Clubber, what's your prediction for the market fight? "PAIN"

By Stephen Guilfoyle | @Sarge986

Good afternoon,

 

It's the last day of the week, my good and tired colleagues. Did you take one in the teeth yesterday? Of course you did. That's why we diversify when we allocate, right? Well, we are at one of those points where we have to make an allocation decision.

 

Discipline is the key to victory, and sticking to a plan is one of the keys to discipline. But this one is not so easy. If you are a regular reader, then you are well aware that our physical gold (GCM16.CMX) allocation currently stands at 7.5% of the model portfolio—and it has ever since we took it there from 5%. The yellow stuff was still below $1,100 when we did that in late December.

 

In the late March re-allocation, we made the stipulation that if gold hit $1,275 with momentum, we would add 2.5% to that allocation—making it 10%. Then, we would withdraw that portion from cash, dropping that number to 25%. This price action is an obvious reaction to sudden dollar weakness via the Bank of Japan.

 

Gold moved too far too fast

I am thinking of slowing down my trigger response to gold hitting this level and simply watching today's action. We got here far quicker than I imagined, and in normal markets, gold prices have struggled at this time of year.

For the last four years in a row, gold has come in during the second quarter. While I have little doubt about gold's long-term value as a currency in the next global monetary system, its value in the short-term as a commodity may be difficult to determine. Accordingly, I am going to drag my feet a little.  A better point of entry or point of addition might be possible at a time other than today.

5 things to watch and think about this afternoon

1) Let's talk some macro. Personal Income, though revised lower for February, beat expectations for March. Consumer Spending missed expectations. This is excellent, really—regardless of what those who cannot see the forest for the trees might tell you. There was a slight reversal on inflation and disappointing Consumer Sentiment. Okay gang—Only once the great American consumer is comfortable can he or she become become active again. Are we collectively up against a wall, with some big kid going through our pockets? Of course we are, but the ability to save is the very foundation of comfort, and this is a building block. Now, we need to see momentum.

2) I'll feel better if the S&P 500 (^GSPC) can retake and hold above yesterday's low of 2071. That was Arthur Cashin's level yesterday, and he nailed it. Kudos. Right now, that spot is miles away. Realistically, I think we need to see the selling stop near 2055, which was a pivot point earlier in the month.

3) That dollar weakness is propelling gold prices, but crude (CLM16.NYM) has turned into the red, as Iran announced that they jacked production to new and exciting levels. This put the whammy on the energy sector (XLE), which had been a leader up until that point. Health care (XLV) and tech are also being visited by the "Ugly Stick." The VIX (^VIX) is wildly higher today.  As for other hide-outs: Utilities are sort of flat, and Treasuries are shaded pink.

4) Rig Count just fell another 11 with the total now at 332. Compare that to 679 a year ago.

5) Clubber, what's your prediction for the fight? "PAIN"