Financial Research, Education & Data
Below are Fred's Weekly Reports with a brief synopsis of each. To view the full report, click on the title.
We are still in PDP and DWAS and expect them to trend up from here into yearend. We continue to expect a dollar rally.
We have been looking for the daily stochastic to recycle on most of the indexes and this is occurring without a severe price decline, at least so far. This Friday is options expiration for November so we would love to see the market down into the end of the week, or at least down into Thursday followed by a Friday rally.
Dividend stocks should outperform bonds over the next 12 months. Through 32.50 resistance would likely turn the chart of TYX from bearish to bullish and lead to a rise in rates, with TYX likely to challenge 40, then 47.50.
Oil has hit 57 and change on the nearby contract, and while it is overextended we still expect a test of 62, and then possibly 67.
The markets are in an interesting configuration here at the start of November. Monthly indicators did not reset for October, and suggest a short-term peak is possible. Daily stochastics on SPY are now in sell mode, suggesting they could recycle. This is a trading oriented indication only for us – the outlook into the end of the year remains positive.
We have had some questions about why Biotech dropped a bit, and believe it is because these indexes were already at resistance when the good news hit. Watch DBC carefully – we expect more advance but the pattern is difficult.
We believe it is a good time to look at some of the higher momentum ETFs for a run into the end of the year. Our interest rate forecast is for rising rates into yearend, and because of this we often get questions about the effects of a rise on municipal bonds. These charts suggest that the municipal bond ETFs will outperform Treasury ETFs on a rate rise.
We have had SLX in our portfolios since before the 2016 election, and it has had a more difficult year than we expected. Still, the technical condition is ripe for an advance into yearend.
We continue to see evidence that the broad market is improving – New Highs/New Lows continues strong, and the weekly advance/decline line continued to make new highs. Breadth momentum indicators are near the tops of ranges but set up to move higher. Our oil forecast for the year has been for a move to 67 by yearend – which now seems to be a bit out of reach or too big a move. We still think the mid-60’s are possible.
We continue to like the market into yearend, but right now daily stochastics are overbought so we would not be surprised to see some pullback. We are buyers, and not sellers of XLV, XBI and IBB into the end of 2017, especially on a dip for October expiration.
In blue chips, there is still dominance from the very top large cap stocks but we are starting to see some of the smaller names come on. Those advisors who have been on the fence regarding a commodity position in portfolios should consider this now – the train may be leaving the station.
USO has generated a short-term buy signal that should help XLE and PSCE. TLT is interesting as it tried to rally and had a reversal bar. It could end up weakening from here. The strong performance of dividend stocks, as measured by SPHD, is important.
Many have suggested the market is overbought. While daily and weekly FPO’s are stretched and that we could see a choppy, negative week sometime in the next few weeks, this still looks like a “good” overbought situation rather than the end of this advance. We believe a move by TYX above 32.50 will suggest the bull market in bonds is over.
We have no surprises so far this week in the U.S. equity markets. XLI and XLB have made new highs while IYW is lagging. The daily stochastic on GLD is very oversold while the weekly is still dropping down to recycle. There might be a bounce here but we are still trying to add GLD back around 117.
Major stock indexes, including MDY (which had been lagging) closed at or near all-time highs. This is in line with our forecasts, and suggests that our forecast for strength into yearend is intact. The market appears to be in the early stages of transitioning from domination by growth stocks into value. Consolidation is likely here but our forecast for a UUP move to the 26 area by yearend looks to be on track.
We continue to see increasing signs that the market has started the end of year rally we have been looking for since late summer. The latest is the performance of the Transportation Index ETFs. IWM and IJR have made new closing and intraday highs. We would be very cautious here on EEM.
We would add money here but also leave a bit out in case such a pullback materializes. One of the reasons we are positive is that equities are broadening out. We continue to be concerned about a rise in rates in the fourth quarter.
We continue to see signs that the end of 2017 should be strong. We take a look at Chinese technology, real estate, and financials.
SPY made new closing weekly highs, suggesting that our forecast of a strong second half is on track. Trend following systems are positive, indicators are not horribly overbought, and this means the market can advance into yearend, as it is broadening out.
If this rally is to be really strong, then we should see improvement in the broader indexes. Probably the most interesting thing here is the possibility that a significant bottoming pattern in the dollar is under way.
The stock market is reacting erratically to the various storms, but last week saw some improvement to key technical indicators. Overall things continue to improve, and we see no reason to change our forecast for a strong end to 2017.
We have seen some signs that equities are preparing for our forecasted yearend advance. We are very interested in REITs as their accumulation models are stronger than TLT and the charts looks stronger also. This suggests that they would be a good addition to our “income cocktail” in the event that rates rise in the second part of 2017.
GLD has made a “Prussian Helmet” high and may have made an important peak for this year. The dollar may be making a complex bottom here and if so this could affect gold.
We expect a pullback to be relatively short-lived, followed by strength into yearend. If the market fails to broaden out, then we will look to switch into low volatility. Watch Brazil – if it fails so could EEM.
On the upside, SPY should test the 246 area and then failure is possible. Failure would be confirmed on a move below 243, which would then target 241 – 239.
There has been more deterioration in the breadth indicators. Our favorite leading indicator, New Highs/New lows has gone negative for the first time since March 10, 2017. The last few weeks of trading has shown more strength in the base metals, a sign that the economy could be getting ready to improve in the final part of the year.
We still think that GLD may consolidate here but ultimately can test 124 to 126. UUP has support at 24.20 to 24, and this could be retested. Watch this carefully as if this area is retested and holds advisors should consider selling some gold now.
243 is a key area on SPY and is holding. We expect an up week but ultimately more choppy behavior and a decline into month end. Stocks most dependent on the price of oil for revenue are improving more than the services.
One of the problems the U.S. and allies face in the Korean issue is that Seoul (the capital of South Korea) is just 35 miles from the DMZ (Demilitarized Zone) and the boarder with North Korea. This proximity and the presence a myriad of North Korean troops makes it difficult to drop a couple hundred Megatons worth of nuclear missiles on North Korea – the fallout would also hit the South, not to mention South Korean artillery and soldiers.
SPY is at the very top end of our projected range for 2017. While trend systems are positive and SPY should continue to advance through the end of 2017, one way to look at this is that the easy money has been made and risks are increasing. While we are not giving up on this market, we will have a little more caution into September unless we see a surge in breadth. Oil has tested 50, and should go through this level soon – if our analysis at the beginning of the year is correct oil should test 67/Bbl by yearend. The real question is whether my forecast of a stronger dollar in the second half is going to work? With the Monthly FPO on the dollar index at “-16” or so we believe the dollar should rally from this area.
We would expect that SPY will outperform QQQ into yearend, and believe we should see IWM, MDY, and IJR start to pick up the pace over the next month or so. Our GLD target for the year is 124 and that should be struck on this rally. While I am on vacation the next two weeks, we would expect UGA to hit 26 or higher, and USO to test 10.40. This should equal the following prices on our perpetual Crude Oil contract: above 47.40 targets 52.50.
Oil has started to rally as well, in spite of an overbought daily stochastic. From a technical perspective oil is looking more like a bottom.
The speed of the decline since TLT 128 was struck, combined with the lack of strength shown, increases our concern that the bond market could have bigger problems than most are anticipating. AMZN in particular has a classic daily buy signal.
We have hit our target range for 2017, yet we continue to forecast a strong second half. We had been looking for a potential test of 223 and then a 20 to 27-point rally. This suggests a test of the mid to high 250’s. While it is possible we have one more dip in oil, we would look for a spot to add should that occur – and it may very well not happen.
The SPY has continued to pull back this week, and we think that this can continue into the end of the week. We would consider buying the next daily stochastics buy signal, as that should be the start of a rally that should lead to a stronger second half. DBC has looked to be bottoming in this area for a while. A move above 15 would suggest a bottom and above 16 a new uptrend.
We still think it is possible that equities pull back into the end of June, and then make a bottom for the July 4th week. This should then set us up for a strong end to 2017, which has been our forecast.
The most interesting thing in this week’s market, at least so far, has been the resurgence in Biotech.
Over the last week, probabilities have risen for a short-term correction in the U.S. equity markets. While it should not be severe (if indeed we get it at all!), now might be a time to look at some of the dividend stock ETFs that are popular.
One of “Fred’s Rules” is that any stock that doubles the performance of the S&P 500 is vulnerable to a 50% retracement of that advance even if it is ultimately going to make higher highs.
Our forecast remains for a strong second half, but many indicators are suggesting a weaker than expected end to June. Oil has been a bit weaker than we expected but is still in a bottoming area. Stochastics are oversold, and if they can turn up we should see a sharp rally in this commodity. DBC is trading right near support, oversold and on a trading buy signal.
If GLD gaps up and hits our 124 target, then TRADERS should sell, as it will probably settle back. Investors should hold for a bit. We continue to think that commodities in general should start to do better in the second half of 2017.
Two strong sectors we have been recommending are XLI and XLB. These are both making new highs with little coverage from the financial media. TYX (CBOE 30-Year bond Index) suggests bonds remain in a bull market until it starts closing above 32.50. Key areas for GLD to hold are 119, and SLV should hold 16.
SPY has moved above 241, roughly on the schedule we suggested, and the equity markets are set to have a stronger end to 2017. Part of our forecast for the second part of 2017 is that rates will rise more than many expect in the second part of the year.
Stocks are, once again, challenging the 240 area on SPY and heading for the 241 area, our breakout number. SLX has pulled back to test support in the 36 area and has started to rally.
This week is important and may give us either the breakout above SPY 241 or breakdown below SPY 230 to suggest the market is leaving this range. Last week’s trading in oil was positive, and it looks as if a bottom has been put in. We have preferred larger money center banks for a while, but the charts suggest caution throughout the sector.
We are still bullish and are not surprised that SPY is hugging 240 during options expiration week. While there are some things wrong with the market (there always are!), our parameters are still the same – above 241 on SPY sets up a strong yearend, and a correction from here that moves below 230 either now, or after a breakout above 241, would make us less bullish. Oil has closed above $48/Bbl giving us a buy signal in the key seasonal timeframe. This should test $52 to $54, and if through here our forecast price for the year remains $67.
We have suggested that the bottom of the correction has already occurred but the confirmation we have been looking for - a close on SPY above 241 – has yet to occur. Additional confirmation would be if oil can close above $48/Bbl, as this should kick energy into gear. This week is options expiration.
European markets still look attractive technically and Developed Markets still look strong. SPY has not made new closing highs, although other indexes have traded up. Until this occurs, the low we have been looking for in May is NOT confirmed.
This is a make or break week for the market. We are still waiting for SPY to make a new CLOSING high to suggest the second half rally has begun. The message from these charts is that bonds could be much weaker in the second half, than most people believe.
Oil prices are ready for a bounce in this downtrend, but that any low made here will probably be retested. Buy some of this in the 48-area and look for a bounce then a retest to add the rest. 48 is a good price to add the first bit. On UGA, we hope for a down open and would buy UGA if that happens. Ideal price would be 24.02, just above 24.
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