Our thesis has been, and continues to be, that dividend paying stocks and bonds are not correlated over the long run. Income investing is likely to become a “cocktail” of various instruments in a rising rate environment, and Converts and Tips could be decent components of the mixture. Normally, gold would be rallying on inflation fears, but in this case it is not. Our best guess is that the market is suggesting that inflation will be under control for at least the first part of the Trump economy.
We continue to look for some sideways and choppy behavior to reload the daily stochastics on ETFs such as SPY, DIA, and QQQ. We reiterate that we expect the European Union to come under pressure, but for us this is bullish, and not bearish, as others seem to think.
While the market should continue strong at the very end of the year, we would expect this week to be choppy to down as the daily stochastic recycles. This should be more of a time correction and less of a price decline. We are not selling this move, as surprises could occur on the upside. The technical message is clear – the risk is for higher rates, most likely after at least some kind of monthly bounce, then rates should resume their climb.
We maintain our objective of 223 on SPY but would not be surprised to see 218 before this is struck. The IXG suggests that the results of the Italian referendum should be good, not bad, for international banks.
We are close to our target of 223 on SPY by yearend – but we may not hit it without an intervening pullback. Technical Indicators on TLT and other fixed income instruments suggest that the recent bond decline may be overdone and due for a bounce.
Stocks continued to rally a bit, but really last week consolidated recent gains. We expect that TLT should mount a rally attempt here and will watch with interest to see how this goes. A rally in Turkey (TUR) here is possible, but unless it can move quickly above 34.50, then 37, the rally is unlikely to have legs.
SPY is now overbought on a short-term basis and has challenged the 218 area resistance where it has failed before. Through 218 would be a strong indication that 223 will be hit sooner rather than later. We are seeing rotation into the infrastructure stocks and away from tech – and that this could go on for a good while.
We are still seeing a down market in early morning trading – but often this does not translate into trading by the close. If you are looking for stuff to buy – look at Steels, Industrials, Materials – infrastructure investments as well as Health Care, Pharmaceuticals and Financials.
This market is news driven and not technically driven, but it is oversold enough that we would look for a good buy point to deploy any cash, for now. TLT had a violent day, trading down early in the day and reversing up, to hold the 130-area support. This is not unexpected. We mentioned some rally points in the weekly, and would look to sell more of this at 132 – 134.
The Fred Report - Weekly October 31 2016The one thing that really jumped out on our last trip is that this is a nervous market. We would use dips to add to models. we are using benchmarks on SPY of the recent low in the 211 area as our stop on this market, and realistically that could be lowered to 210 for conservative players. We continue to recommend alternatives such as BKLN, VRP and CWB that can hold up or even rally in a rising rate environment. We would not be short the GLD markets. We would buy down days, and look for continued bottoming action in this area.The Fred Report - Mid Week Update October 26, 2016We mentioned a couple of weeks or so ago that the momentum ETFs were starting to improve and this is continuing. Aggressive investors should look at adding SPHB. Tax selling season is upon us, and one of the rules we have used with success is that any adverse movement in stocks that occurs after September starts can be met with tax selling.The Fred Report - Weekly October 24, 2016
On the large cap side, we may start to (finally!) see some improvement in high relative strength names compared to value names, as growth starts to move to the forefront. We have seen several fundamental analysts’ reports that Japan should be a strong country in 2017, and the technical picture supports this.
The Fred Report - Mid Week Update October 19, 2016Stocks have started to rally off of the 212 support on SPY, as we have expected they would, but Tuesday’s rally was worse than it looked. We mentioned that TLT could hold 132 this week, and so far, this is happening, but we believe the time, before this has real trouble, is short and would look for alternatives.The Fred Report - Weekly October 17, 2016Stocks have been weaker than expected last week, with a false breakdown below 212 on SPY, or bear trap, occurring during the week. DBB could be buyable on further weakness. Prices of interest would be just below current levels at 13.40 and again at 12.90 if one of these hits.The Fred Report - Mid Week Update October 12, 2016We are now getting questions as to whether the market will break 212, and then rally sharply as stops are hit – and that is possible. However, a close through there opens the door to a test of 206 – 208 or lower, and we would be concerned.The Fred Report - Weekly October 10, 2016Stocks are in an interesting position here, as we have had two inside weeks, which is indicative of a trend-less market, on SPY. This could very well be at least a trading bottom in GLD, and this an advance above 122.20 and then 125.50 would confirm this low. Let’s see what happens, but we look for a daily stochastic above 20 soon.
