Financial Research, Education & Data
Below are Fred's Weekly Reports with a brief synopsis of each. To view the full report, click on the title.
Our chief concern is that the daily stochastic on SPY is poised to recycle, but after an advance, we’ll have a situation where the daily, weekly, and monthly stochastics are all elevated and moving into sell mode. The risk is that a solid decline/correction could ensue at that time.
The most important thing to realize is that the market is following the indicators, and last week these suggested a choppy week that would lead to a daily stochastic recycle. This seems to be underway, and stocks are trading well given this outlook. We expect this choppy behavior to continue for the week but note that days which open down and close above that open on the high are actually bullish days in our work.
Is this “it” for oil? We do not think so – as the seasonal strength in oil does not end until August. We are looking for another buy point for oil that should give us a rally at least until end of July. The daily TYX stochastic looks to recycle again, probably by July – and the next surge in these prices should push through 32.50 and see a rise of rates.
We think the market can have a summer rally that continues into the end of July, and if this occurs we will be looking at the possibility of a market correction after that time. UUP has temporarily paused, but we think prices can go higher. The main reason we say this is that the monthly stochastic is only half way up towards overbought.
Our SPY forecast range for the year is 290 to 302 and we would expect the lower end of this range to be struck by the end of July, at the latest.
SPY has closed above 275, but not by much. Still, this is the start of a breakout if the market can build upon this and head for targets in the 290 to 302 areas. A really strong opportunity is DBC in this area – it has held 17.50 and the daily stochastic has come down to oversold, and when it turns up we are looking for a move to 22.
Gold and Silver Stock ETFs are interesting at this juncture, as it looks to us that the metals should start to do well. The patterns on GDX and GDXJ show narrow bars after the low, suggesting an apathetic market where something could happen. We think it will be to the upside.
The action in DBC suggests inflationary outcomes are possible here and gold is a good way to take advantage of this, especially at the beginning of a move. The real point with Japan is that ALL of the weekly charts have high risk patterns that could be a big concern.
We recommend traders use this weakness yesterday and this morning to take positions for a summer rally trade to the upside. On a new recycle we will feature GLD as our proxy for Gold but it is stabilizing and interesting.
A quick review of general stock market indicators suggests a slowly improving market. New Highs/New Lows has gone positive, and the McClellan Oscillator is rising and not overbought suggesting there is room to advance into at least the third week of June (and we think longer – mid July or do). TYX (CBOE 30-year bond Index), did not break through our resistance number of 32.50. The high of this move has been 32.47, very close but not yet an indication that the secular bull market is over. Failing below 32.50 actually created the false breakdown on TLT.
We still like XLI and XLB but IYW is also trading well. XLV is one of the most interesting, however.
Stocks continue to look more and more like our summer rally thesis is underway. Friday’s close was the highest close in the last two months, and indicators are improving. Small cap, and the small cap sectors, would be where we put some money now.
The index that best reflects the strength of the domestic economy is close to making a new high close, a sign of strength. We continue to look for our forecast 72 on Crude this year – it could go higher but 69 to 72 should hold for the next few months at least as an average price.
Right now, it looks as if a summer rally is starting that should last through late June too early to mid-July. A move through SPY 272 on SPY would be a sign that this has begun.
TLT should pop today as well and it looks like that can get to at least 120 on this short-term buy signal. Traders long the dollar should sell on a gap up in the morning – our trading target is 24.50 and UUP is close to that. Because of this we would buy GLD or SLV on a down open if UUP is up.
On SPY, a move above 273 would suggest that this rally is under way and should hit new highs. Our stop area on the downside remains 252. TLT is in an interesting position, as daily and weekly stochastics have both gone positive. This suggests a trading opportunity is available for those who want to buy this unit. It also suggests (perhaps more important to Fred Report subscribers) that rates are going to stabilize in this area for a while, and not just rocket up, as has been bandied about in the media.
We would be concerned if SPY were to break 252 on this daily sell signal. It is certainly possible that after some decline in tech that sector stagnates for a while.
On our last call we mentioned that Tech was now a sizeable percentage of the S&P, and most sectors that became as large as 25% did not remain there for very long. Now, at least, it looks like FVX is moving through the resistance, and the others should follow.
We note that IJR and IWM were also up and stronger than the big-caps. This is a strong situation. Crude oil to move to 72 on WTI in our yearly forecast and the chart suggests this is on track.
The response to the earnings on some key financials suggest that our concerns a while back that selling could occur on earnings was not misplaced. Right now, we continue to look for some more upside out of this market.
The stock indexes continue in their bottoming pattern, and so far, this is normal looking. Remember, that while the point swings are large – the %moves are not. While the indicators are positive, in some respects this rally is taking a bit longer to get going than we would like to see, and SPY will look better if it can cross 268 to the upside by the end of the week. TLT is holding the 121-area support, and if this breaks a test of 119 is possible.
Friday’s action was a bit of a surprise, but so far is still part of this bottoming pattern. Indicators suggest this should be an up week, within this ongoing bottoming process. We would not really worry too much unless we start to see closes below the low of last week.
Monday was down, as we expected – but it was down a good bit more than we expected. We note that IWM and even MDY are showing relative strength vs. SPY, a big plus.
Stocks closed the quarter strong enough and the U.S. equity market appears to be in a buy configuration although there are a couple of things wrong with some of the indicators.
We indicated that there could be chop and a possible triple divergence before the market really got going to the upside, and it looks as if this is going to be the case. If this area is a bottom that lasts for several months, into summer, we certainly have time to buy – in other words we do not have to buy everything in the next few days.
Sentiment is a problem, as %Bears are nowhere near where they should be at a major low. Over the next few weeks, we can see rates pulling back a bit. TYX could fall to the mid to low 29’s.
Both IJR and MDY have stronger daily charts than SPY for the first time in a while. There is a potential interest rate rise coming today (FOMC Meeting), and TLT has a daily stochastic sell, suggesting bonds should react to the downside. Aggressive advisors can now buy Facebook, realizing a stop below 160 is needed because the next support is 150 or thereabouts.
There is a potential weekly buy signal on the stock indexes. If this works, the market should be relatively flat to down in the beginning of the week, and then rally at the end.
SPY has hit the top end of the range at 280 we had been looking for and so far, it is failing. Our concern for TLT is that when this advance is over, the bond market will get hit hard and this could affect stocks. A market that is showing signs of pick-up is GLD. If it moves above 129, a test of 133 to 136 is likely.
SPY and stocks continue to look more and more like a bottom is close by. We are going to keep our positions in low volatility for now, as the daily stochastic on TLT has given a new sell indication. If 117 on TLT breaks, 110, then 102 is likely.
What we have been telling advisors is to start to buy positions slowly, with the idea that we would recommend having buying on a new closing low in SPY. Most major bottoms occur on sharply rising bearish sentiment, and we would like to see the daily stochastics recycle.
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.
Growth continues to look a bit stronger than value. We still have concerns mostly that bullish sentiment surrounding Technology is still too strong.
Trading targets for SPY remain in the 274 to 280 area, and we would sell trading positions at 274.
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.
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