We note that Tech had a bad day on Tuesday – this could be the start of a new downtrend in tech relative to SPY, IWM, etc. as we mentioned. TLT tried to rally but has not yet gotten above 140. When it does, we look for a rebound toward 150.
It looks as if the transition from Growth to Value is still alive. Right now, Latin America is suggesting that the emerging market trade has got the potential to weaken a bit, so we would be a bit cautious there.
If TLT can show some zap on the downside, then it might affect stocks. If you are in GLD and are nervous, this is a selling opportunity for at least some of your position. If you are interested in TAN this looks like a good buy point.
Key points on the various indexes this week, in the event of declines on earnings, are as follows: SPY 412 to 411, and then 403. QQQ look for 326, then 314. IWM 215, then 200. IYT could test 252, then 247. GLD still could be up for a bit, and we would hold it based on the weekly stochastic, which is in buy mode and halfway up the range.
We are finally seeing some corrective behavior. Some preliminary downside targets are 400 or so on SPY, and 324 on QQQ. We would love to see IJR at 102-105 or so.
In spite of last week’s action in the QQQ, it remains the least favorable accumulation model, so we are sticking with the idea that this rally we are seeing will fail, and the downtrend in QQQ will resume. Our view here is that Japan is consolidating recent gains and will continue to advance in the second half of the year.
We are going to discuss “volatility” in this report, as we have had some questions about the VIX and related indexes. For the FRED Report, we define volatility as the distance between the high and the low of a bar. When the range expands, volatility is rising, and when it falls volatility is declining.
We are a bit surprised to see that the “junky” stocks aren’t rallying more – quality like AAPL, AMZN and the like are up but not the speculative names. That should change this week.
TLT has started to rally as long as it can move and stay above 138. GLD has also rallied a bit and should test 165 at least, above that and we should see more upside.
This week is shaping up to be interesting, with countertrend rallies developing in stocks, bonds, and gold. We believe that market leadership is shifting away from the Tech sector longer-term.
So far, this correction has been rotation and not straight pullback, and that should change later in 2021. XLI and XLB are trading up to new highs and should continue to do well in the second quarter. Unless TAN moves above 100 very soon it is an established downtrend with an objective of 75.
Indicators are mixed in spite of a record close on SPY Friday. The New Highs/New Lows indicator, in particular, had negative readings. We have recommended that advisors buy a combination of GXC and PGJ, with the amount of PGJ governed by the risk tolerance of the client. We see no reason to change that strategy.
Oil had a big drop Tuesday. Does that mean that the current advance in oil is over? We don’t think so, and the reason why has to do with cycles, which we will explain.
SPY may have had a false breakout above 393, a concern but the formation needs to be completed to be valid. A close below 386 would tend to confirm this. QQQ is in an interesting and vulnerable position, and while a move above 328 would repair the chart that is unlikely without another test of 300.
This week is options expiration for March, and we expect a volatile, up and down week as the Federal Reserve (Fed) is out with comments. We have had a downside target of 160 or so on GLD that we thought it would be hit in the second half of 2021. Accumulation models remain weak, but do have some bottoming signs, the first in several months.
Friday’s reversal notwithstanding, we are seeing some signs of technical weakness that are resolving some of the overbought condition intermediate-term. Friday’s action was encouraging and positive, but big up days/reversals in these sideways trends are often a sign that the decline is not over and can be retraced. A move on TLT back above 140 would be strong at this juncture.
TLT is interesting as it is now holding the 140-area. It has been a bit weaker than we thought it would be, but now looks ready to start an advance to 147, as long as it can remain above 139.
