This is a short holiday week, so there will be no midweek, chart book or call unless something whacky happens with the markets. General advice here is to take some profits on bond positions and move that money into REITs or Preferreds.
As we move into the FED meeting this coming week, daily indicators are overbought and suggest some consolidation is likely. Weekly indicators on many of the indexes are down and in buy mode, suggesting that some “reload” in these short-term indicators is likely before another advance.
Small cap has been lagging, and the long-term trend system is negative here. We mention this because it was the first to go negative before the 2016 election as well. We have been looking for a significant low in oil around the second to third week in June, so the end of last week’s price action in crude oil was encouraging.
Watch the trading in Tech as the accumulation model on QQQ is a negative pattern. We would stick to XLF and XLRE, our sector over weights, for now. TLT has out run the accumulation model at this juncture.
This week’s readings on indicators such as New Highs/New Lows have finally started to deteriorate. The timing is a little bit of a concern as one of our fears for the markets over the summer has been a surprise out of Europe that could affect the Euro and financial system. The Bond Market Vane is currently around 48, suggesting sentiment is neutral, but one of the things that is interesting is that few are predicting a big move in rates, and we think that another significant low in rates is close by, if not at hand.
We remain with daily stochastic buy indications, and weeklies are in sell position. This implies consolidation, which is what is happening. The concern we have had for the uptrend is that the market would react badly to a weekly stochastic sell, and so far, it is holding on relatively well.
Since we have a buy-recycled daily stochastic on most indexes, and a daily FPO that looks like a small buy signal, we would expect this 280-area to hold on SPY, although as always, we would be mindful of risk management. Our target for 2019 on oil is 72/Bbl, and we expect that will be hit this winter.
We continue to look for a recycle in the daily stochastic on SPY, and to monitor other indexes to see if that signal occurs elsewhere. Traders can add a bit vs. a stop of 284 on SPY as if that breaks a test of 269 to 270 is possible.
SEA may have made a cutout, or false breakdown, low in December. This shipping index is a good measure of worldwide economic strength, and it has been down since 2015. Now there are some bottoming signs, and the monthly stochastic is in buy mode for the first time since 2017.
We have hit the bottom end of our upside target range for SPY for 2019. We are Over Weight XLF and this has rallied to the lower end of 28 to 29 resistance. Short-term support is now 27 and as long as this holds, we could see this break above 29 by the end of May.