SPY is still challenging resistance in the 400-area, and while we continue to have a target of 420 by the end of January this may be too bullish. We continue to have a TLT target of 110 by the end of January, and we have started to rally again after a short pullback, as forecast.
Stocks have been rallying, and last week’s pull back was as forecast, and does set the market up for an advance into the end of January. GDX has had a great run and the lack of accumulation suggests a substantial retracement is possible, so safeguard profits.
We have had questions as to what to do when SPY hits the 420-area, and our answer as of now is we will “stop, look and listen” and not just sell. Healthcare remains one of the best chart patterns in the sectors, and Biotech may represent the most speculative area of Healthcare.
We are still looking for an advance to 420 to 440 on SPY into the end of January. Watch GLD and SLV – they could still advance into the end of January but the easy ride may be over.
If we are correct, SPY should now rally into the 410 to 420 area in choppy fashion, hitting this area by the end of January. Friday’s big up action is typical of bear market rallies even though tone has improved.
It looks as if stocks should start January off well – daily stochastics are in buy position, some breadth tools like the McClellan Oscillator are in position to rally, and the sentiment picture, as shown here, has improved. While not strictly “fixed income”, dividend stocks were important in 2022, and are likely to be important in 2023 if the market remains range bound, as we expect. Canada has real potential for 2023.
This whole rally off the October low showed virtually no accumulation in QQQ, and little to no Accumulation in SPY. We would have a position in IJR or MDY moving into 2023.
Indicators corrected much of the overbought condition present at the beginning of last week. While many are looking for growth to stage a comeback early in 2023, the charts do not seem to support this.
From a macro perspective, though, it looks as if the yearend rally scenario is intact and resuming. From a technical perspective, our forecast remains a divergence top in rates – which means a higher high in rates and a lower high in momentum.
Our big concern here is that some of our internal indicators have already started to deteriorate. Benchmark levels on the indexes are: DIA 323, SPY 377, QQQ 269, and IJR 91. Closes below those numbers would be a problem for our yearend rally scenario.
We came into the week a bit overbought, and to rally we need to work that off. For us, sharp drops are usually bullish – we will have to see, but this has held at the 390-area that we suggested could be tested. A close below 390 would be a concern but is unlikely here.
We have mentioned concerns that there is little accumulation on this rally so far. We ran models again, and still have this concern, but most indicators suggest this rally should continue for the next week or so. TLT has broken out above 105 and should head toward our next target of 110 or so over the next couple of weeks.
XLE is overbought so it is likely to be choppy and consolidate a bit longer, at least until the daily stochastics recycles. AAPL is a hold and we would buy the next daily stochastic recycle.
Models do not show strong accumulation on this rally. We ran accumulation models on TLT, and these are now suggesting that bonds have made a significant low that should last for the next quarter or so.
There has been continued improvement in internal indicators last week and this keeps the yearend rally thesis alive. The last time bullish sentiment was this low was 1999. After a rally, prices (and bullish sentiment) actually went lower, into a final low in January 2000!
Internal indicators have improved enough to suggest some more upside but are not acting as if the bear market is over. Indicators still suggest that this rally in bonds should be followed by lower lows.
On last Thursday’s call we discussed investing in RSP vs. SPY and QQQ. This continues to make sense to us, as Tech is weak, and also such a big weight in SPY. One thing interesting about last week is that it gave us a classic short-term buy pattern on TLT, suitable for traders to buy and hold for a week. As long as PGJ can stay above 21, and KWEB above 20, these two ETFs are giving strong bottoming indications.
