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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.
We note that the weekly stochastic is now overbought, above 80 and if it turns down, we will have both daily and weekly stochastics negative. Should this occur we would consider starting to move back into low volatility from our equally weighted RSP position. We will be watching the new lows numbers – if they start to expand, we would have concerns.
Transportation charts support the possibility of pullback and retest over the next few months. When we look at these European ETFs, they suggest that we should have European concerns. The real question is whether European growth and financial concerns will cause a drop in the Euro and a spike in the dollar.
The next daily stochastic signal, which will occur on a rollover and move below 80, should lead to a buy recycle, and we would wait to deploy significant new capital until that occurs.
Stocks rallied last week and are up at the top end of our resistance band.
The daily stochastic on SPY and QQQ have both gone into sell mode, suggesting momentum weakness Our tax loss list has been completed. Five stocks hit their trading targets, one Century Link (CTL) was stopped at breakeven.
We still believe the odds are we will have a retest but it may come later in the year, after more short-term topping action. While this area for REITs still is in a trading range, there are some signs in my accumulation models that suggest this year they could break out of this range and stage an advance.
Several indicators are now suggesting the market should pull back into the middle of next week, or possibly longer. The daily stochastic for GLD has gone negative, and the weekly is overbought and starting to turn down. GLD hit the resistance at 122 and gapped down from that area Friday.
This week is options expiration for January so we may see some consolidation and choppiness in stocks into the end of the week.
On the upside, targets on SPY are 260, then 267 to sell, and on the downside, exceeding last week’s low would do it for me – and that number will go up over the next few weeks. From the standpoint of risk management this is a good situation and we would buy MLPs at this time.
The risk here is a retest or even lower lows after this rally runs its course. We have been looking for 255 to 260, but this could stretch to 267.
The market should have more upside here, but cautious advisors should realize that a good pullback is likely after this rally runs its course. This move should take a few months to materialize, but ultimately, we should see UUP at 24.50 to 24.30.
A rally is possible that could carry SPY to 255 – 260 or so, but that caution is still warranted intermediate term. We publish our Tax Bounce list today.
We would still wait for a daily stochastic buy signal to commit big money to an advance. The concern with GLD is that our accumulation model has started to diverge such that we would take profits on the next weekly sell indication, and would take partial profits at the end of 2018, especially if 120 is exceeded.
Since we have failed buy signals on the daily and weekly stochastic, we remain concerned that the bottom of this correction is going to take more time and be more complex than many currently believe. We continue to think that rates will move up from this area, and this move may have served to move rates back into buy mode.
The market should move below Friday’s low before there is a chance for recovery. The FED meets this week regarding rates so there could be some volatility here, but we would assume that much of the rise in bonds expected after the meeting has taken place. It is interesting to look at UUP, DBB, and TLT together, as the potential exists for changes in all three of these markets, that may end up benefiting the stock market.
The action we are seeing in stocks is what I call “going aggressively nowhere”. If you want to position for a trading rally, probably the best instrument to use is RSP.
If IYT continues to do as badly the market is in trouble for the rest of the year. One concern we have is that the McClellan has moved up to “0” from oversold and the market has not rallied.
The daily stochastics on the major averages are rolling over but have not even given sell indications, and the market sold off hard. Much more of this will suggest that the “ease of movement” is down, rather than up. The action in the bond market was violent and a surprise.
If SPY can make it through 281 it looks as if new highs could be struck by yearend. The Transports are finally trading a bit better than SPY and DIA. One more rate rise should do it, and after this we would expect relative stability in rates.
Key levels are SPY 271, QQQ 165, and IJR 78.50. Above these would imply a strong end to the year.
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