Models do not show strong accumulation on this rally. We ran accumulation models on TLT, and these are now suggesting that bonds have made a significant low that should last for the next quarter or so.
There has been continued improvement in internal indicators last week and this keeps the yearend rally thesis alive. The last time bullish sentiment was this low was 1999. After a rally, prices (and bullish sentiment) actually went lower, into a final low in January 2000!
Internal indicators have improved enough to suggest some more upside but are not acting as if the bear market is over. Indicators still suggest that this rally in bonds should be followed by lower lows.
On last Thursday’s call we discussed investing in RSP vs. SPY and QQQ. This continues to make sense to us, as Tech is weak, and also such a big weight in SPY. One thing interesting about last week is that it gave us a classic short-term buy pattern on TLT, suitable for traders to buy and hold for a week. As long as PGJ can stay above 21, and KWEB above 20, these two ETFs are giving strong bottoming indications.
It looks as if we will consolidate the recent gains, probably pull back a bit on the Federal Reserve (FED) announcement and press conference today but as long as SPY remains above 365 closing basis, the trend is turning up.
One thing that is happening is the movement away from Growth and into Value is continuing. Stocks are very close to trading targets in the 395 area on SPY. Traders should start to sell in this area, especially on an up open. There are definitely bottoming signs, but these would be improved by consolidation/pullback and not by further advance.
The stock indexes have showed enough follow through to suggest this rally should continue here, and SPY has targets of 390 to 400. QQQ has targets of 295 to 300.
More important to the health of the current rally attempt is how QQQ handles the resistance at 277 to 278. We would like to see some more backing and filling – a straight shot up would probably be a good short sale. Rates should now stabilize in this area as FVX tested 45 and has had a reversal bar on the short-term chart. If this area is exceeded soon, FVX should go immediately to 50. Indicators suggest that this 45 area will be exceeded but not right away.
We would like to see continued choppy action. We think TLT can test the 94 to 92 area on the downside and exceeding 101 on the upside would suggest an intermediate bottom is in place.
We would also suggest that the kind of action we are seeing is what we have been looking for – violent up and down action with virtually no net price change week over week.
Friday’s action was, on the surface, terrible but the internal indicators looked a bit better. The message here is to use risk management, especially if 357 on SPY is breached, as that would mean the false breakdown low formation has failed.
We mention that there is no buy pattern yet, but it feels close. We would like to see a period of sharp up and down movements without much progress in either direction – choppy action that wears people out.
A move above 45 on FVX, and below 98 on MUB would call this bottoming action into question. Breadth indicators remain oversold, so a short-term rally is possible later this week – but it would be best, in our view, to see choppy sideways action rather than an immediate rally.
We are seeing some of the “they take the best down last” syndrome as dividend stocks and dividend stock ETFs are showing some give up here. Put/Call ratio is not spiking as it did in 2018 and 2020.
We are still in sell mode on the stochastics and some external indicators. While the interest rate picture portends higher short rates are possible, longer rates may stabilize sooner.
There are increasing signs that really heavy selling is being exhausted. SPY could test 430 again, and this would suggest we are starting a basing pattern.
We have suggested that advisors now look at indicators such as daily stochastic recycles to add as we move into September. Equities are down enough to suggest that something is being discounted – and maybe it is the current recession! There are bottoming signs in the Chinese markets – accumulation is turning up and support is holding.
Stocks have sold off into our buy area, and indeed closed below the 400 area on SPY we have been looking for as a place to add money. We need to see improvement in the internal indicators, and we will get most of our next readings this weekend. Below 110 on TLT would be a concern.
