It still looks as if U.S. equities will make a tradable bottom this week, and indeed this may be happening now, as the daily stochastic has moved above “20” on SPY and other index ETFs. TLT has failed to rally and below 114 suggests a resumption of the move toward 105 we have been looking for.
We would like to see a choppy market into the end of October, as this would reload monthly indicators prior to a yearend rally, as we have been forecasting. Bonds are in an interesting position at this time. The reason we say this is the trading action on Thursday and Friday in TLT has generated a strong short-term buy pattern that should take TLT up to 117 or so from here.
There has been a 50% retracement of the decline from 290 on SPY or so, and options expiration shenanigans suggest a test of 275 is possible – we would add money there as well as here on a down open. Trading objectives for GLD are 120, then 122, but this could be making a longer-term bottom.
These indicators suggest that a retest of 270 on SPY or so is likely but adding some money in this area should look very good a few months from now. We would buy some GLD on a flat to down open but not a big gap up. GLD targets are now 120, and above that 124 or so.
The New Lows continued to expand relative to New Highs – this continues the negative trend we have seen over the last four weeks. Many breadth indicators such as the McClellan Oscillator have become short-term oversold and are trading near previous lows, but intermediate indicators are NOT oversold enough and suggest more downside is possible.
We now have four weeks of more new lows than new highs, and new lows expanded last week. This indicator continues to suggest caution. News from our contacts in Europe suggests there could be some problems in Greece and Italy so this is an area of concern.
There are breadth divergences in other indicators such as FBO’s, and even the McClellan Oscillator, one of our favorite trading tools. The ten day Trading Index (Arms Index) is around .80, classic sell territory. There is enough in these numbers to warrant a cautious stance as well. We do expect a surge in rates by the end of this year.
Overall, technical indicators have weak patterns and are diverging, but this action could go on for some time. Watch TYX, it has crossed the 31.50 area mentioned a few weeks ago and could test 32.50. If it moves higher this would be a major breakout.
We should mention that West Texas Sweet Crude has hit our forecast price for the year by trading above 72. Our current forecast is that this should be a range between 64 and 75 or a little higher into 2019.
We repeat our benchmark numbers that suggest a market decline – 282, and then 278 on SPY. Penetration of those areas would be significant. This seasonal tendency works much of the time in oil. This implied weakness is supported by the position of the monthly stochastics that suggest some time, a few months at least, of choppy behavior. China seems close enough to a trading bottom, which could turn into a double bottom and retest into October.
What numbers are we looking for to suggest a correction is starting? A break of 282 would be weak, and a break of 278 would then target the 250 area. Should these occur, we will become quite cautious. Until then, higher prices are possible, and the top end of our target range at 302 for 2018 remains in range.
We have had some questions as to whether this is a major peak and we don’t think it is – but according to our work the risk is now higher for a pullback. We have sold weak stocks, and have recommended, and still recommend, holding onto the cash for now.