If we were going to short SPY, we would do a light position, try to get 302 or so, in front of the FED meeting or press conference on July 31st. We are seeing some signs of improvement in XLB and want to call this to subscribers’ attention.
For a while we have been concerned that the economy is stronger than many think it is. If this is the case, it is possible that the FED does not lower rates this week – or otherwise disappoints.
TLT is down, and close to a daily recycle. Assuming that occurs, failure to make a new high on that signal would suggest bonds are peaking. Accumulation models do not support higher prices on GLD. Unless below 25.80, we are bullish on UUP.
Our summer rally scenario has worked well enough, but it is time for traders to take some risk off the table, and investors to monitor positions and indicators closely.
While the $NYA chart still has not made new highs, much of the justification for Jeff Gundlach bearish position based on this index is gone, in our view. Until DB tests 10, it is still a downtrend and new price lows would suggest the restructuring will not work.
So far, it looks as if our summer rally scenario is under way. Part of that forecast is a tradable peak in late July, early August and while nothing is set in stone, I am starting to see some developments that could point to problems toward month end.
This is a short holiday week, so there will be no midweek, chart book or call unless something whacky happens with the markets. General advice here is to take some profits on bond positions and move that money into REITs or Preferreds.
As long as the 270 area holds on SPY, things are still positive for an advance into late July. A break of 130 on TLT would target 127, and a break of that would target 124.
GLD is up on a gap from 128 to 130. It is definitely overbought (especially short-term!) on some measures. This advance could continue, however, albeit a bit choppy from here.
Intermediate term, we could see the market up into July and if above the upper target range of 302 on SPY that would set up risk of a steeper correction.
As we move into the FED meeting this coming week, daily indicators are overbought and suggest some consolidation is likely. Weekly indicators on many of the indexes are down and in buy mode, suggesting that some “reload” in these short-term indicators is likely before another advance.
Small cap has been lagging, and the long-term trend system is negative here. We mention this because it was the first to go negative before the 2016 election as well. We have been looking for a significant low in oil around the second to third week in June, so the end of last week’s price action in crude oil was encouraging.
SPY remains in a downtrend unless above 282, but the trading action appears to be strong enough that the trading bottom we were looking for this week may have occurred.
Watch the trading in Tech as the accumulation model on QQQ is a negative pattern. We would stick to XLF and XLRE, our sector over weights, for now. TLT has out run the accumulation model at this juncture.
This week’s readings on indicators such as New Highs/New Lows have finally started to deteriorate. The timing is a little bit of a concern as one of our fears for the markets over the summer has been a surprise out of Europe that could affect the Euro and financial system. The Bond Market Vane is currently around 48, suggesting sentiment is neutral, but one of the things that is interesting is that few are predicting a big move in rates, and we think that another significant low in rates is close by, if not at hand.
We remain with daily stochastic buy indications, and weeklies are in sell position. This implies consolidation, which is what is happening. The concern we have had for the uptrend is that the market would react badly to a weekly stochastic sell, and so far, it is holding on relatively well.
Since we have a buy-recycled daily stochastic on most indexes, and a daily FPO that looks like a small buy signal, we would expect this 280-area to hold on SPY, although as always, we would be mindful of risk management. Our target for 2019 on oil is 72/Bbl, and we expect that will be hit this winter.
