The decline has been selective, with QQQ and the Tech’s correcting more than other groups, while XLF, XLE, and XLI are rallying while this goes on. SPY can still approach the 373 area by the end of March, but this move is so choppy, it is difficult to short and should continue this way.
The market is acting tired, and we still believe that a pullback into the end of the first quarter is possible, and this should retest the 370 area on SPY or below by the end of March. We ran our Accumulation Models, and these continue to show IWM, IJR, and even MDY as the best areas to look for performance.
One of the most interesting things we have noticed the last couple of weeks as we have been working with data from Barron’s is that there has been a surge in up volume in the NASDAQ. The Agricultural Commodities have continued to advance but now have some signs that a consolidation is likely.
India has been acting very well here and is one of our favorite International Markets. The Nikkei 225 is continuing the advance from last year and remains a very strong rounding bottom chart.
This week is likely to be similar to last week: choppy and may generate a sell signal for expiration week. Gold had a bad week last week, and the trading has pretty much negated the daily and weekly stochastic buy signals we had coming into the week.
Stocks have rallied as we mentioned they could in the weekly. Now, if we are correct, stocks will open up, and then sell off. We continue to be nervous about the metals.
SPY has first support here at 360, and with a McClellan Oscillator reading around -200 there should be a bit of rally here. The treasury yield charts say a rise in rates over the next month or two is likely.
We have no changes in our stock or bond outlook as expressed in the weekly. We remain longer-term bullish but concerned that we have entered a corrective phase.
Stocks look to open the week flat as earnings season picks up speed, and we expect a choppy week. GDX is an intermediate-term flag formation that has pulled back into support, and it has daily and weekly stochastic recycles.
As mentioned in our yearly forecast, a down first quarter would set up a rally. We don’t have a big sell signal, but rather a suggestion that the market needs to rest. We probably won’t be as volatile as we were in 2020, but advisors should be prepared for some stock market pullback in this area. We would use this to add to small cap as the accumulation model is still the strongest of the major indexes.
TLT hit our first main downside target at 150 and held it, so some bounce is possible here. CORN is more of a base and is further from resistance. It is also a bigger crop, so this market may be the one to really watch.
We have advocated selling trading, but not investing, positions. SPY should not go below 341 but will most likely hold 350 or so. EWJ this is very strong, and we think it could be one of the best international performers of 2021.
Would we use growth or value here? We would use IWM. We would not use fxb, but it does suggest our idea for a speculative trade in EWU is at least supported by the currency.
This week looks like a “drift up” week without much zap to it. PGJ is our favorite of the higher risk Chinese ETFs, with short-term support around 57 to 55 and intermediate-term support around 50 to 46.
The stimulus deal is not enough to overcome this setup in the minds of investors. This lessens the chance for a rally through Thursday, but we remain hopeful and think that will be more of a drift than a power move.
The central idea is that hot stocks rally into Christmas, and possibly into yearend, as funds buy them to show on yearend statements. Stocks within 10% of their highs work well. ETFs that are momentum based should work. 2020 Tax Loss Bounce List.
Our favorite subgroup in Financials, broker/dealers, is showing strong relative strength and we would still be overweight there and in credit card stocks moving into 2021.
We believe that the majority of small cap outperformance for the market occurs in periods when the economy is coming out of recessions and the market broadens out. The yield curve will continue to slowly steepen, which should help the banks (and our analysis of XLF consistently shows the banks will need the help).
