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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.
As mentioned in our yearly forecast, a down first quarter would set up a rally. We don’t have a big sell signal, but rather a suggestion that the market needs to rest. We probably won’t be as volatile as we were in 2020, but advisors should be prepared for some stock market pullback in this area. We would use this to add to small cap as the accumulation model is still the strongest of the major indexes.
TLT hit our first main downside target at 150 and held it, so some bounce is possible here. CORN is more of a base and is further from resistance. It is also a bigger crop, so this market may be the one to really watch.
We have advocated selling trading, but not investing, positions. SPY should not go below 341 but will most likely hold 350 or so. EWJ this is very strong, and we think it could be one of the best international performers of 2021.
Would we use growth or value here? We would use IWM. We would not use fxb, but it does suggest our idea for a speculative trade in EWU is at least supported by the currency.
We are bullish on the year but it could start out worse than many are thinking. We would sell trading positions into a rally this week.
This week looks like a “drift up” week without much zap to it. PGJ is our favorite of the higher risk Chinese ETFs, with short-term support around 57 to 55 and intermediate-term support around 50 to 46.
The stimulus deal is not enough to overcome this setup in the minds of investors. This lessens the chance for a rally through Thursday, but we remain hopeful and think that will be more of a drift than a power move.
The central idea is that hot stocks rally into Christmas, and possibly into yearend, as funds buy them to show on yearend statements. Stocks within 10% of their highs work well. ETFs that are momentum based should work. 2020 Tax Loss Bounce List.
Our favorite subgroup in Financials, broker/dealers, is showing strong relative strength and we would still be overweight there and in credit card stocks moving into 2021.
The bottom line is we would NOT use QQEW in portfolios, instead use RSP or a Small or Mid Cap ETF to broaden out the portfolio.
We believe that the majority of small cap outperformance for the market occurs in periods when the economy is coming out of recessions and the market broadens out. The yield curve will continue to slowly steepen, which should help the banks (and our analysis of XLF consistently shows the banks will need the help).
With the advance to 367.68, SPY has penetrated the bottom end of our forecasted range (which was 367 to 372). A test of 155 for TLT is possible, as the daily stochastic has given a sell indication once again. Our biggest concern with UUP is that it is making new lows in December and could be setting up for a buy at the end of the month after tax selling.
The technical picture remains positive overall, albeit overbought enough on some longer-term indicators. Sentiment is a concern also, as the Put/Call ratio has fallen into bearish territory similar to that before the election. I know I sound like a broken record, but advisors MUST have a larger than normal position in small cap at this time. Japan could be poised for a run in 2021 and perhaps beyond as long as the 20,000 area on the Nikkei 225 holds.
Note that the daily stochastics of SPX are overbought, and that condition should lead to corrective behavior in the next two weeks. We have seen that the market is broadening out, as small cap has started to outperform, and the “rotation trade”, as it is called, has been news for the past two weeks.
The overall tone of the market continues to improve. We continue to look for our targets of 367 to 372 on SPY by yearend.
We have seen improvement in Value but not enough to be sure this is a major switch. About the best you can say for XLF is that the model has stabilized in a negative pattern – it might improve later, but right now the model suggests this advance is in danger of being completely retraced.
If the market is to advance it should start to do so on Wednesday, and failure to hold yesterday’s low would likely suggest a short-term sell off. We still maintain our targets of 367 to 372 on SPY.
In many respects this was the weakest rally since the beginning of 2020 but that may change today. Pfizer (PFE) is out with great vaccine news and the Russell 2000 is higher by 7%.
Other themes we have been looking at are XLI and XLB starting to outperform Tech, and a weaker XLF, which is where we think most of the risk for next year is. We note that the dollar is starting the rally we have forecasted and could hit the top end of the range at around 26 to 27 on UUP.
We have been looking at a down beginning to the week, and an up finish. If we are correct, then we should see the market stabilize and begin an advance Wednesday after what is going to be an ugly start. Support levels on SPY (SPDR® S&P 500 Trust), where ideally we would buy, are as follows: 336, then 330 but we doubt 330 could hit before the election. UUP above 25.15 would imply a trading bottom is in.
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