Recent Articles in Weekly Report

Stocks are in an interesting position, as the daily buy signal we mentioned last week is failing. The risk is that this means the weekly indicators and especially the weekly stochastic is assuming control.  Our forecast has been for a decline into June and this could be starting now.  We are approaching the beginning of June and agriculture is stronger seasonally into summer.

One sign a negative outcome is likely would be a move below 204 on SPY that would target 202 and 198 almost immediately. Another thing we would be leery of would be new highs by SPY or DIA that are unconfirmed and fail - a false breakout would be a concern.  GLD is in strong condition unless it breaks 113; in fact a test of 115 would be a positive.

TLT is moving down from what could be a topping pattern. We would have concerns if TLT breaks 125.  The dollar has appeared weak over the last few sessions, but longer-term it still looks like the potential for a bottom is extant. A move above 96.60 resistance would challenge the top end of the recent range at 98.

We believe the best course for the market is a pullback on SPY from this general area that is steeper on large cap indexes than small and mid-cap units.  We continue to be concerned that bond prices are making a short to intermediate-term peak and this means that rates are making a bottom. We know we have been premature in discussing a rate rise this year, but it still looks to us as if rates will be higher by the end of 2016.

We remain concerned that the market should peak here and decline, along with oil prices, into June.  Falling oil would renew deflationary fears, which believe roiled the market over the last quarter.

We continue to expect a difficult market, at least until the daily stochastic recycles, and perhaps until the weekly also recycles. The trend remains up unless SPY moves below 202, but the trend is weakening and caution is advised.  Oil is in a key position at this time as seasonal tendencies have turned negative and oil has started to show some weakness. While the last week was positive and rallied off support, the previous weeks were negative and oil may have peaked in March for the seasonal drop into late Spring/early summer.

Short-term, complacency has returned and many people are convinced the Federal Reserve has come to the rescue. We are not convinced, as some indicators and long-term trend systems are giving signals not seen since 2007.  On our perpetual oil contract, a violation of 35 targets the high 20’s.

Although this rally has corrected some of the disparity in performance there has not been enough relative strength on the part of small and mid-cap stocks to correct all of the problems. This argues for more choppiness and correction.  We would expect a pullback to start by mid-month.

We have been asked about whether we would be less defensive at this area and the answer is no.  If you are not risk adverse and want to add money we would add to sectors like Industrials, Materials, and Discretionary. I would avoid Healthcare and equal weight Technology at best.

We think a corrective phase should start soon.  If fears of deflation and a weaker economy subside, we could see greater than expected advances in XLI and XLB without extensive participation from XLE.

SPY has significant resistance from here to 207 and we would expect this area to fail.  We have seen very strong improvement in XLI and XLB, and less in XLE from the accumulation models. This makes some sense to us – we have surmised, and indicators have suggested, that oil could build a base, and not advance much beyond these levels, but if it stops declining it would give added confidence to the markets, especially Industrials and Materials.

Stocks look overbought coming into this week, and we are approaching the gap at the 205 area, which for us represents a critical area.   Oil as a commodity may be bottoming, but this is not yet being reflected in the stochastics on the oil stock indexes.  We are not yet sure that it is time to buy Emerging Markets immediately, but it looks as if a decent buy point could occur later in 2016.