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Breadth has been panicky, and given some signals saying that while a bottom is in, it should be retested, possibly several times. The monthly stochastic should recycle for the first time since 2008, 2009. Advisors should adopt a more trading orientation if possible and look for the final bottom as much as four months from now.
SPY rallied through the end of 2019, per our yearly forecast. This sell off in February/March is per our forecast and should fully correct overbought long-term indicators. This sets the market up for a rally into the election, especially if we double bottom in March/April.
Readers may notice that we have changed some of the indications on the front page of this monthly to = from an up arrow. We have thought about this change, as we remain long-term bullish and maintain our long-term targets of on SPY of 367 to 373 as given in the January Monthly Review. We decided to make the change because weekly overbought/oversold could come down into March, and some caution is indicated. This could change intra month, and we would not be sellers of investment positions. But we would trade with a view toward risk management while we see which way the wind blows.
Therefore, for 2020, we are looking for a strong year, and our forecast range is 367 to 373, but the road should be bumpier, with more trading opportunities than 2019. Therefore, for 2020, we are looking for a strong year, and our forecast range is 367 to 373, but the road should be bumpier, with more trading opportunities than 2019.
FXE has hit downside targets at 103 or so and has rebounded. We recommended taking some positions in the Euro in the 105-area, and now we have a buy signal on the monthly chart, suggesting this could rally in December and possibly January. The Dollar has made higher lows on corrections throughout 2019, but it is near long-term resistance and could pause, or even have a sharp drop, at least in part based on the action in the Euro.
USO may have made a seasonal bottom in October, and if so it could go sideways, or rally into November. Oil could rally on this weekly stochastics recycle. We maintain our $72/Bbl target on oil, the equivalent price on USO is around 15 to 16. This will most likely happen this winter, if oil makes higher lows now.
SPY has retested the top end of our 294 to 302 range and sold off. Traders sold positions, but we maintained investment positions, adding to them in the 285-area. Now this could be a bottoming pattern, with daily stochastic buy recycle underway.
MDY has a new weekly stochastic buy signal, and this may be giving us a new short-term buy signal for the market as a whole. MDY has become a short-term trading range, and a new high after this pullback would be strong.
Commodities, especially oil, have topping signs, and are starting to pull back. The summer driving rally may be over. Our favorite broad-based Commodity Index ETF, DBC, is declining with oil. Targets are 15 or so on DBC. Watch Oil via USO and DBC carefully. These suggest the rally in the oil stocks is ending. We may not see much in oil and oil stocks until the fall.
As of now, we are prepared for another decline that might be steeper than many researchers are expecting, at the end of this summer rally phase. Accumulation models are not leading in this advance, a concern. They are very weak on QQQ and Tech. International is less attractive than the U.S., but could be stronger in the second half.
There is a failed daily stochastic recycle for SPY, and now the weekly could turn up as well. This pull back could be setting up a summer rally, but there are crosscurrents and we expect a test of 270 or slightly lower, before this. A break of 265 would concern us and could set up a test of the December 2018 low.
We are overweight XLF, and XLV. These still have strong accumulation models. We are underweight XLE and IYZ, which hit downside targets for 2018 but remains an underperformer. XLP is a range. XLRE has strong accumulation models and broke out to the upside – we are an Equal Weight.
Our favorite broad-based Commodity Index ETF, DBC, has rallied into the first quarter of 2019. Targets are 18. Watch Oil via USO and DBC carefully. These could suggest a rally in the oil stocks. There are short-term bottoms in place on oil and DBC, but we are entering a period of seasonal weakness on oil – consolidation is possible.
SPY is rallying in the first part of 2019, per our yearly forecast, and indicators are short-term overbought. The rally has been very strong in terms of breadth, a plus, but weekly indicators are still in downtrends despite the breadth surge readings on the daily indicators.
The market resolved the oversold conditions on this rally. As of now, we are prepared for another decline that should complete a bottoming formation – but advisors have some good investments at attractive prices.
The drop was more extensive than expected, although our target of 240 held. The market is oversold to rally but the quality of this is important. As of now, we would look for another decline that should complete a bottoming formation.
Commodities, especially oil, have been much weaker than we expected. GLD has been weaker than expected but has rallied off support.
SPY has rallied to the 290 area, and the divergences led to a sharp drop as forecast. Now, if there is strong breadth for the next few weeks the market could be setting up for a strong beginning to 2019. Otherwise, another drop at the beginning to 2019 is possible.
New Highs/New Lows has rolled over again, and is now negative: It fell off as the market corrected in February, after beginning to weaken before the correction started. Remember that this is a leading indicator that often goes negative first. Now, there has been four weeks of more new lows than highs, suggesting a corrective period could occur.
SPY has rallied to the 290 area, and there are divergences. The market is still set up for a fall correction. The danger is this new high is reversed. Note that RSP has not made new highs (we talk about indexing in the research piece), a sign the market is narrowing. Breadth indicators suggest this as well. For an example of how a false breakout could look, check out the weekly chart of XLP.
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