The market is set up for a fall decline, although there are some signs of strength. The Delta Variant may not be reflected in current prices and we see continued transition from tech leadership into small and mid cap stocks.
TLT is rallying per our forecast. It is trading around 145 resistance and moved above as accumulation models have improved. This has hit our short-term target of 148. This rally could give way to another decline this fall.
Our favorite broad-based Commodity Index ETF, DBC, is moving above resistance and should do well this summer. Watch oil via USO, DBO and DBC carefully. The oil stocks may have made a seasonal low and through resistance at 55 on XLE would be strong.
We expect a dollar rally, as accumulation models on DXY are strong, and the pullback/consolidation in April was expected. Commitment of traders is also strong.
The Put/Call ratio has moved back down into negative territory: Sentiment indicators are “condition” indicators for us, and not timing tools. Put/Call is more of a short-term indicator. This indicator suggested a rally should occur and it has. Now, this indicator has moved back down into negative territory.
The latest sell-off has been blamed on short squeezes, Robinhood, hedge funds or the full moon. In fact, this was a set up towards yearend 2020, and stocks should continue to be choppy into the end of the first quarter. Favorable vaccine news may be baked in, and we see continued transition from tech leadership into small and mid cap stocks.
As mentioned, the first year of a new president is difficult, so we are going to look for a less strong year than the consensus: our projected range is SPY 403 to 409 on the upside, and we expect a choppy year.
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.
