On the upside, SPY should test the 246 area and then failure is possible. Failure would be confirmed on a move below 243, which would then target 241 – 239.
There has been more deterioration in the breadth indicators. Our favorite leading indicator, New Highs/New lows has gone negative for the first time since March 10, 2017. The last few weeks of trading has shown more strength in the base metals, a sign that the economy could be getting ready to improve in the final part of the year.
We still think that GLD may consolidate here but ultimately can test 124 to 126. UUP has support at 24.20 to 24, and this could be retested. Watch this carefully as if this area is retested and holds advisors should consider selling some gold now.
243 is a key area on SPY and is holding. We expect an up week but ultimately more choppy behavior and a decline into month end. Stocks most dependent on the price of oil for revenue are improving more than the services.
One of the problems the U.S. and allies face in the Korean issue is that Seoul (the capital of South Korea) is just 35 miles from the DMZ (Demilitarized Zone) and the boarder with North Korea. This proximity and the presence a myriad of North Korean troops makes it difficult to drop a couple hundred Megatons worth of nuclear missiles on North Korea – the fallout would also hit the South, not to mention South Korean artillery and soldiers.
SPY is at the very top end of our projected range for 2017. While trend systems are positive and SPY should continue to advance through the end of 2017, one way to look at this is that the easy money has been made and risks are increasing. While we are not giving up on this market, we will have a little more caution into September unless we see a surge in breadth. Oil has tested 50, and should go through this level soon – if our analysis at the beginning of the year is correct oil should test 67/Bbl by yearend. The real question is whether my forecast of a stronger dollar in the second half is going to work? With the Monthly FPO on the dollar index at “-16” or so we believe the dollar should rally from this area.
We would expect that SPY will outperform QQQ into yearend, and believe we should see IWM, MDY, and IJR start to pick up the pace over the next month or so. Our GLD target for the year is 124 and that should be struck on this rally. While I am on vacation the next two weeks, we would expect UGA to hit 26 or higher, and USO to test 10.40. This should equal the following prices on our perpetual Crude Oil contract: above 47.40 targets 52.50.
The speed of the decline since TLT 128 was struck, combined with the lack of strength shown, increases our concern that the bond market could have bigger problems than most are anticipating. AMZN in particular has a classic daily buy signal.
We have hit our target range for 2017, yet we continue to forecast a strong second half. We had been looking for a potential test of 223 and then a 20 to 27-point rally. This suggests a test of the mid to high 250’s. While it is possible we have one more dip in oil, we would look for a spot to add should that occur – and it may very well not happen.
The SPY has continued to pull back this week, and we think that this can continue into the end of the week. We would consider buying the next daily stochastics buy signal, as that should be the start of a rally that should lead to a stronger second half. DBC has looked to be bottoming in this area for a while. A move above 15 would suggest a bottom and above 16 a new uptrend.
We still think it is possible that equities pull back into the end of June, and then make a bottom for the July 4th week. This should then set us up for a strong end to 2017, which has been our forecast.
Over the last week, probabilities have risen for a short-term correction in the U.S. equity markets. While it should not be severe (if indeed we get it at all!), now might be a time to look at some of the dividend stock ETFs that are popular.
One of “Fred’s Rules” is that any stock that doubles the performance of the S&P 500 is vulnerable to a 50% retracement of that advance even if it is ultimately going to make higher highs.
Our forecast remains for a strong second half, but many indicators are suggesting a weaker than expected end to June. Oil has been a bit weaker than we expected but is still in a bottoming area. Stochastics are oversold, and if they can turn up we should see a sharp rally in this commodity. DBC is trading right near support, oversold and on a trading buy signal.
If GLD gaps up and hits our 124 target, then TRADERS should sell, as it will probably settle back. Investors should hold for a bit. We continue to think that commodities in general should start to do better in the second half of 2017.
Two strong sectors we have been recommending are XLI and XLB. These are both making new highs with little coverage from the financial media. TYX (CBOE 30-Year bond Index) suggests bonds remain in a bull market until it starts closing above 32.50. Key areas for GLD to hold are 119, and SLV should hold 16.
SPY has moved above 241, roughly on the schedule we suggested, and the equity markets are set to have a stronger end to 2017. Part of our forecast for the second part of 2017 is that rates will rise more than many expect in the second part of the year.
Stocks are, once again, challenging the 240 area on SPY and heading for the 241 area, our breakout number. SLX has pulled back to test support in the 36 area and has started to rally.
