XLF should perform well in our projected rally, but the trade has become crowded and we will reevaluate this in the summer, with a view towards moderating our strong recommendation.
We are in the window of the timeframe where we have been looking for a solid intermediate low. Bonds are trading about as expected, with a short-term peak at 90 on TLT and a daily sell recycle.
This is kind of the “Tariff Letter” due to fundamental changes over the weekend. We saw some reaction in Friday’s markets. Daily and weekly stochastics are now in sell mode on SPY and QQQ. This would support our view that a recycle of the daily and weekly is coming, and this should lead to our best buying opportunity so far in 2025.
The first thing to mention is that we believe this decline is not yet over. We have been expecting, and continue to expect, a sideways to down market into February/March. We would consider continuing to diversify away from Tech.
The Tech Sell off due to new competitor DeepSeek will be reviewed on Wednesday after the dust settles. While we still think The US can outperform Europe this year, the improvement in EWG suggests Europe may have a slightly better year.
We have finally seen a rally attempt, but much later than we expected, a sign of weakness. We would continue to use NLR for exposure here, but if support starts to break, we would be cautious. China is our favorite international speculation, while Japan is one of our favorite international investments.
We continue to look for sideways to down behavior, with a potential rally to relieve the oversold condition that should start soon, but fizzle. It seems clear that 85 is a key area on TLT that is holding so far.
We do not think this will be a bear market year (as mentioned in our Monthly Review), but we do think the market can be down to sideways into February/March as the weekly and maybe even the monthly stochastics recycle. Potential downside areas are: SPY 568, below that could target as low as 525 intraday; QQQ 460 could be hit; IJR 108, then 101. If TYX closes above 51.70, rates are on the way up in the first half. If that occurs, watch this as TYX has got resistance from 60 to 62.
Stocks are acting worse than expected so far, but in reality, we are back where we were at the end of December. So, today and Friday will be important for the market, and a close above 596 on SPY by Friday would continue to keep rally possibilities alive. One of the big concerns here is that TLT is much weaker than expected.
Right now, stocks are on a short-term buy signal, and we expect this week to see some upside, at least into Wednesday. However, breadth indicators are suggesting technical problems ahead, at least for now. So, in terms of this being “the year of the REIT”, what is the technical verdict? These three ETFs, plus some of the others we look at, are oversold enough to work, and they are in buy mode short-term, along with TLT and other bond ETFs as we have discussed over the last few weeks.
Stocks closed on a short-term buy signal, suggesting the first week of January should be up – this might create some bullishness that would lead to problems on the next daily sell signal. TLT has closed with a small daily buy signal via the chart pattern, as has LQD, but perhaps more important is that MUB has closed with a daily stochastic recycle. One could make the case that DBC is a giant Head and Shoulders Bottom and is almost certainly the basis for managers such as Stanley Druckenmiller and Paul Tudor Jones’ forecasts of a coming bull market in commodities.
Breadth indicators have become oversold enough to suggest a rally into the end of the year at least, and this is what we have been expecting. I realize that Defense and Aerospace are “Sacred Cows” that cannot be cut, but at the same time they have failed audits – there could be surprises here. As long as MUB and LQD remain stronger, there is some hope for a drop in interest rates in the first part of 2025.
This is Options Expiration week and therefore the trading could be difficult coupled with the FOMC. TLT is holding the 90-area, as long as this area can hold the equity markets are fine.
We have been expecting stocks to pull back, and we have seen this in blue chip names but not in the NASDAQ. Bonds are weak enough that a break here could cause trouble.
We could see some more short-term pullback this week, but we are probably close to a short-term low. While interest rates remain weak, TLT could still hit 95 by yearend.
This may be the only down/sideways week we have in December. We have no real changes in opinion on equities. TLT is very important for 2025, as a big break of 90 sets up problems, in our view.
Now you are seeing enough to suggest a short-term pullback is likely, but since a yearend advance should follow this pullback, we would not be sellers. Note that the biggest component of DBC is oil, and this has just passed into a period of seasonal strength.
