For us the indicators suggest the period of maximum vulnerability comes at a new high in SPY, and certainly anything above our target of 290 that is retraced below 280 is our concern. The bounce off the GLD 117-area support looks strong and should be bought (we bought this a little too early at 119.25). Targets on the upside are 119.50 then 121.80. If these are exceeded a test of 124 to 127 is very likely.
The risk on SPY is to the 220-area, and advisors should be aware this is possible, but obviously it may not happen. Forecasting a larger than average decline in this market has been difficult, to say the least. Most who have tried this have been wrong. Part of what we try to do is identify areas and times of risk, so that we can be prepared to react accordingly. Our biggest concern is a false breakout above 287 that is then reversed. That would target the bottom of the range and quite possibly lower.
If stocks rally into the end of July or so the risk is that this will be setting up a sharp correction, so we would use a rally to take some defensive action.
Our chief concern is that the daily stochastic on SPY is poised to recycle, but after an advance, we’ll have a situation where the daily, weekly, and monthly stochastics are all elevated and moving into sell mode. The risk is that a solid decline/correction could ensue at that time.
The most important thing to realize is that the market is following the indicators, and last week these suggested a choppy week that would lead to a daily stochastic recycle. This seems to be underway, and stocks are trading well given this outlook. We expect this choppy behavior to continue for the week but note that days which open down and close above that open on the high are actually bullish days in our work.
Is this “it” for oil? We do not think so – as the seasonal strength in oil does not end until August. We are looking for another buy point for oil that should give us a rally at least until end of July. The daily TYX stochastic looks to recycle again, probably by July – and the next surge in these prices should push through 32.50 and see a rise of rates.
We think the market can have a summer rally that continues into the end of July, and if this occurs we will be looking at the possibility of a market correction after that time. UUP has temporarily paused, but we think prices can go higher. The main reason we say this is that the monthly stochastic is only half way up towards overbought.
SPY has closed above 275, but not by much. Still, this is the start of a breakout if the market can build upon this and head for targets in the 290 to 302 areas. A really strong opportunity is DBC in this area – it has held 17.50 and the daily stochastic has come down to oversold, and when it turns up we are looking for a move to 22.
Gold and Silver Stock ETFs are interesting at this juncture, as it looks to us that the metals should start to do well. The patterns on GDX and GDXJ show narrow bars after the low, suggesting an apathetic market where something could happen. We think it will be to the upside.
The action in DBC suggests inflationary outcomes are possible here and gold is a good way to take advantage of this, especially at the beginning of a move. The real point with Japan is that ALL of the weekly charts have high risk patterns that could be a big concern.
We recommend traders use this weakness yesterday and this morning to take positions for a summer rally trade to the upside. On a new recycle we will feature GLD as our proxy for Gold but it is stabilizing and interesting.
A quick review of general stock market indicators suggests a slowly improving market. New Highs/New Lows has gone positive, and the McClellan Oscillator is rising and not overbought suggesting there is room to advance into at least the third week of June (and we think longer – mid July or do). TYX (CBOE 30-year bond Index), did not break through our resistance number of 32.50. The high of this move has been 32.47, very close but not yet an indication that the secular bull market is over. Failing below 32.50 actually created the false breakdown on TLT.
Stocks continue to look more and more like our summer rally thesis is underway. Friday’s close was the highest close in the last two months, and indicators are improving. Small cap, and the small cap sectors, would be where we put some money now.
The index that best reflects the strength of the domestic economy is close to making a new high close, a sign of strength. We continue to look for our forecast 72 on Crude this year – it could go higher but 69 to 72 should hold for the next few months at least as an average price.
Right now, it looks as if a summer rally is starting that should last through late June too early to mid-July. A move through SPY 272 on SPY would be a sign that this has begun.
TLT should pop today as well and it looks like that can get to at least 120 on this short-term buy signal. Traders long the dollar should sell on a gap up in the morning – our trading target is 24.50 and UUP is close to that. Because of this we would buy GLD or SLV on a down open if UUP is up.
On SPY, a move above 273 would suggest that this rally is under way and should hit new highs. Our stop area on the downside remains 252. TLT is in an interesting position, as daily and weekly stochastics have both gone positive. This suggests a trading opportunity is available for those who want to buy this unit. It also suggests (perhaps more important to Fred Report subscribers) that rates are going to stabilize in this area for a while, and not just rocket up, as has been bandied about in the media.
We would be concerned if SPY were to break 252 on this daily sell signal. It is certainly possible that after some decline in tech that sector stagnates for a while.
