TimingCube - Stocks approaching some resolution? - bulls, bears, support, resistance

Signal Type

Trade Date

Return since issued

World

U.S.

Nasdaq 100
(QQQQ)

Russell 2000
(IWM)

S&P 500
(SPY)

TimingCube Cartoon of the Week

Market Update

This holiday-shorten week has been rather quiet on Wall Street with the markets entering a stabilization phase after last week's rebound. Returning from a long Labor Day week-end, traders lacked confidence on Tuesday, taking some profit after last week's rally. Also putting a cap on the recent bullish sentiment was some raising concerns over the health of the European banking sector. Despite all this, optimism over the health of the economy continued to improve. On Thursday the market went up at the open following some favorable employment and trade data. However, this good start fizzled through the rest of the session with the S&P 500 finishing only half a percent up for the day. Friday was uneventful as stocks inched higher on a surprisingly light volume.
Major market indexes finished mixed, with the Nasdaq 100 (QQQQ), Russell 2000 (IWM) and S&P 500 (SPY) respectively returning 1.28%, -0.95% and 0.53% over the five-day span. All three ETFs remain located above both their 50-day and 200-day exponential moving averages (EMAs).

For its part, our World portfolio posted a 1.11% gain this week. The portfolio consists of the 5 top-ranked world ETFs as of August 13, which marked the beginning of the current 4-week holding period. Please note that since we now have an active Cash signal, the World approach calls for selling your holdings if you follow the "Long Only" or "Long and Short" strategy. Only if you follow the "Buy and Rebalance" strategy should you remain invested in the top 5 ETFs, as the strategy calls for staying invested at all times. Please go to the "Our Service" page for all the details.

Our current Cash signal remains in effect.

Trend Timing School

Stocks approaching some resolution?

Over the past week, the stock market has quickly shrugged off the August blues and returned to the scene of its summer failure - 1120ish on the S&P 500 . Remember the headlines that August was the worst month for stocks in a good while? Well, the Nasdaq 100 has recouped that loss in only six days of trading. Sparking this move higher is perhaps nothing more than a rotation of money from bonds to stocks as investor concerns of deflation and heavy double-dip recession diminish. A move away from the view of deflation by investors pushes money out of bonds as they figure that maybe they can do better than the sub-5% returns on most bond choices. That notion suggests an economy that grows a little bit, inflation that maybe ticks up a touch, but just enough economic pulse to keep earnings moving forward and stocks at least a decent alternative to very low-yielding bonds. Whether that mindset takes firm hold, or is just a passing fancy (as it was in July) remains to be seen. The charts below outline the maddening, trendless market of solid support and resistance while offering both bears and bulls enough fodder to make a good case.

Chart 1: Bulls appear sturdy in their support at 1040
(click on the image to enlarge)

Chart 2: Market trending up OR down, depending on your perspective
(click on the image to enlarge)

From an economic perspective, we'd suggest a very good, balanced overview of the state of things recently offered by Schwab's Liz Ann Sonders in her market overview. Her half-hour analysis covers very well the mixed data and resulting confusion that plagues stock investors right now. The conclusion being that there are bright spots as well as reasons for concern. Which way investors lean seems to depend on the most recent datapoint. The market's fondness for labor data has not abated and perhaps even has grown more acute, with stocks reacting to even slight moves in weekly jobless claims. Again, it's possible that investor love for bonds is coming to a short-term end with investors just waiting for someone to blink first and start the exodus.

Will the economy and stock returns really be so poor that earning a sub-3% return on a 10-year bond is attractive? Investors have believed that to be true throughout the recent months. Whether the past week is the beginning of a return to favor for stocks, or just a run back to the other side of the range-bound road only time will tell. Our charts above suggest that answer might come very soon. Our Model is watching and waiting, seeking clarity, which has been in short-supply for quite awhile now.

Liz Ann Sonders video

FAQ of the Week

Question: What are the "frontier" markets?

Now that "emerging" markets have become mainstream, the term "frontier" markets has shown up to mark the next wave of fast-growing countries ripe for investment. The frontier definition thusfar tends to be heavily focused on African and Middle Eastern countries. A few frontier ETFs have been launched to give investors this access.

FRN - Claymore's Frontier Market ETF
PNMA - Powershares' version

Market Vectors splits the two primary frontiers into:
AFK - Africa
MES - Gulf States

Finally, Wisdom Tree offers a middle east dividend ETF, appropriately symboled GULF .

For investors interested in going to other parts of the world, there are also lesser-followed country ETFs offering tremendous opportunity for those willing to take the plunge. The chart below shows some of this year's star performers. Their trend has definitely been up. Whether the future is equally bright will require further homework.

Chart 3: Lesser-followed country ETFs

Warm wishes and until next week.

The TimingCube Staff