdown ever recorded.  How do you handicap something that is the longest ever with old data?  Hmm?  

A few more days won’t matter, but a few more weeks will hurt GDP for Q1. It also hurts many innocent government workers employed by an incompetent government. 

#9 Joe Biden Presidency: Remember, all the gains made on tax policy could be reversed after the 2020 election by a President Joe Biden, unless the Democrats pick an extremist candidate such as Elizabeth Warren or an untested candidate like Sen. Kamala Harris.  Trump would love to run against either of them or any other McGovern type of Democrat in 2020.  (Please note these comments are a process of handicapping the election in investment terms.  I don’t like either party and what they’ve BOTH done to destroy the U.S. dollar over the years.)

I think Biden knows the country would not be easily convinced that someone like Elizabeth Warren would make a great Commander In Chief.  Biden’s been around the block in his 8 years of VP service.  Warren and Harris lack the credentials of a Hillary Clinton, who as Sec. of State, was at least involved in the discussions about the Middle East conflicts.

Biden would rule from a point near the middle as Obama largely did, despite fears of him being a socialist.  Obamacare was the closest he got to a socialist agenda.  It was a partial victory for him with negative consequences for the party due to the problems it created.  The millionaire tax was part of that, but mostly the Clinton tax rates were reinstated after the deficit busting “tinkle down” tax cuts by Pres. G.W. Bush.

The market will start to grow nervous about losing the regulatory and tax gains of the Trump administration especially by the end of 2019 if there is a viable Democrat candidate.  Biden NOT running would reassure the markets. 

I admit that Bernie Sanders is a wild card, as he could win based on his prior strong run against Hillary in a party dominated selection process.  He’s only one year older that Biden, so if Biden can run, so can Bernie.  They may both say they’ll serve one term to convince voters not to worry about their age.

Tangential Story: I only half joke that Bernie Sanders saved my life after we had a cordial debate on healthcare in the middle of a 50 MPH road that runs into Burlington, Vermont.  He was standing on a narrow meridian and I joined him there prior to his first victory in running for the House of Representatives.  As I turned to cross the road, I nearly walked into an oncoming car.  Thanks Bernie!  😉

A Bernie Sanders win as a self-proclaimed Socialist would be very tough on the stock market in my view.  The market could begin selling off early if Sanders takes an early lead against Biden.  Biden, in the meantime, has yet to declare his intention to run. 

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

“Intel-igent Market Timing Signal” (Intel; INTC):  Stronger.  Now re-topping near the 200 day moving average.

BUT as said: “Only a rise above 50.60 would change the current picture of a down trend since the June high. (Reminder: INTC was/is our “tell” on 2nd half earnings in tech as noted HERE.) “

Bank of America (BAC) Market Timing Signal:  Negative, although it is now essentially at the top of the down channel.  It could stop bouncing right here or around the 50 day moving average.  Prior comment: Bounces like this are not enough to change the down trend.  A rise above the July low of 27.63 would be impressive, however.

Last week: “The next market goal for the Bulls would include a further rally above the October 29th low.”   That’s where the market seemed to stop last week.  Even then, the market could rally a bit higher and turn down at or just above the 50 day moving average.  That pattern is typical for a bounce in a Bear market.

Earnings are out in force over the next few weeks, so watch for revisions up or down.  Stay with the best companies with the best prospects for accelerating growth.  Any company that can accelerate their earnings and revenue growth while the rest are slowing will be an outright winner.  This is not new news.  But it’s what we should focus upon! 

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

Follow Me on Twitter®  Follow Me on StockTwits®.

Join the Conversation in the StockTwits “markettiming” Room

SP500 Large Cap Index (click chart to enlarge; SPX, SPY): OBVIOUSLY it was from the 2019 close!

sp500-index-spx-market-timing-chart-2019-01-11-close

Lower high forming or are the Bulls looking for more?

Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +9.09% vs. -9.75%.  There has been no washout of Bulls in this data.  Investors are still afraid of missing out on gains in the bounces.  Until that dissipates, the final low is not likely in.  The prior low will at least be retested in my view.

AAII.Com Individual Investor Sentiment Poll
Bulls Neutrals Bears
38.46% 32.17% 29.37%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM):  No change: “Not a good place to be until signs of U.S. economic acceleration appear or are anticipated.”  The 50 day moving average looks like a pretty good spot for the rally to end in small caps.  A move higher would be impressive, and could embolden the Bulls further.  The slowing in the economy stands in the way of ANY rally working out in my opinion.   These are still places to “sell some” until the economic numbers accelerate again. 

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

iwm-russell-2000-market-timing-chart-2019-01-11-close

Same pattern. Bounce to a lower high.

 3. Gold Market Timing (GLD):  Last week I said: “A trading add on pullbacks.”  Still true, but only buy the pullbacks rather than “chase,” unless you have no gold exposure.  Then you could average in some here and hold back cash to add higher or lower.  Rates may have topped for now, which will help gold. 

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

gld-gold-etf-market-timing-chart-2018-01-11-close

Gold pause. Then what? Watch the US dollar and rates.

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

The trend in rates is still DOWN.  2.717% is now the immediate upside target.  The market now believes the Fed is going to move even more slowly to raise rates (right or wrong).  That means if rates actually RISE instead of fall, the market will have a problem!  Stocks will sell off again.

If rates fall too quickly, it will signal a lack of confidence in the U.S. economy and a switch of assets from stocks into Treasuries/dollars.

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

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

tnx-10-year-treasury-note-market-timing-chart-2019-01-11-close

Rates could now be moving down again.

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

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

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

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

The V*IX (which relates to SPX volatility) closed at 18.19, down from 21.38 last week.  It broke the up trend line which is Bullish for stocks, but this was after making a higher high in December.   I am now watching the behavior of the VIX should it approach the major lows from Oct. to Dec.

From prior week and other back issues: Further V*IX Bull Targets: TESTING THIS NOW: 18.18 to 18.10, then 17.06, 16.09, and 15.94 to create a new recent low.   The ‘Bull Nirvana Target’ is our V*IX # of 2018: 13.31.”

The VIX Up Trend Line is at 19.50ish.  The 50 day moving average is 21.91.

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

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

Rate Signal  RED  for a further stock market rally with a BEARISH 10 Year Yield Trend.  I said 2 weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”  Oil is in fact bouncing with rates, but has reached a level it could pull back from. 

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

I previously warned about the Fed tightening process: “This level of the 10 Year Treasury Yield, which is too high for current conditions as explained HERE, will eventually slow the economy.”  2.621% was the peak back in 2017 when stocks did best.  Anything below that would be an improvement.  That level was tested and rates bounced.  2.554% was the recent low.

Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.  That’s what I call ‘Rate Shock.'”  The period of rising rates in early October was #RateShockII as I called it. 

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

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

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

Sun and Storm Investing™

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

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

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

A BEARISH trend signal does not mean we should not buy.  A BULLISH trend signal does not mean you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL trend signal does not mean the end of the Bull or Bear. It means to wait and look for possible subsequent entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the charts for now as reference points only; they have historical value for us from the post-2016 election period.

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