Overall, the technical indicators, while they have weakened a bit, still support higher prices in the weeks ahead. GLD below 160 would be a concern. UUP is a key chart here, and our thesis is that it is in a trading range.
We remain bullish on small cap through yearend and into next year, as small cap issues outperform large cap for 12 months following a recession. RSP is not a value play, but rather a bet that as the country comes out of recession and the market will broaden out.
We now have slight daily and weekly sell indications on the stochastics for SPY, and a daily sell on QQQ. These could recycle this week and when they do, we will have to be more bullish, and less cautious. The DBO chart, although a bit overbought, suggests a rally into August at least.
All of the stuff we have been looking for to spark a July correction is occurring (more coronavirus cases, QQQ weakening, unemployment ending) but no market correction as of yet. This week should be down. We would rather own SLV than GLD at this juncture.
Obviously, it has been very hard to predict a decline in this strong market. We are going out on a limb by doing so, but if this works, we should have a great buying opportunity toward the end of the month. Most of the forecasts we see for the dollar are dramatic and violent, while we see little beyond moving around within the trading range of the last five years.
We have noticed an interesting feature of most of the indexes we have looked at, which is indicator commonality. Will we get the correction we have been looking for in July? We think it is likely, and certainly the risk to the market is there.
We would look to add some cash here at 300, then at 290, and then at 270 to 260 especially if we are in that area in mid to late July. We now think that a pullback in July is the last significant risk before the election.
We expect more backing and filling, and still more decline is possible. Realize, as we said in the weekly, that we are bullish through the election, and SPY should make all-time highs. However, even though the market is stronger than expected we could still see decline into early to mid-July.
Short-term indicators have hit overbought extremes, and as mentioned before, the put/call ratio and other sentiment data has hit giddy extremes. We have target points at 295 to 288 or so on SPY. Below 287 on a closing basis could target as low as 260, which is our maximum downside for a correction unless something odd happens.
We have seen the outperformance of small cap over the last month or so, and as mentioned believe this means business conditions are better, and the chance of a recession is less. The market is broadening out, and likely away from Tech.