Accumulation models recovered somewhat but have not erased the technical damage done in October. Breadth and price oscillators have improved but some are still in a negative configuration. One of the problems with last week’s trading was that several gaps occurred, and this week should see some pullback to fill these. Since there is some possibility of Japanese government intervention to support the Yen, we will recommend EWJ for a trade into yearend.
The 423-area on SPY, and the 357-area on QQQ are the next resistance. Keep watching the interest rate indexes. It looks more and more like the Japanese Government has embarked on a policy to reduce the value of the Yen.
Indicators are oversold enough that we should still rally, but a yearend advance may very well be weaker than we have expected. There has been a hit to our strong accumulation models, but it is not too severe, and the market is actually generating some buy patterns on the FPO’s, and my breadth oscillators as well.
We have been looking for a yearend rally from a double bottom in the 420-area and we believe that has started and should last through the end of 2023. If we are correct on bonds, then PCEF should enjoy a rally into yearend.
It is noteworthy that the original decline, as well as this retest, is happening on very negative sentiment. I want to break 420 and move back above it. We would be buying high relative strength names in your models, both stocks and ETFs.
We liked the Tuesday action, with a down open and a higher close after trading in a range throughout the day. Bonds also traded well, filling a small gap, and closing well after a down open. Insurance has been under the radar and is picking up more notice.
We see no reason to change our outlook that the market is bottoming in this area and the timeframe we expected. We looked at most of our breadth tools and these also have bottoming signs. GLD is now a hold.
SPY has hit first resistance and could be choppy for the rest of the week, may move into a retest later this week or next. We would deploy some money on a pullback to the 429-area on SPY.
SPY fully testing the 420-area, that we have been forecasting has been hit. Clients should be adding aggressively here, especially if we can see some more declines based on the Israel situation. We would also add on a move back above 90 on TLT, which we expect, but maybe not until early November.
We still think that 420 might be tested, but this is our minimum expectation and again suggest advisors look at models – some stuff may have already bottomed. We would add some XLF and KRE in this area. TLT has finally gone below the 89 to 90 area and we would look to add more duration on a move back above 90.
There are some indications for a short-term bounce but we continue to see a move down to the 425 – 420 area by early October as being possible. Since everybody is interested in semiconductor stocks, they might go just a bit lower than people think. XLG is coming down and this should be a decent play into the end of this year.
We realize that many are looking for seasonal weakness into October, but there are technical reasons to be slightly negative. We still think it is possible to see the 420-area on SPY, where we would buy a stochastic recycle.
One of the things we have found is that stocks that break down in September usually fall off into the end of October, and sometime even into December. Stocks making new 52-week lows in September are vulnerable to tax selling, and the vulnerability increases the later in the year this occurs.
It is Options expiration, and triple witching as well, so don’t read too much into the action. According to the Erlanger work, utilities have some seasonal strength starting in October – and since they are at the bottom of the range it is probably a decent time to start to add these to portfolios. As technicians, we would buy NLR right away, with a possible position in URNM for clients that want the actual commodity.
Short-term breadth indicators look okay, but not great, suggesting we could see some weakness over the next couple of weeks – but this does not damage the intermediate picture, which is still positive. All of these Chinese ETFs (FXI, GXC, PGJ, KWEB) traded down to the bottom end of their respective right shoulders and have held – and started what looks to be a tactical rally. While sentiment is a condition indicator and not a timing tool, the bond setiment chart does suggest there is “Gas in the Tank” to support a bond rally.
Small Cap is also rallying and so far, is keeping pace with SPY, but not leading. Aggressive traders should look to take some profits at the end of the week.
Stocks look to rally this week, and we would consider adding some longer-term money at this point – say 50% of what you have available. Weekly stochastics are in sell mode, suggesting the next sell pattern could target SPY 420 – which is why we are not putting all of our cash in here. Bonds: The message here is to start increasing duration, but maybe do this a bit slower than we thought we would at this juncture.
Strong technical charts report good earnings more often than not. Recall that what we are looking for is the possibility of a short-term interest rate spike that then moves back into the range. This suggests a move below 112.50 on IEI, say to 110, and then back above 112.50, creating a false breakdown. Then, we would buy duration – say TLT.
Our advice to advisors is to add some money to models here – and to both Growth and Value. We think money could start moving back into banks by the fourth quarter. UUP may be starting another leg up, and a move above 29 to 30 suggests this is happening, and target 35.
Overall, we have no change in our forecast that a test of 420 is possible. We believe this latest downgrade of the banks is a mistake by Fitch and still look for banks to have a strong advance into the end of the year.
