The stock indexes continue in their bottoming pattern, and so far, this is normal looking. Remember, that while the point swings are large – the %moves are not. While the indicators are positive, in some respects this rally is taking a bit longer to get going than we would like to see, and SPY will look better if it can cross 268 to the upside by the end of the week. TLT is holding the 121-area support, and if this breaks a test of 119 is possible.
Friday’s action was a bit of a surprise, but so far is still part of this bottoming pattern. Indicators suggest this should be an up week, within this ongoing bottoming process. We would not really worry too much unless we start to see closes below the low of last week.
Monday was down, as we expected – but it was down a good bit more than we expected. We note that IWM and even MDY are showing relative strength vs. SPY, a big plus.
Stocks closed the quarter strong enough and the U.S. equity market appears to be in a buy configuration although there are a couple of things wrong with some of the indicators.
We indicated that there could be chop and a possible triple divergence before the market really got going to the upside, and it looks as if this is going to be the case. If this area is a bottom that lasts for several months, into summer, we certainly have time to buy – in other words we do not have to buy everything in the next few days.
Sentiment is a problem, as %Bears are nowhere near where they should be at a major low. Over the next few weeks, we can see rates pulling back a bit. TYX could fall to the mid to low 29’s.
Both IJR and MDY have stronger daily charts than SPY for the first time in a while. There is a potential interest rate rise coming today (FOMC Meeting), and TLT has a daily stochastic sell, suggesting bonds should react to the downside. Aggressive advisors can now buy Facebook, realizing a stop below 160 is needed because the next support is 150 or thereabouts.
There is a potential weekly buy signal on the stock indexes. If this works, the market should be relatively flat to down in the beginning of the week, and then rally at the end.
SPY has hit the top end of the range at 280 we had been looking for and so far, it is failing. Our concern for TLT is that when this advance is over, the bond market will get hit hard and this could affect stocks. A market that is showing signs of pick-up is GLD. If it moves above 129, a test of 133 to 136 is likely.
SPY and stocks continue to look more and more like a bottom is close by. We are going to keep our positions in low volatility for now, as the daily stochastic on TLT has given a new sell indication. If 117 on TLT breaks, 110, then 102 is likely.
What we have been telling advisors is to start to buy positions slowly, with the idea that we would recommend having buying on a new closing low in SPY. Most major bottoms occur on sharply rising bearish sentiment, and we would like to see the daily stochastics recycle.
SPY has traded into the resistance area we have noted over the last two weeks. We are still bullish overall, and for advisors who have new clients with heavy cash position we would start to put money in, adding aggressively on a new closing low, especially if this is accompanied by a stochastic buy signal.
We think there is a good chance the market trades up and down this week, and then heads for a retest in March. Our base case is still that rates should move back to where they were before QE began. We would not be surprised to see oil, and oil stocks, sort of bump along and consolidate into May.
We are still looking for a complex bottom, likely a double bottom that will be buyable. We will likely have our real buying opportunity at the end of February to beginning of March.
On a successful retest of a low such as we have made, not all stocks retest. The ones that are stronger are the ones that we want to buy as they could be leaders in the next advance. Where could the market go on this bounce? We are still looking at 275 to 280 and then some consolidation or pullback towards the low.
Momentum on this decline has been enough to suggest that this is not the bottom of the correction. There are a couple of numbers for an initial bounce on SPY: 273 to 271 should hold this for a bounce up. That could test 282 to 284 and then turn down again. It would be possible for TLT to bounce here, but the really key level to look for is 117 or so.
We believe that the Transportation index’s importance as an indicator is less important at this stage of the market. The monthly FPO will close out the month at 13+ if oil closes here or a little higher, suddenly making oil and possibly oil stocks a bit riskier.
DBC has broken out above 17, by a little bit, suggesting that our trading target of 17.50 could be hit by the end of the month. This would coincide with a run in oil into month end also.
