Weekly Report

The spread between groth vs. value has narrowed but we still come down slightly in favor of value.

There were some strong closes on flagship indexes, but these have actually masked some weakness that may lead to a fall correction.  If there are going to be more lockdowns, the real estate sector is where the biggest risk lies.

The daily stochastics on IJR and IWM have just about hit the buy recycled, and IYT and XTN have buy recycled, setting up what should be a two-week rally.  TLT had an outside day down (after a big up open), which should mean that it is starting a topping pattern right in our 150-area target for this advance.

Options expiration was down and has led to some oversold readings in indicators.  Emerging Markets remains a favorite as it has the best accumulation model of the broad-based international indexes.

For now, we give the summer rally scenario the benefit of the doubt.  We are watching to see if small cap stochastics become overbought without new highs. If that happens, we may have problems.  TLT should hold 143, below that would suggest higher rates sooner rather than later.

Are we right to continue to recommend an overweight in the small and mid-cap area? We think so, but to feel certain we believe the market should move more towards this area in the next few weeks.  Our forecast becomes a trading range in rates for the fall and not an immediate big rise.  We could see an interesting situation where FXY advances, FXE remains flat to down, and the Dollar also rises.

While the NASDAQ ETFs have improved in this summer rally, our concern is that the strength in the big Tech names is masking general weakness.  We would avoid EWA. We would use EWC in portfolios and note that one of our client firms has a buy indication on Canada.  The charts of SLX suggest upside resolution.

Stocks are closing out the first half of 2021 in a relatively calm fashion. While a slow build to the summer rally is not unexpected, there are a couple of concerns.  TLT has held the 142 area and looks to rally back toward our target of 148.  GLD is weakening yet oversold, and although accumulation remains weak, we should still see some rally after month end.

There are two things we probably can say. The first is that the longer these divergences persist, the steeper the correction. The second is that while divergences are often present at market turns, they are not the cause of the turn. In other words, they are a condition indicator and not a timing tool.

We have been, and still are, looking for a summer rally to begin when the daily stochastic on IYT (iShares® Dow Jones Transportation Index) buy recycles, and that has just happened.

Keep watching IYT, as a daily recycle here should be the signal that a summer rally is getting under way.  The first scenario is the most likely in our view, which is that TLT trades up to 150, and builds a topping formation that ultimately leads to lower prices, and higher yields.  GLD challenging the gap at the 170-area is our minimum expectation for a countertrend rally. Be careful when the daily stochastic rolls over, as the Accumulation model did not show significant buying on this decline.

From Fred: We have no changes to anything expressed in the weekly review and wish everybody a happy expiration. Today we will do something a bit different with the Midweek Review. We have had several questions on the Meme Stock (Robin Hood) trading. While I have not studied this, Geoff Garbacz has done some work on it, so the Midweek is all his!

This week is options expiration, so we would expect an up week but one that may be down a bit earlier in the week and strong at the end.

So far, this week is shaping up as we thought, with a slow start to a market rally led by small and mid-cap stocks. It should pick up into this Friday.

We expect another week like last week, with a slow start to the week and a strong finish. We also expect strong performance from smaller stocks and equally weighted indexes.  The technical patterns of the Latin American ETFs suggest a broader rally over the next few weeks, which would coincide with a summer rally.

Stocks are entering a period of favorable seasonality, and indicators suggest a rally is likely here.  Bonds are at a key juncture. It looks as if rates are going to fall a bit here and prices rise.

IWM needs to exceed 221 and then ETF can challenge its all-time high. SPY is set to rally as long as above 416 it should advance from this area. QQQ needs to hold 327.

The stock indexes look set to try for a summer rally in line with our “Buy in May” research piece.  Overall, the message of the agricultural commodities charts is a short-term peak could be close by.

Stocks are acting about as expected, and expiration shenanigans seem to be “ruling the roost” this week.  TLT has pulled back into support and is a buy recycle on the daily as well as the weekly charts.

We have a short-term buy recycle on IWM and are close to one on QQQ as well.  This is options expiration week.