A Market Timing Report based on the 9-25-2015 Close, published Sunday September 26th, 2015
I deliver focused comments on the markets. These are supplemented with “Tweets/StockTwits” (see links below).
1. SP500 Index: The rally on Friday fizzled after Speaker John Boehner resigned to avoid another confrontation with conservative House Republicans who insist on shutting down the government to eliminate Planned Parenthood funding should the President veto such a bill. At least that was the excuse the market needed to fall back. Amazing how our dysfunctional democracy works/doesn’t work. One congressman’s pork is another congressman’s re-election life blood. And so it goes, on and on… A government shutdown would harm the economy as it did the last time it was done. Tell your Congressmen/women to work things out rather than shut things down. It’s not what the teetering world economy needs, whatever may be our political views.
The biggest danger to this market now that the Fed Chair has signaled that December is the likely rate hike date, is if earnings expectations for the fourth quarter are LOWERED below where they are now during the earnings season beginning on the 8th of October, and of course, if earnings for the current quarter come in too light. This is the: Set-up
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Still a chance that the higher low can hold.
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2. Small caps have broken support. This bodes ill for the SP500 holding onto its higher low. It needs to immediately reverse this break on Monday for the entire market to avoid a deeper retest.
Russell 2000 U.S. Small Cap Index (RUT, IWM; click to enlarge):
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Small caps are beneath the prior support level. An immediate reversal is needed.
3. Gold: If there is one thing to bank upon, that is the destruction of paper currencies worldwide. This is giving gold new life.
Is the low in? As long as the world is in a period of economic slowing, that will keep rates low and as long as the dollar remains relatively weak given those low rates, gold in dollar terms will do OK. The biggest rallies are due to consistent expectations that currencies around the world are headed down in purchasing value. Only that will produce the organic buying that big gold rallies require. See more (this is a MUST read if you’ve never read it!): Here
Gold ETF (GLD):
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GLD is just slightly above the 9-1 high.
4. Treasury yield: I expect that in the face of worldwide deflation, longer term rates will fall if the Fed actually does move short rates up. Remember that the Fed has no control over long rates except through their QE program that is now officially over or at least on hold. This means bond related investments will hold up at least for the short to intermediate term. If inflation were to return, and this is the caveat, all bets are off and you would want to dramatically reduce your bond/Treasury exposure under those circumstances. Inflation is currently not the issue – deflation is.
U.S. 10 Year Treasury Note (TNX,TYX,TLT,TBF):
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Rates are still tipped to the downside, despite the threat of a December hike by the Chair on Thursday night.
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Image may be NSFW.
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Image may be NSFW.Clik here to view.
