Overall, the technical indicators, while they have weakened a bit, still support higher prices in the weeks ahead. GLD below 160 would be a concern. UUP is a key chart here, and our thesis is that it is in a trading range.
We remain bullish on small cap through yearend and into next year, as small cap issues outperform large cap for 12 months following a recession. RSP is not a value play, but rather a bet that as the country comes out of recession and the market will broaden out.
We now have slight daily and weekly sell indications on the stochastics for SPY, and a daily sell on QQQ. These could recycle this week and when they do, we will have to be more bullish, and less cautious. The DBO chart, although a bit overbought, suggests a rally into August at least.
The market continues to be stronger than we have expected, but both SPY and QQQ had bad trading days on Tuesday. The %Bears has retreated to 17.3, the lowest level since 12/18/2019.
All of the stuff we have been looking for to spark a July correction is occurring (more coronavirus cases, QQQ weakening, unemployment ending) but no market correction as of yet. This week should be down. We would rather own SLV than GLD at this juncture.
This is options expiration week for July and there are many crosscurrents. If we get this correction, then this should be the last good opportunity to buy before the election, as we have mentioned.
Obviously, it has been very hard to predict a decline in this strong market. We are going out on a limb by doing so, but if this works, we should have a great buying opportunity toward the end of the month. Most of the forecasts we see for the dollar are dramatic and violent, while we see little beyond moving around within the trading range of the last five years.
We come into this week looking for a pullback in July. We would use strength this week to sell underperforming positions and prepare to redeploy that cash on a pullback.
We have noticed an interesting feature of most of the indexes we have looked at, which is indicator commonality. Will we get the correction we have been looking for in July? We think it is likely, and certainly the risk to the market is there.
We would look to add some cash here at 300, then at 290, and then at 270 to 260 especially if we are in that area in mid to late July. We now think that a pullback in July is the last significant risk before the election.
We would continue to look for continued choppiness, and a likely decline into a low sometime in mid-July. We would consider buying XHB on a pullback into support.
We expect more backing and filling, and still more decline is possible. Realize, as we said in the weekly, that we are bullish through the election, and SPY should make all-time highs. However, even though the market is stronger than expected we could still see decline into early to mid-July.
Short-term indicators have hit overbought extremes, and as mentioned before, the put/call ratio and other sentiment data has hit giddy extremes. We have target points at 295 to 288 or so on SPY. Below 287 on a closing basis could target as low as 260, which is our maximum downside for a correction unless something odd happens.
We may have started a short-term pullback. We still feel that a steeper pullback, if it occurs, will be in July. Trading support is 298 on SPY; longer-term support remains 280 for now.
We have seen the outperformance of small cap over the last month or so, and as mentioned believe this means business conditions are better, and the chance of a recession is less. The market is broadening out, and likely away from Tech.
Stocks have continued to rally a bit, and as mentioned in the monthly, the daily FPO is overbought enough to spark a pullback in June. We could see a test of 312 on SPY or so before that occurs.
Put/Call numbers have fallen into sell territory. REITs have underperformed a bit, but if the economy normalizes this area should snap back, albeit with some changed fundamentals.
The timing or likelihood of a severe correction is way down over the last few weeks, until we get a signal. Yes, this is a surprise – the market is stronger than we expected on this open. A drop into July should look different than the drop into 2009 from 2008. One reason for this is that Accumulation models for many of the stock indexes are hitting all-time highs.
