Weekly Report

The indicators suggest that the first part of a low is in, and we will watch on the inevitable pullback to see how the indicators look. This week is options expiration, so there should be some sharp up and down moves.

We attacked our target zone of 418 on SPY, and with overbought breadth oscillators and some weak internals as well as overbought daily stochastics, it is likely to pause and pull back here. It should test 408 to 405.

We have no changes to any views expressed in Monday’s Weekly Review.  KWEB is stronger than GXC. So far, these look like trading ranges and not disasters.

While we may have started the intermediate bottoming process, and some intermediate breadth indicators have improved, we still are a ways away from having a solid buy signal on our internal indicators.  Do not overlook Small Cap Value.

TLT is holding so far, but below 117 could target as low as 112. If it holds a move to 120 looks possible, perhaps even 125.

We continue to see bottoming signs on an intermediate basis even as we see some short-term problems. Our view that the FED will NOT go as big as market pundits are suggesting (which we have been forecasting for over a month) is what the market is saying to us now.

Friday should be up and close between 398 and 400 on SPY. We will liquidate all trading longs on Friday or at these numbers. if hit.  A move through 117 on TLT would target 120 to 124.

Last week did not see the kind of improvement in the internal indicators we were expecting.  The market remains vulnerable.

We admit to surprise that indicators failed to improve last week.  We will watch the internal indicators this week, especially if the rest of the week is up, and will let you know if there are any significant changes.

Market internals did NOT improve as much as we thought they should, which suggests that this is not a final bottom.  It is worth noting that some very long-term measures of breadth have become very oversold. This confirms our view that a dollar cost averaging methodology is correct.  Biotech could be strong speculative ideas for the second half of 2022.

We are starting to see some earnings downgrades from the fundamental community – and these are not affecting the market much. QQQ Accumulation Model remains the weakest, and because of this, we remain concerned about the Tech sector. We advocate shifting some money into growth areas that are not in Tech. Our favorite speculation is Biotech.

Further choppiness and ultimately a down close to the week would be optimal from the standpoint of our indicators. We would start to buy DBA here.

Down this week into the end of the month would set up another summer rally attempt from this area and would set up the quarterly indicators in a pattern that would suggest the first part of a low in equities for 2022. We now believe it is time to (FINALLY) add some “growth positions” to portfolios.

If we continue down this week, then we will start looking for signs of a tradable low, which we believe will occur in July if the economy is in a technical recession by the end of the second quarter.  Remember that in most cases, sharp drops in strong uptrends are bullish. We would add to oil stocks on this drop.

We believe is adding things that have good relative strength with a view toward a better second half of 2022. Prices have fallen a bit more than we expected this week, but we are close to Stochastic recycles. We like DWAS because small cap performs well as you come out of a recession.

Internal indicators have started to weaken once again.  Small cap almost always outperforms coming out of a recession.  Markets often bottom during a recession and not when it is over.

Some indicators are becoming overbought, however, especially daily stochastics, and the McClellan Oscillator. This suggests a short-term peak by the end of the week, per our forecast, is certainly possible.  So far FVX has made a lower high but above 31 would suggest much higher rates short-term, and this would concern the equity markets.

Internal indicators continued to improve last week, in spite of a down close to the week.  Honestly, we are surprised that we have not seen any sort of panic given the pervasive negative commentary in the news and with investors we speak with.

There was enough momentum on the downside so that this should have a retest – and this sort of formation should have the retest by the end of June.  One concern about this rally is that call premiums are really high, suggesting a near term pullback, and SPY could easily pull back to 404 to 405, before having another surge.  Biotechs are the most interesting speculation in this area and may indeed be the most interesting speculation for the remainder of 2022 and into 2023.

The most important thing we are seeing that bodes well for an equity rally that could last even longer than this week, is the action in MUB.  One way to take advantage of both a short-term May/June rally, as well as a June Low, is PDP.