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!
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 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.
