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Below are Fred's Weekly Reports with a brief synopsis of each. To view the full report, click on the title.
This is options expiration week and one of four quadruple witches so an up and down week would not be a surprise. The most important thing about this week’s trading is the steady march through resistance by IYT.
The put/call ratio increased to 1.00 on Friday, but this is still not a “panicky” enough number. We would not be surprised to see some more up and down choppiness this week. While XLF is weak, the banks are weaker – look for stronger sectors in financials.
As mentioned in the August 31st weekly, we would have concerns if SPY starts to close below 325. The next daily stochastic buy recycle should take SPY to our target area of 367 to 372.
We are seeing some signs of rotation, but do note that the Put/Call numbers did not improve much last week, suggesting this week could see some more choppiness.
The key point here is that the advance decline line can diverge for months, if not years, before you have a major bear. This process may be starting, but it has not gone on long enough to be a concern.
While we continue to expect that the 367 to 372 range to be tested in the next few months, traders should become a little bit cautious over the next few weeks. We would be concerned if SPY falls below 325.
Stocks removed from the DJIA have fared better in the twelve-month period after the changes. Be aware, as we come out of this recession that the Transports could start to outperform once again.
Our belief now is that IJR has been resting in a consolidation and will embark on strong performance as the economy moves out of recession. UUP could rally to 26 from here, even if the trend turns down after – which would be a surprise. We think this could move back up to the top of the trading range around 27 to 28.
Trading action continues to support the idea that the sideways consolidation into July is giving way to another upward cycle that lasts at least until the election.
The charts suggest that the best Financial Sector allocation would likely be a combination of IAI and KIE, ideally with an overlay of the credit card stocks mentioned above. We would avoid all but the strongest bank stock charts for a while. For the GLD chart to be repaired, a move above 193 is needed, i.e. filling the gap and moving above the high of the gap down day.
While a pullback could happen at any time as the daily stochastic recycles, the odds of a severe drop have gone down for us, and up for the consensus.
We would add some money here, but mostly add to stocks on a daily recycle in SPY or QQQ.
Overall, the technical indicators, while they have weakened a bit, still support higher prices in the weeks ahead. GLD below 160 would be a concern. UUP is a key chart here, and our thesis is that it is in a trading range.
We remain bullish on small cap through yearend and into next year, as small cap issues outperform large cap for 12 months following a recession. RSP is not a value play, but rather a bet that as the country comes out of recession and the market will broaden out.
We now have slight daily and weekly sell indications on the stochastics for SPY, and a daily sell on QQQ. These could recycle this week and when they do, we will have to be more bullish, and less cautious. The DBO chart, although a bit overbought, suggests a rally into August at least.
The market continues to be stronger than we have expected, but both SPY and QQQ had bad trading days on Tuesday. The %Bears has retreated to 17.3, the lowest level since 12/18/2019.
All of the stuff we have been looking for to spark a July correction is occurring (more coronavirus cases, QQQ weakening, unemployment ending) but no market correction as of yet. This week should be down. We would rather own SLV than GLD at this juncture.
This is options expiration week for July and there are many crosscurrents. If we get this correction, then this should be the last good opportunity to buy before the election, as we have mentioned.
QQQ and IYW, and strong charts, but overdone enough on the upside to pull back a bit. The strongest chart in Europe is still EWL.
Obviously, it has been very hard to predict a decline in this strong market. We are going out on a limb by doing so, but if this works, we should have a great buying opportunity toward the end of the month. Most of the forecasts we see for the dollar are dramatic and violent, while we see little beyond moving around within the trading range of the last five years.
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