We would still wait for a daily stochastic buy signal to commit big money to an advance. The concern with GLD is that our accumulation model has started to diverge such that we would take profits on the next weekly sell indication, and would take partial profits at the end of 2018, especially if 120 is exceeded.
Since we have failed buy signals on the daily and weekly stochastic, we remain concerned that the bottom of this correction is going to take more time and be more complex than many currently believe. We continue to think that rates will move up from this area, and this move may have served to move rates back into buy mode.
The market should move below Friday’s low before there is a chance for recovery. The FED meets this week regarding rates so there could be some volatility here, but we would assume that much of the rise in bonds expected after the meeting has taken place. It is interesting to look at UUP, DBB, and TLT together, as the potential exists for changes in all three of these markets, that may end up benefiting the stock market.
The daily stochastics on the major averages are rolling over but have not even given sell indications, and the market sold off hard. Much more of this will suggest that the “ease of movement” is down, rather than up. The action in the bond market was violent and a surprise.
If SPY can make it through 281 it looks as if new highs could be struck by yearend. The Transports are finally trading a bit better than SPY and DIA. One more rate rise should do it, and after this we would expect relative stability in rates.
One other point that we keep mentioning is that our %Bears indicator continues to hover around 19. What has happened with the data is that Bulls have fallen off, but they have moved into the “Correction”, and not the Bears camp. We would buy oil above 55.
Right now, the most important thing for stock prices is breadth. The Transportation Indexes are in good shape here, suggesting the economy is in good shape going into the end of the year. The market should advance here as the Thanksgiving period is usually up for most of the week, even if this Friday’s session is negative.
How the market acts from here is key – per our indicators at the beginning of the week, stocks should rally from here. We would like to see a rally into the end of the week, followed by pullback into the end of November (after Thanksgiving – that week is almost always up), then a strong December.
If new lows drop again this week it would be a positive indication. We believe that Oil is very close to a bottom. This is the time of year when the agricultural commodities traditionally make a seasonal low.
Should the market pull back from here and close flat, as we mentioned, it would be a great set up for further advance. Gold is overbought, and may see some pullback, but there is enough support in the 114 area that we would add to positions if this is tested.
We continue to expect a yearend rally that could be substantial – back to 290 or higher. One significant thing that happened last week was that TLT broke decisively below 114. Our forecasted move to 105 looks to be resuming, and TLT to 105 is no longer as crazy as it seemed in the 130-area!
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.