The first consideration is to reiterate that, aside from overbought trading indicators, the technical picture of the market is fine. The other thing to remember is that in a bull market pullback not all stocks and ETFs decline with the market. Examples here already include SPLV and AAPL.
Accumulation models on GLD, as we have written elsewhere, do not preclude owning gold at this time, but do suggest that a rally could be quickly retraced.
There continue to be signs of a sharp pullback in stocks, and we have suggested this could occur in February. This would result from overbought conditions and not any sort of fundamental condition, in our view. Two areas we think could be strong in 2020 are Transports and Financials.
Stocks have continued to rally this week, with SPY up 0.56%, and we have no change in our market opinion as elucidated in the Weekly Review. IIPR remains our favorite Marijuana stock for conservative investors, and CRBP is our favorite for speculators.
The daily stochastics need to recycle, and this could occur more in time than price. With sentiment indicators where they are, and some of our volatility indicators suggesting a sharp decline is possible, we lean toward a more volatile move. We would use rallies in LQD and TLT to sell, and switch to dividend payers or preferred stock ETFs, which should do better in 2020.
Note that we still expect stocks to pull back in February and not now, although this surprise may be the fundamental development we needed to recycle daily and possibly weekly stochastics. In terms of WTI prices, 63 to 67 is resistance and if that is exceeded a test of our target of 72/bbl is likely in the first part of the year, rather than the second part of 2020 as we originally thought.
We have no changes in our market outlook into yearend – things are overextended but not negative, and while the market may be choppy Monday, we would expect Tuesday to be up. UUP should pull back to 25.50 to 25, and if that area holds it will remain in an uptrend. Below that would suggest lower prices.
One consensus that is coming out in various firm’s research is that Emerging Markets is going to be the big leader in 2020. From a technical perspective this is possible but unlikely. We would expect EM to under perform the US, even if it rallies next year.
We would continue to add “value” stocks and funds to accounts, but slowly. Value is continuing to improve but does not yet have enough to suggest it is going to assume the lead in 2020. As long as DBB can hold the support in the14-area, it should challenge resistance in the 16 to 17-area, and then make new highs.
U.S. stocks have acted about as we are expecting going into yearend. We expect further advance. We do want to point out that IJR has made new trading highs above 82, and advisors can start to add more Small Cap ETFs to models. We have been asked a couple of questions about MLP’S, and one of these is germane for the end of the year. These are oversold and likely to bounce in early 2020 in a “January Effect” type of move.
Stocks are down to begin the week, and this has corrected the short-term overbought condition. Indicators still suggest that there should be a rally into yearend, however. We have a short-term buy signal on FXE, suggesting a pullback in the Dollar.
Stocks have come close enough to our 312 target on SPY that a pullback could start at anytime, but it is not “guaranteed." Short-term support is 308 to 307, and less short-term projections come in around 300. If UUP can trade below 26, that would suggest this advance is ending.
The market is overbought and could see a pullback after our target of 312 on SPY is hit. We do expect a yearend rally after a pullback or consolidation.
