The speed of the decline since TLT 128 was struck, combined with the lack of strength shown, increases our concern that the bond market could have bigger problems than most are anticipating. AMZN in particular has a classic daily buy signal.
We have hit our target range for 2017, yet we continue to forecast a strong second half. We had been looking for a potential test of 223 and then a 20 to 27-point rally. This suggests a test of the mid to high 250’s. While it is possible we have one more dip in oil, we would look for a spot to add should that occur – and it may very well not happen.
The SPY has continued to pull back this week, and we think that this can continue into the end of the week. We would consider buying the next daily stochastics buy signal, as that should be the start of a rally that should lead to a stronger second half. DBC has looked to be bottoming in this area for a while. A move above 15 would suggest a bottom and above 16 a new uptrend.
We still think it is possible that equities pull back into the end of June, and then make a bottom for the July 4th week. This should then set us up for a strong end to 2017, which has been our forecast.
Over the last week, probabilities have risen for a short-term correction in the U.S. equity markets. While it should not be severe (if indeed we get it at all!), now might be a time to look at some of the dividend stock ETFs that are popular.
One of “Fred’s Rules” is that any stock that doubles the performance of the S&P 500 is vulnerable to a 50% retracement of that advance even if it is ultimately going to make higher highs.
Our forecast remains for a strong second half, but many indicators are suggesting a weaker than expected end to June. Oil has been a bit weaker than we expected but is still in a bottoming area. Stochastics are oversold, and if they can turn up we should see a sharp rally in this commodity. DBC is trading right near support, oversold and on a trading buy signal.
If GLD gaps up and hits our 124 target, then TRADERS should sell, as it will probably settle back. Investors should hold for a bit. We continue to think that commodities in general should start to do better in the second half of 2017.
Two strong sectors we have been recommending are XLI and XLB. These are both making new highs with little coverage from the financial media. TYX (CBOE 30-Year bond Index) suggests bonds remain in a bull market until it starts closing above 32.50. Key areas for GLD to hold are 119, and SLV should hold 16.
SPY has moved above 241, roughly on the schedule we suggested, and the equity markets are set to have a stronger end to 2017. Part of our forecast for the second part of 2017 is that rates will rise more than many expect in the second part of the year.
Stocks are, once again, challenging the 240 area on SPY and heading for the 241 area, our breakout number. SLX has pulled back to test support in the 36 area and has started to rally.
This week is important and may give us either the breakout above SPY 241 or breakdown below SPY 230 to suggest the market is leaving this range. Last week’s trading in oil was positive, and it looks as if a bottom has been put in. We have preferred larger money center banks for a while, but the charts suggest caution throughout the sector.
We are still bullish and are not surprised that SPY is hugging 240 during options expiration week. While there are some things wrong with the market (there always are!), our parameters are still the same – above 241 on SPY sets up a strong yearend, and a correction from here that moves below 230 either now, or after a breakout above 241, would make us less bullish. Oil has closed above $48/Bbl giving us a buy signal in the key seasonal timeframe. This should test $52 to $54, and if through here our forecast price for the year remains $67.
We have suggested that the bottom of the correction has already occurred but the confirmation we have been looking for - a close on SPY above 241 – has yet to occur. Additional confirmation would be if oil can close above $48/Bbl, as this should kick energy into gear. This week is options expiration.
European markets still look attractive technically and Developed Markets still look strong. SPY has not made new closing highs, although other indexes have traded up. Until this occurs, the low we have been looking for in May is NOT confirmed.
This is a make or break week for the market. We are still waiting for SPY to make a new CLOSING high to suggest the second half rally has begun. The message from these charts is that bonds could be much weaker in the second half, than most people believe.
Oil prices are ready for a bounce in this downtrend, but that any low made here will probably be retested. Buy some of this in the 48-area and look for a bounce then a retest to add the rest. 48 is a good price to add the first bit. On UGA, we hope for a down open and would buy UGA if that happens. Ideal price would be 24.02, just above 24.
There is an excellent chance that the bottom we have been looking for in May has occurred early, but as we mentioned on our conference call this is not confirmed until SPY can make all-time highs. The March 27th low must hold on SPY (231.61), and preferably on all indexes.
