We are overweight XLI and XLB. These still have strong accumulation models. We are underweight XLRE and XLF. We lowered XLF to an underweight, and the accumulation model here has weakened over the last five months. We have a fundamental concern about nonperforming loans, as these must be reported once again, after a moratorium.
TLT has weakened short-term. Below 160 is a concern that sets up a move to lower prices. LQD still is the strongest bond ETF. Accumulation models are in the same pattern. These low rates may not last through yearend. HYG and various junk bond ETFs have pulled back but now have given daily buy signals. These are in a trading range. We continue to be cautious on bonds, and use alternatives such as PCEF, VRP, CWB, and dividend stock ETFs for income.
The Put/Call indicator moved down to negative territory two months ago and has remained there. While it gave a buy signal at the march market low, it is making multi-year lows. This is generally shorter-term in nature, and suggests a sharp, but not lasting, drop.
SPY rallied through the end of 2019, per our yearly forecast. The sell-off in February and March per our forecast has fully corrected overbought long-term indicators. This sets the market up for a rally into the election, although we could see some choppiness and a July pullback.
The Put/Call ratio is now in negative territory. Put/Call is more of a short-term indicator. This indicator suggested a rally should occur and it did. Now, this indicator has moved into negative territory again. In general, sentiment has been improving, but this indicator has weakened short-term, and suggests a short-term correction could occur in June.
SPY has been a bit stronger than we thought but has filled the 290-area gap and we have a daily sell signal. Ideally, SPY will test and hold the 260-area on this pullback, and the pullback should take some time. The monthly stochastic should recycle for the first time since 2008, 2009.
Breadth has been panicky, and given some signals saying that while a bottom is in, it should be retested, possibly several times. The monthly stochastic should recycle for the first time since 2008, 2009. Advisors should adopt a more trading orientation if possible and look for the final bottom as much as four months from now.
SPY rallied through the end of 2019, per our yearly forecast. This sell off in February/March is per our forecast and should fully correct overbought long-term indicators. This sets the market up for a rally into the election, especially if we double bottom in March/April.
Readers may notice that we have changed some of the indications on the front page of this monthly to = from an up arrow. We have thought about this change, as we remain long-term bullish and maintain our long-term targets of on SPY of 367 to 373 as given in the January Monthly Review. We decided to make the change because weekly overbought/oversold could come down into March, and some caution is indicated. This could change intra month, and we would not be sellers of investment positions. But we would trade with a view toward risk management while we see which way the wind blows.
Therefore, for 2020, we are looking for a strong year, and our forecast range is 367 to 373, but the road should be bumpier, with more trading opportunities than 2019. Therefore, for 2020, we are looking for a strong year, and our forecast range is 367 to 373, but the road should be bumpier, with more trading opportunities than 2019.
FXE has hit downside targets at 103 or so and has rebounded. We recommended taking some positions in the Euro in the 105-area, and now we have a buy signal on the monthly chart, suggesting this could rally in December and possibly January. The Dollar has made higher lows on corrections throughout 2019, but it is near long-term resistance and could pause, or even have a sharp drop, at least in part based on the action in the Euro.
USO may have made a seasonal bottom in October, and if so it could go sideways, or rally into November. Oil could rally on this weekly stochastics recycle. We maintain our $72/Bbl target on oil, the equivalent price on USO is around 15 to 16. This will most likely happen this winter, if oil makes higher lows now.
SPY has retested the top end of our 294 to 302 range and sold off. Traders sold positions, but we maintained investment positions, adding to them in the 285-area. Now this could be a bottoming pattern, with daily stochastic buy recycle underway.
MDY has a new weekly stochastic buy signal, and this may be giving us a new short-term buy signal for the market as a whole. MDY has become a short-term trading range, and a new high after this pullback would be strong.
Commodities, especially oil, have topping signs, and are starting to pull back. The summer driving rally may be over. Our favorite broad-based Commodity Index ETF, DBC, is declining with oil. Targets are 15 or so on DBC. Watch Oil via USO and DBC carefully. These suggest the rally in the oil stocks is ending. We may not see much in oil and oil stocks until the fall.
As of now, we are prepared for another decline that might be steeper than many researchers are expecting, at the end of this summer rally phase. Accumulation models are not leading in this advance, a concern. They are very weak on QQQ and Tech. International is less attractive than the U.S., but could be stronger in the second half.
There is a failed daily stochastic recycle for SPY, and now the weekly could turn up as well. This pull back could be setting up a summer rally, but there are crosscurrents and we expect a test of 270 or slightly lower, before this. A break of 265 would concern us and could set up a test of the December 2018 low.
We are overweight XLF, and XLV. These still have strong accumulation models. We are underweight XLE and IYZ, which hit downside targets for 2018 but remains an underperformer. XLP is a range. XLRE has strong accumulation models and broke out to the upside – we are an Equal Weight.