Trading Update

Treasury bond yields added to their breakout, making for what looks like a significant change of trend. Money should accordingly flow into pro-risk. My short treasuries trade is now in the money.

Source: Stockcharts

Looking at the 30 year bond, the initial target would be a return to the trend line:

Source: Stockcharts

Pessimistic sentiment is at an extreme in gold miners, and gold itself is very oversold by PFS’s intermediate term indicator, an indicator that I have found reliable for entry points in the past. I have added to my gold long position and opened a long gold miners ETF position.

Source: PFS Group

Turning to equities, Apple made a third attempt at a top yesterday, and maybe third time is the charm:

The stock indices held up despite that, but from today into next Friday we are into a likely turn window, drawing together my models, Bradley and the Equinox. Geomagnetism also continues, making for a significant gap between SP500 actuals and my model. The Dax has also moved above the model.

We see a partial set of overbought and overbullish indicators in stocks. Ideally a push a little higher into next week would give us a more complete set and make for a more compelling turn in the turn window. Here is bullish percent over call/put – into the excessive zone again:

Source: Stockcharts

I have sold part of my remaing stock indices long position today. I will sell the remainder later next week if the stock market can push on further.

I don’t see evidence of a major top in stocks here. But with Economic Surprises continuing to fall away, geomagnetism pulling the models down, and based on historic rhymes, a rounded top or flatting out or consolidation is likely. The Vix is down at its bottom bollinger band, potentially ripe to pick up again. Given the likely trend change in treasuries, reflecting the economic pick-up, stocks will remain attractive. But with gold and gold miners at pessimistic and oversold extremes it seems likely that soon we see some money flows that way. Even if you believe that precious metals topped out last year, then they should enjoy a rally, as per this post-mania parallel chart (chart from several weeks ago – silver is around 32 at the time of writing):

Source: Willem Weytjens

I maintain precious metals are due for more than just a bounce though, and will have more on this next week.


6 thoughts on “Trading Update

  1. Another excellent week of work, John. Your non-solar material, such as today and Wednesday, is quite pointed and concise. Much appreciated in addition to the site’s focus. I too added gold and miners this week, although with what I thought were stink bids. If the market does turn late next week, the miners typically wake up for a last dance. Of course the market won’t turn without AAPL. Can’t recall the last time it closed flat, almost more ominous than a minus.

    Perhaps you’ve coverd this elsewhere but I looked and came up empty: Assume commodities outperform stocks into 2013 as you and your models expect, wouldn’t commodity stocks – the miners, fertilizers, energy producers – outperform commodities, at least for the inital phase of the commodity rally? While certainly not the case with gold miners recently, commodity stocks are often viewed as levereged plays on their particular commodity market. Should the market turn, or simply sidways consolidate for a few weeks, fall calls on commodity stocks could become quite enticing.

    Don’t know if there is an index representative of commodity stocks with sufficient length of data to run against your models, but if so it could provide an interesting contrast to your commodity models.

    1. Hi Marlowe, you might know better than me on that, because generally I try to avoid miners and play pure commodities or pure stock indices. With miners being tugged both ways I’m less keen. But the extreme pessimism makes for a decent bet, I felt.

      1. My location betrays my bias. I live in rural New Mexico where at least half the residents live off ranching, mining, or oil and gas. Very few folks around here own AAPL; almost everyone has a mining stock.

  2. I’m not entirely sure, but I think the PFS gold indicator is based on standard deviations in movement of price, so I don’t believe it’s actually a sentiment indicator.

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