Weekly Report

Stocks rally into Labor Day weekend most of the time. So, we are not surprised to see some upside here.

In spite of last Friday’s action, we have no major change in our outlook, which is to be cautious on the equity markets into late September/early October.  We acknowledge Powell’s speech but note that longer-term bonds advanced very little – in other words our concern about a rise in long-term rates remains.

We continue to signs of an impending pullback.

We are not selling leading securities, as we think the market will make new highs into the end of the year after this dip.  Seasonal strength in petroleum is ending at the end of August.  We believe Japan is starting a new secular bull market.

Stocks continue to advance, and we would continue, slowly, getting more defensive, selling underperforming positions, and holding that cash.

Still looking for a short-term peak in the next few weeks.  Our volatility indicator is suggesting an up-tick in volatility is coming.  Several indicators for TLT have set up and we now have enough of a buy signal to buy it here with an objective of 92 that should be hit in the next couple of weeks.

Bonds continue to rally, albeit more slowly than we would like to see.  GDX (Market Vectors Gold Miners ETF) has started a potential breakout.

We will continue to sell underperforming positions, and prepare for a more severe pullback, and while we still believe that should start later in August, but if we are a few weeks wrong about the timing this pullback could be starting now.

When the weekly on TLT becomes overbought, risk becomes high. SPY is above my summer rally target (630). Key downside supports are 616, then 611.

We have suggested beginning to put together a sell list of underperforming names, and we discuss some Dividend Stock ETFs as a way of getting a bit more defensive.  Some of the more defensive sectors are starting to do better.

SPY has hit our target at 630, and while the market still looks higher, we should now look for points to sell underperforming stocks, or at least parts of position in them.  Watch GLD – staying below 302 would suggest a peak in gold. SLV may be starting a blow-off top and right now the risk of a peak is increasing but it is not there yet.

We still think the end of the year will be higher than this, but we should be looking at underperforming holdings with a view towards building a sell list.  A move above 52 on TYX, and 50 on TNX heightens the risk of an advance in interest rates that could surprise the markets.

Stocks continue to look like typical options expiration shenanigans.  One thing that is a concern is the performance of TLT and TYX.  Watch TYX – a move above 52 would suggest problems for our thesis of the market rallying into mid-August.

We like the trading, with a pattern of down early in the week and a rally into the end of the week.  We would watch CPER to make sure it holds the breakout.

IJR and IWM are trading well, and still look like Head and Shoulders breakouts.  The only real concern we have is that TLT is weaker than we would like to see.

With both SPY and QQQ at all-time highs there could be decent follow through in spite of the tariff threats.  Bonds often make an important cycle low in October and given the patterns on the long-term quarterly charts of TNX and TYX, this coming October could be especially difficult.  Overbought readings on TLT (bond prices) going into the July/August timeframe would set up a decline in price into October – one that could be worse than many expect.

We reiterate that slower moves are more bullish – we like the trading.  Are the Shorts on the run? Not really as they are making money. But down the road there could be covering by the shorts.

Industrials is one of the strongest sectors, yet this is not widely acknowledged.  GLD has closed below the key 302 area. We have been looking for a break of this area to signal a drop in gold, so be careful if you are in GLD.

Tuesday was a strong day that gapped up and closed near the high of the day.  TLT had an outside day up that suggests further gains.

Before the US attacks, we had been looking for an up week, and the indicators still suggest this is likely.  We would expect to be down early in the week, and up at the end. We will have more in the Midweek and may issue an alert this week if conditions warrant this.