XLE has hit our price targets at 72. Oil itself has been weaker than we forecast for 2017. GLD has had a good rally off the 117-area we thought might be a bottom, and we did not buy it, but instead kept DBC. Both of these are trading strong.
This is our last Midweek Review of 2017, barring some bizarre market activity that is not expected. ALL bond-like ETFs should decline if rates shoot up. It is what happens afterward that is important.
Pharmaceuticals as a sector is turning up. Pharmaceuticals may be the “sleeper” sector for 2018. The overall conclusion that we bond bears have to draw, at least for now, is that the bull market in bonds is intact. It looks as if Natural Gas, and Oil, can continue to rally in the first part of 2018.
TYX has bottomed again on the weekly chart, within the trading range and at the bottom end of the range. The most interesting market for us right now is GLD, as we have had a price target of 117 for several months and it tested within 40 cents or so of that target.
Daily stochastics are in buy mode on some Tech ETFs, while weekly and monthly stochastics are all up and not in sell mode. This is a sign of high momentum, and the obvious question is whether the longer-term indicators can come down along with the dailies. Oil is improving – but we thought crude would be over 60 by now. It still looks to test 62-64 by the end of December/January.
Stock indexes stochastics are overbought and daily and weekly FPO’s suggest some consolidation. This does not affect our forecast of a stronger market into yearend – but no market goes straight up, although it feels like this one has! We are looking at the possibility of buying GLD back in the price range from 120 – 117.
There are two things that stand out. The first is that general tech weakness relative to other sectors continued, but the most interesting development last week was the advance in the Transportation stocks. The end of November is the traditional date to buy the agricultural commodities for the seasonal trade into the summer months.
We think this could be the real start of the yearend rally we’ve been forecasting and have no changes to our forecast at this time. We remain overweight XLI and XLB. XLF is a strong equal weight, and IYW is an underweight.
USO and the perpetual oil contract have hit new yearly highs. Our target for this year for the perpetual oil contract has been 67 and this may be overly optimistic, but we will stick with it for now. We have said that producing income for clients will be best achieved through a “cocktail” of instruments and strong REIT ETFs should be a big part of this approach.
We have been looking for the daily stochastic to recycle on most of the indexes and this is occurring without a severe price decline, at least so far. This Friday is options expiration for November so we would love to see the market down into the end of the week, or at least down into Thursday followed by a Friday rally.
Dividend stocks should outperform bonds over the next 12 months. Through 32.50 resistance would likely turn the chart of TYX from bearish to bullish and lead to a rise in rates, with TYX likely to challenge 40, then 47.50.
The markets are in an interesting configuration here at the start of November. Monthly indicators did not reset for October, and suggest a short-term peak is possible. Daily stochastics on SPY are now in sell mode, suggesting they could recycle. This is a trading oriented indication only for us – the outlook into the end of the year remains positive.
We have had some questions about why Biotech dropped a bit, and believe it is because these indexes were already at resistance when the good news hit. Watch DBC carefully – we expect more advance but the pattern is difficult.
We believe it is a good time to look at some of the higher momentum ETFs for a run into the end of the year. Our interest rate forecast is for rising rates into yearend, and because of this we often get questions about the effects of a rise on municipal bonds. These charts suggest that the municipal bond ETFs will outperform Treasury ETFs on a rate rise.
We have had SLX in our portfolios since before the 2016 election, and it has had a more difficult year than we expected. Still, the technical condition is ripe for an advance into yearend.
We continue to see evidence that the broad market is improving – New Highs/New Lows continues strong, and the weekly advance/decline line continued to make new highs. Breadth momentum indicators are near the tops of ranges but set up to move higher. Our oil forecast for the year has been for a move to 67 by yearend – which now seems to be a bit out of reach or too big a move. We still think the mid-60’s are possible.
We continue to like the market into yearend, but right now daily stochastics are overbought so we would not be surprised to see some pullback. We are buyers, and not sellers of XLV, XBI and IBB into the end of 2017, especially on a dip for October expiration.
In blue chips, there is still dominance from the very top large cap stocks but we are starting to see some of the smaller names come on. Those advisors who have been on the fence regarding a commodity position in portfolios should consider this now – the train may be leaving the station.
