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.
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.
A review of the technical indicators suggests this advance has more to go. Intermediate breadth momentum has picked up, but is not yet overbought, although some of the short-term breadth tools are – suggesting this might be another consolidation week, albeit with the possibility of an upside surprise. We discuss TLT and LQD, as we have a trading buy signal on them that could be strong over the next couple of weeks.
We are seeing, and should continue to see, up and down days with large swings. We call this “going aggressively nowhere”. We still have targets of 26 to 27 on UUP, but it is overbought and could consolidate here first.
We want to be buyers on down days, to set up for a yearend rally. We are at an interesting juncture in rates, as accumulation models suggest that rates should remain in a range and not shoot up to 2.25% or so on the 10-year, as we originally thought they would at the last buy signal on TLT.