SPY has traded into the resistance area we have noted over the last two weeks. We are still bullish overall, and for advisors who have new clients with heavy cash position we would start to put money in, adding aggressively on a new closing low, especially if this is accompanied by a stochastic buy signal.
We think there is a good chance the market trades up and down this week, and then heads for a retest in March. Our base case is still that rates should move back to where they were before QE began. We would not be surprised to see oil, and oil stocks, sort of bump along and consolidate into May.
We are still looking for a complex bottom, likely a double bottom that will be buyable. We will likely have our real buying opportunity at the end of February to beginning of March.
On a successful retest of a low such as we have made, not all stocks retest. The ones that are stronger are the ones that we want to buy as they could be leaders in the next advance. Where could the market go on this bounce? We are still looking at 275 to 280 and then some consolidation or pullback towards the low.
Momentum on this decline has been enough to suggest that this is not the bottom of the correction. There are a couple of numbers for an initial bounce on SPY: 273 to 271 should hold this for a bounce up. That could test 282 to 284 and then turn down again. It would be possible for TLT to bounce here, but the really key level to look for is 117 or so.
We believe that the Transportation index’s importance as an indicator is less important at this stage of the market. The monthly FPO will close out the month at 13+ if oil closes here or a little higher, suddenly making oil and possibly oil stocks a bit riskier.
DBC has broken out above 17, by a little bit, suggesting that our trading target of 17.50 could be hit by the end of the month. This would coincide with a run in oil into month end also.
There are some indications that the market is close to taking a “breather” in here. The biggest is that last week rallied to new highs on negative weekly breadth. We are cautious, but also note the momentum exhibited by the indicators suggests a strong advance after this occurs.
While we have forecast higher targets for oil in 2018, it is likely that there will be some pullback when the winter seasonally favorable period ends. XLE is set to test the intermediate resistance in the 80-area. If this is not penetrated by the end of January we would lighten trading positions on XLE.
We have no change to any of our opinions on the markets based on this week’s action. South Korea has shrugged off the bad news over the last year and indicators suggest it is a good speculative vehicle.
We have seen strong moves in the Industrials and Materials without these being acknowledged. As long as XLI is above 73-75 this is in breakout mode and we could see a test of 83. XLB has rallied since October and has had a really strong December. As long as XLB is above 60 this could see 71.
We suggest that one month in the first three at the beginning of the year could be down, based on some of my proprietary indicators, but that the year should be positive overall. We still see upward pressure on rates in 2018. Commodities in general could have a good year in 2018.
XLE has hit our price targets at 72. Oil itself has been weaker than we forecast for 2017. GLD has had a good rally off the 117-area we thought might be a bottom, and we did not buy it, but instead kept DBC. Both of these are trading strong.
This is our last Midweek Review of 2017, barring some bizarre market activity that is not expected. ALL bond-like ETFs should decline if rates shoot up. It is what happens afterward that is important.
Pharmaceuticals as a sector is turning up. Pharmaceuticals may be the “sleeper” sector for 2018. The overall conclusion that we bond bears have to draw, at least for now, is that the bull market in bonds is intact. It looks as if Natural Gas, and Oil, can continue to rally in the first part of 2018.
TYX has bottomed again on the weekly chart, within the trading range and at the bottom end of the range. The most interesting market for us right now is GLD, as we have had a price target of 117 for several months and it tested within 40 cents or so of that target.
Daily stochastics are in buy mode on some Tech ETFs, while weekly and monthly stochastics are all up and not in sell mode. This is a sign of high momentum, and the obvious question is whether the longer-term indicators can come down along with the dailies. Oil is improving – but we thought crude would be over 60 by now. It still looks to test 62-64 by the end of December/January.
Stock indexes stochastics are overbought and daily and weekly FPO’s suggest some consolidation. This does not affect our forecast of a stronger market into yearend – but no market goes straight up, although it feels like this one has! We are looking at the possibility of buying GLD back in the price range from 120 – 117.
