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.
The Fred Report - Mid Week Update April 20, 2016The S&P and the Dow Industrials would be the only indexes to make new highs. Broader indexes like the Russel 2000 and New York Composite remain behind. Oil is also a bit stronger, but we have allowed a test of the $46-area into our calculations and should that occur and fail we would have concerns and look for a decline into June. Gold is a bigger concern, as GLD is failing to move through 120 and has overbought monthly FPO’s.The Fred Report - Weekly April 18, 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.
The Fred Report - Mid Week Update March 9, 2016Stocks have moved down to the198 area, and below 198 would set up a move to 196 then 189, the level the market should hold if this rally is to be a bull move. We remain with a defensive outlook for conservative players – but the tone of the market is improving and things look better. Oil is struggling with the resistance in the 38 – 40 range. It could test the 40-area but then would probably pull back.The Fred Report - Weekly March 7, 2016
The best action for stocks, given the overbought market would be a sideways to churning week that starts to correct the overbought stochastics and breadth oscillators without giving up substantial price advance. We would like to see continued industry rotation, out of last year’s leaders and into cyclical and late cycle names.
The Fred Report - Mid Week Update March 2, 2016Traders who have been playing this rally should move to a defensive position as of the open, especially if there is an up open. High Beta is still below breakdown point in early January, while SPHD is making new highs. This is why we continue to recommend (a) a defensive stance, and (b) to sell TLT and buy SPHD.The Fred Report - Weekly February 29, 2016
The risk is that this week could mark a peak in stocks for a retest of the recent lows at least. The bright spot in the commodities is the metals. GLD is trading near resistance at 120 and is a strong chart, again with the possibility of backing and filling. Penetration of this area targets 133 or so.
Stocks have rallied into first resistance, and really conservative players who want to hedge should start that process now. We finally recommend starting to buy MLPs for the first time since 2014.
We expect a rally off of the lows, based on the strong possibility of a rally in commodities, but that this will likely not turn trend following systems positive. TLT is vulnerable to a sharp reversal, and the reason we suggested sale was to exit on an advance in TLT rather than a decline.
