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.
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.
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.
There are two things that stand out. The first is that general tech weakness relative to other sectors continued, but the most interesting development last week was the advance in the Transportation stocks. The end of November is the traditional date to buy the agricultural commodities for the seasonal trade into the summer months.
We think this could be the real start of the yearend rally we’ve been forecasting and have no changes to our forecast at this time. We remain overweight XLI and XLB. XLF is a strong equal weight, and IYW is an underweight.
USO and the perpetual oil contract have hit new yearly highs. Our target for this year for the perpetual oil contract has been 67 and this may be overly optimistic, but we will stick with it for now. We have said that producing income for clients will be best achieved through a “cocktail” of instruments and strong REIT ETFs should be a big part of this approach.
We are still in PDP and DWAS and expect them to trend up from here into yearend. We continue to expect a dollar rally.
We have been looking for the daily stochastic to recycle on most of the indexes and this is occurring without a severe price decline, at least so far. This Friday is options expiration for November so we would love to see the market down into the end of the week, or at least down into Thursday followed by a Friday rally.
Dividend stocks should outperform bonds over the next 12 months. Through 32.50 resistance would likely turn the chart of TYX from bearish to bullish and lead to a rise in rates, with TYX likely to challenge 40, then 47.50.
Oil has hit 57 and change on the nearby contract, and while it is overextended we still expect a test of 62, and then possibly 67.
The markets are in an interesting configuration here at the start of November. Monthly indicators did not reset for October, and suggest a short-term peak is possible. Daily stochastics on SPY are now in sell mode, suggesting they could recycle. This is a trading oriented indication only for us – the outlook into the end of the year remains positive.
We have had some questions about why Biotech dropped a bit, and believe it is because these indexes were already at resistance when the good news hit. Watch DBC carefully – we expect more advance but the pattern is difficult.
We believe it is a good time to look at some of the higher momentum ETFs for a run into the end of the year. Our interest rate forecast is for rising rates into yearend, and because of this we often get questions about the effects of a rise on municipal bonds. These charts suggest that the municipal bond ETFs will outperform Treasury ETFs on a rate rise.
We have had SLX in our portfolios since before the 2016 election, and it has had a more difficult year than we expected. Still, the technical condition is ripe for an advance into yearend.
We continue to see evidence that the broad market is improving – New Highs/New Lows continues strong, and the weekly advance/decline line continued to make new highs. Breadth momentum indicators are near the tops of ranges but set up to move higher. Our oil forecast for the year has been for a move to 67 by yearend – which now seems to be a bit out of reach or too big a move. We still think the mid-60’s are possible.
We continue to like the market into yearend, but right now daily stochastics are overbought so we would not be surprised to see some pullback. We are buyers, and not sellers of XLV, XBI and IBB into the end of 2017, especially on a dip for October expiration.
In blue chips, there is still dominance from the very top large cap stocks but we are starting to see some of the smaller names come on. Those advisors who have been on the fence regarding a commodity position in portfolios should consider this now – the train may be leaving the station.
USO has generated a short-term buy signal that should help XLE and PSCE. TLT is interesting as it tried to rally and had a reversal bar. It could end up weakening from here. The strong performance of dividend stocks, as measured by SPHD, is important.
Many have suggested the market is overbought. While daily and weekly FPO’s are stretched and that we could see a choppy, negative week sometime in the next few weeks, this still looks like a “good” overbought situation rather than the end of this advance. We believe a move by TYX above 32.50 will suggest the bull market in bonds is over.
We have no surprises so far this week in the U.S. equity markets. XLI and XLB have made new highs while IYW is lagging. The daily stochastic on GLD is very oversold while the weekly is still dropping down to recycle. There might be a bounce here but we are still trying to add GLD back around 117.
Major stock indexes, including MDY (which had been lagging) closed at or near all-time highs. This is in line with our forecasts, and suggests that our forecast for strength into yearend is intact. The market appears to be in the early stages of transitioning from domination by growth stocks into value. Consolidation is likely here but our forecast for a UUP move to the 26 area by yearend looks to be on track.
We continue to see increasing signs that the market has started the end of year rally we have been looking for since late summer. The latest is the performance of the Transportation Index ETFs. IWM and IJR have made new closing and intraday highs. We would be very cautious here on EEM.
We would add money here but also leave a bit out in case such a pullback materializes. One of the reasons we are positive is that equities are broadening out. We continue to be concerned about a rise in rates in the fourth quarter.
We continue to see signs that the end of 2017 should be strong. We take a look at Chinese technology, real estate, and financials.
SPY made new closing weekly highs, suggesting that our forecast of a strong second half is on track. Trend following systems are positive, indicators are not horribly overbought, and this means the market can advance into yearend, as it is broadening out.
If this rally is to be really strong, then we should see improvement in the broader indexes. Probably the most interesting thing here is the possibility that a significant bottoming pattern in the dollar is under way.
The stock market is reacting erratically to the various storms, but last week saw some improvement to key technical indicators. Overall things continue to improve, and we see no reason to change our forecast for a strong end to 2017.
We have seen some signs that equities are preparing for our forecasted yearend advance. We are very interested in REITs as their accumulation models are stronger than TLT and the charts looks stronger also. This suggests that they would be a good addition to our “income cocktail” in the event that rates rise in the second part of 2017.
GLD has made a “Prussian Helmet” high and may have made an important peak for this year. The dollar may be making a complex bottom here and if so this could affect gold.
We expect a pullback to be relatively short-lived, followed by strength into yearend. If the market fails to broaden out, then we will look to switch into low volatility. Watch Brazil – if it fails so could EEM.
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.
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