The stock market has likely made a trading low for a rally to 449 to 453 on SPY. We discuss using Russian ETFs as a proxy for oil – this is an idea we have used over the years and the indicators suggest it is timely now.
Stocks probably have put in a short-term bottom, albeit a bit more volatile than we expected when we wrote the Weekly. For XLB, we could add positions here, and then later into June if the market has trouble in the second quarter.
SPY tested the support around 460 once again and now has the potential to bounce for the next couple of weeks. We think that this rally is part of a broadening top formation, and the next daily sell signal should give way to corrective behavior.
We do not think the market will make significant new highs in January, but we are not super concerned about a correction until the second quarter. If Platinum starts to weaken before Gold, that would be a sign that the metals’ advance is ending early.
The message here is that new client money should be going into “Value” and rebalancing of even high relative strength Tech positions should be undertaken, for those who have not done so. Oil should have some upside into the end of January, but we are still concerned about a seasonal short-term peak.
Stocks should trade up over the next few weeks or so as we have mentioned, and we would evolve some defensive strategies in advance of the end of the first quarter.
Indicators are overbought, so traders who have not sold trading positions should do so by Tuesday. Targets on GLD for a rally are to fill the gap on the Island Reversal (a negative technical pattern), a move to 172.50. Above that would target 175.
We would be looking at risk management and mitigation strategies early in 2022. We will say it appears to us that the fear of much higher rates is, at least for now, overdone.
Internal indicators actually improved a bit last week, but not enough to suggest we are out of the woods for 2022. Our conclusion here is that we should now start to add more value positions to portfolios.
Would a failure here to have more of a yearend advance mean next year would have less risk? UUP pattern is still up, but it may need to rest for a while as the weekly stochastic is in slight sell mode.
It is December options expiration week, and since the market had a spate of negative put call readings, we would expect this week to be up, at least until Thursday. Since JETS has held 20 with a daily stochastic recycle and an oversold weekly, it might be a good speculation on a milder Omicron variant.
We would use this rally to sell weak positions and rebalance overextended stocks. A move in TLT back below 150 would suggest a retest of the 145-area. This is still one of the strongest markets from the standpoint of accumulation.
Sentiment was the missing ingredient for a yearend rally and that has turned up. We still have concerns about next year. Some of those negative conditions could be ameliorated by a strong yearend rally.
Stocks had another difficult day Tuesday, but it served to get SPY and DIA oversold on the daily stochastics. We will have concerns below 450 on SPY, and 340 on DIA. FXY may have made a significant trading bottom and is a worthy speculation.
We have been asked if Friday changed our view on a yearend rally and so far, the answer is, “no”. This is setting up for rally into the end of December, but after that we are concerned. Sharp drops of this kind are often bullish.
This week may not be aggressively up – it may trade up in fits and starts, but it should build a bit more steam going into December. Right now, the Low Volatility factor is one of the most unpopular in the markets.
We should be up and down into the end of this week, and then rally into Thanksgiving. Gold should pull back into the end of the week, but we still look for a seasonal rally.
The most important thing for us is that breadth momentum is improving but is not overbought. There is other evidence the market is broadening out. The best is that several of the FAANG stocks aren’t making new highs – look at AAPL, FB, and AMZN. These big former leaders aren’t bad charts, but other stocks are carrying the baton.
