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Below are Fred's Weekly Reports with a brief synopsis of each. To view the full report, click on the title.
Stocks have continued to rally a bit, and as mentioned in the monthly, the daily FPO is overbought enough to spark a pullback in June. We could see a test of 312 on SPY or so before that occurs.
Put/Call numbers have fallen into sell territory. REITs have underperformed a bit, but if the economy normalizes this area should snap back, albeit with some changed fundamentals.
The timing or likelihood of a severe correction is way down over the last few weeks, until we get a signal. Yes, this is a surprise – the market is stronger than we expected on this open. A drop into July should look different than the drop into 2009 from 2008. One reason for this is that Accumulation models for many of the stock indexes are hitting all-time highs.
In various discussions with clients inclined to short we’ve mentioned that we are not big shorts here – the buy signal at the end of this pullback should be a good one. It looks as if the market is going to open up this morning. If it sells off and closes down that would be added confirmation for the correction.
Indicators weakened over last week, and support some corrective behavior later this week. We will watch the front Crude month to see if there are looming issues, and also watch the trading in USO around May 19th, as that is when the June Crude Oil options expire.
Tuesday’s market was down a bit more than we thought it could be, but this still looks related to expiration, with the real decline starting next week. The main point here is that we are more vulnerable to a correction than at any time since the bottom in March. We will be watching the small cap indexes to see if they continue to show relative strength as the market falls off.
Indicators suggest a good bit of selling occurred last week – New Lows increased, and the accumulation models on SPY and QQQ showed selling as well. We are seeing more days (such as Friday!) where the equal weighted indexes outperform. Our accumulation models suggest REITs are strong, and the models are stronger than the price charts of all three of these (XLRE, IYR, VNQ).
QQQ and SPY are on daily stochastic sell indications, as are IJR and other indexes, so this should be a consolidation or the start of a decline. We would consider buying this pullback if we test 260 on SPY by next week.
Daily indicators such as the Stochastic are overbought and suggest some pullback is likely over the next couple of weeks. We still see a quick decline to 260 – 255 on SPY as possible, as long as prices stay below 285 or so, on a closing basis. Some of the constituents of DBA are starting to show some bottoming signs, mostly SOYB, WEAT, and COW.
We continue to see outperformance in small cap ETFs and indexes. If this continues in a pullback, the chance of a severe recession and therefore a break of the March lows, is diminished.
We are under daily stochastic sell indications on both SPY and QQQ – not big sells but momentum is waning. New lows have started to expand again.
Stocks are acting as we expected, and we should have a down week but our worst case for the week is 260 or so on SPY. The key for most advisors here is to trade a bit and not just sit, which is hard for some of you, I know.
Stocks tend to rally BEFORE the end of a recession, and small cap issues tend to lead large cap coming out of a recession. Friday was the first day we have seen this type of action in small cap relative to large for several months – i.e. before the correction started. Speaking of this week, we would expect the market to pull back a bit and have a down week. Indeed, last week should have, and probably would have been down had the GILD news not hit.
This market is a hold, and not a big short for us. Indicators suggest a test of 260 on SPY is possible by the end of the week, but that we should have a down week in any event. TLT also looks to pullback a bit. The trading in this has slowed up, and the ranges have narrowed as well.
Ideal would be normal trading, backing and filling and a price decline that holds 255 on SPY for this week. We do expect the SPY 240 area to be retested also, but probably not this week unless 255 is breached.
This should be the best week to raise cash, write calls, or otherwise be defensive. After this week (if not sooner) we could start another move down. TLT has been pulling back over the last few days and has held on for now. A move below 163 now would target 156. LQD has rallied to resistance and could fail in this 124-area. A retracement into support of the move off the low is quite possible.
The Fred's Price Oscillator (FPO) is giving some indications suggesting very strongly that the 220-area low is the low that will hold for a bit. We are seeing some good signs in the New Highs/New Lows indicators. New Lows have fallen off – from 2714 new lows on March 20th week to 284 this week.
We still would not be at all surprised to see a move down to 235 to 230 on SPY, as we have discussed elsewhere, and expect a down week. We would add money on a dip toward SPY 235. GLD has started to retrace as well, and could retest 142, where we would buy it again, for a move to 153.
We have heard a lot about big equity buying as rebalancing occurs on Tuesday, but the indicators suggest this week will be down, and could challenge 235 to 230 on SPY. EWJ at short term support is probably a good addition for international exposure at this time.
If this works like it did in 2008, the big push we see now (which happened then – up 12% in a week as mentioned in the weekly) should give way to a choppy, difficult rally with scary down moves as part of an advance.
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