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The Week Ahead: Too Many Stocks & Too Much Holiday Cheer?

Posted by on Dec 24, 2016

The Week Ahead: Too Many Stocks & Too Much Holiday Cheer?

The stock market was quiet ahead of the Christmas holiday which is not surprising as many investors and traders started their holiday early.  For the 2nd week in a row the Spyder Trust (SPY) has formed a doji which is a sign of indecision.

Clearly the enthusiasm over the Trump rally has waned over the past two weeks and the number of bearish articles has picked up. The concerns over the market’s health have again focused on the arguments that stocks are too expensive, sentiment is too bullish and the bull market is too old.

It is not surprising that some are starting to acknowledge some potholes on the yellow brick road. It seems as though some of the proposed cabinet members are behind schedule in the vetting process. Many believe that uncertainty has limited the economic recovery over the past few years so talk about increasing the nuclear arsenal and heightening tensions with China are not reassuring.

The better than expected 3.5% reading on 3rd quarter GDP did not give stocks much of a boost but the continued improvement fits in nicely with the bullish post-election scenario. Most economists are not that convinced as the Wall Street Journal’s survey of economists is looking for an average GDP growth of 2.2% in 2017 and 2.3% in 2018. They are looking for inflation to run at 2.2% and then 2.4% in  2018 with only a 19% chance of a recession.

The most popular reason that some feel stocks can’t go higher is based on the P/E ratio. Of course the debate on which P/E ratio is more accurate has not slowed down since October when I featured this chart comparing the views of Robert Shiller and Jeremy Siegel.

The post-election rally has triggered another dire warning from Nobel prize winner Shiller who warns that valuations are now near levels seen just before the 1929 crash.

As a market technician I do not focus on the P/E or other fundamental data as long as the bull market is still intact. The P/E worries will be right at some point but I believe the technical studies will warn of a bear market well ahead of the P/E ratios as they did in 2000 and 2007.

I do pay attention to the P/E of the key sectors and industry groups as those that are perceived to be cheap often have the best gains once the technical indicators give the signal. In my October 22nd column ” Market Insights From Past Election Years” I pointed out that for the Dow Jones Financial Sector ($DJUSFN)  ” The weekly relative performance broke its downtrend (line d) in August and then pulled back to its WMA. The way the RS line has turned up from its WMA consistent with a market leader.”

The updated chart illustrates the close on October 21st (line 1) as $DJUSFN dropped to a low of 436.78 just before the election  and closed on Friday at 507.43 as it is up over 16% from the low.  The DJUSFN has been testing its weekly starc+ band for much of the past six weeks so a pulback would not be surprising. The completion of its long term trading range has major upside targets in the 540-560 area which is 10% above current levels.

In last week’s in-depth report on S&P 500 Sectors & Industries Forward P/Es from Yardeni Research has the following forward P/E for the S&P 500 sectors. Three sectors stand out with forward P/E well below the 17.2 forward P/E of the S&P 500. The financials, health care and telecommunication sector have P/E’s that range from 13.7 to 14.4.

In the report they also provide the forward P/E ratios of the industry groups that make up each of these sectors. Those with the lowest P/E include life and health insurance (10.4), diversified financial services (10), biotechnology (11.8) and health care facilities (10.9).

These industry groups are more likely to be some of the favorites of money managers and funds as they look for bargains the New Year.

Though the health care sector still looks negative basis the weekly technical studies it has reached strong support. Some of these lower P/E industry groups may turn positive before their underlying sectors. These are likely to be some good buy candidates for Viper ETF clients.

The Economy

Last week’s data on Existing Home and New Home Sales suggests a positive 1st quarter for the homebuilders.  New Home Sales were up 5.2% while Existing Home Sales also beat expectations.

Despite the strong GDP report, Durable Goods were down 4.6% and the Chicago Fed National Activity Index came in weaker than expected. The Leading Indicators were unchanged in November  which is not yet indicating strong growth in the first half of 2017.

On Friday Consumer Sentiment came in strong at 98.2 which was a bit better than the consensus estimate. The Consumer Confidence is out on Tuesday and the long-term chart shows a clear uptrend.   Retail Sales are still holding in positive territory but it needs to move through the long term resistance at line a, to signal a major breakout.

Also on Tuesday we get the S&P Corelogic Case-Shiller Housing Price Index, the Richmond Fed Manufacturing Index and Dallas Fed Manufacturing Survey. On Wednesday we have the Pending Home Sales followed on Friday by the Chicago PMI.

Market Wrap

The Dow Industrials failed to surpass the widely watched 20,000 area though it did have an intra-day high at 19,987 on Tuesday. All of the major averages were higher led by a 054% gain in the small cap Russell 2000 and 0.46% gains in the Dow Industrials and Utilities. The S&P 500 was up 0.25% and advancing stocks led the decliners 1815 to 1289.  On Friday the volume was the lowest since the 2014 holiday.

The seasonal trend does favor higher prices next week as the S&P has gained over 1% during the last five days of the year since 1928. The NYSE Composite formed a doji last week and it is still below the resistance from the 2015 high, line a.

The NYSE A/D line broke through its resistance, line b, a few weeks ago which is a bullish sign. It does favor an eventual breakout above the 2015 highs. The weekly A/D line is holding above its WMA which is rising. The daily NYSE A/D line made a new high last week as it was stronger than prices.

The daily chart of the Spyder Trust (SPY) shows a short-term consolidation pattern that could be setting the stage for another push to the upside before the end of the year. The daily starc+ band is at $228.66 with monthly pivot resistance at $230.31.

The rising 20 day EMA is at $224 and there is a band of much stronger resistance, line a, in the $218-$220.50 area. The daily S&P 500 A/D also shows a short term trading range and if the rising 20 day EMA is violated there is stronger support at line c.

The Nasdaq 100 and Russell 2000 A/D lines are still acting positive as they are well above their rising WMAs.

What to do?   The technical readings and strong seasonal tendencies allow for another push to the upside as we head into the New Year. This could push the Spyder Trust (SPY) 2-3% higher and move the Dow Industrials well above the 20,000 level.

If the stock market does move to further new highs then it is likely more vulnerable as we start off the New Year. Many investors have likely held off selling because they hope for more favorable tax treatment in 2017. Also they may realize that they spent too much over the holidays and may have too many stocks.

Should the SPY reach the $230 level a drop back to $220-222 would not be surprising which would be a correction of 3-4%. Given the strong signals from the weekly and monthly A/D lines such a correction should be a buying opportunity for both traders and investors.

The recent surge in bullishness has made investors and traders less cautious. Some are buying stocks before they bottom or are holding on to stocks after they have topped out.  Not all stocks go up even in a strong market.

For example new short positions in MarketAxess Holdings (MKTX) at $162.26 were recommended in last Monday’s Viper Hot Stocks Report . This was based on the prior week’s close and doji sell signal along with the negative readings from the relative performance analysis. It closed down 8% for the week and after an oversold bounce it can still go lower.

This illustrates the importance of doing a careful technical review of any stock or ETF before you take a position. Once the market does correct or consolidate investors who are looking at the intermediate term should favor well-diversified ETFs that have a low expense ratios.

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The Week Ahead: How High Can The Market Forecasts Go?

Posted by on Dec 17, 2016

The Week Ahead:  How High Can The Market Forecasts Go?

The one-day market decline on the long awaited Fed rate hike was well supported even though the potential plan for three hikes in 2017 rattled a few investors.  The market bulls are still clearly in charge with the financial media beating the drums with a fervor that has not been seen in some time.

Even though there is no reason to doubt the market’s rally right now anytime the financial press chants “no reason to sell” I do get nervous. Typically it would take a 3-5 day decline to change the tune of the headline driven financial press but without a correction the bullish commentary still dominates.

Clearly the market sentiment has seen a dramatic shift.  In my column published last August “What’s Missing From This Bull Market?”  I focused on the fact that throughout the bull market there had not been a period of investor euphoria. This goes back to the famous quote from legendary investor John Templeton that bull markets “die on euphoria.”

The psychology of a market cycle is nicely illustrated in the chart above and typically the euphoric phase is accompanied by greater individual participation in the stock market. The most recent data suggests that a large percentage is still not invested in stocks but the interest has clearly increased.

According to AAII the most recent survey of individual investors 44.7% are now bullish but only 23% were bullish before the election.  The bearish % stands at 32.3% and is well above the extreme low in the 20% area.  The professionals have also become much less bearish as the very high cash levels have dropped significantly in the past month.

It should be no surprise that the forecasts from the major Wall Street strategists have seen a major turn. Seasoned investors but not all columnists realize that these forecasts often go through dramtic changes during the year.

Frankly these forecasts do not play any role in my outlook and I often use them as a contrary indicator. In August I commented that “The new high in the major averages and leading action of the advance/decline lines has still not convinced everyone of the positive market outlook as Goldman Sachs advised their clients on August 1st to “avoid all stocks for the next three months”. They are also sticking with their year-end target for the S&P 500 at 2100 which is 3.7% below current levels.”

This table from the Wall Street Journal  reveals their forecasts for 2017 and the high end at 2400 for the S&P 500 would imply just a 6.6% rise from current levels. If you want to learn more about the accuracy of their forecast I would suggest you read this excellent New York Times article by Jeff Sommer.  In reviewing the strategist’s forecasts he quotes independent statistician Salil Mehta “It’s not easy to be as bad as they are.”

The post election rally is not unprecedented as the Wall Street Journal pointed out (Stocks’ Biggest Postelection Rally Ever) there have been “five other instances in which the Dow jumped at least 5% in a five-week period following a presidential election.”

The most recent example occurred in 1996 as the Dow Industrials rallied from 6081 on November 5th to a high of 6606 on November 26th which was a gain of 8.6%. This was followed by a fourteen-day correction of 6% before the Dow again turned higher.

By March 1997 the Dow had reached a high of 7158 which was a gain of 17.7% since the election.  After dropping 11.7% in the next five weeks the Dow bottomed in April before rallying another 32% before it topped in August. From the close on Election Day to the close on August 6, 1997 the Dow rallied 35.8%.

It should be pointed out that in September 1997 the Dow had already broken out of an eight-month trading range, lines a and b. The upside target from this trading range was at 6600 which was exceeded in January.

As the Dow approaches 20,000 there have been some articles discussing upside targets for the Dow at 40,000. This view was promoted in 2000 in books by Harry Dent and David Elias as both suggested the Dow could go that high. Harry is known for his outside the box forecasts as he has incorrectly forecast several dramatic rallies and declines since 2000 in his many very popular books.

On CNBC last week, as well as on many other platforms, John Spallanzani from GFI discussed why the Dow could hit 40,000 in the next five years.  It is the Republican control of both Congress and the Presidency that leads to this bullish forecast as the Dow is expected to gain 15% a year until it reaches 40,000.

The more important question for investors is whether they can benefit from these long-term forecasts?  I would argue that they do more harm than good as I have found that too many investors and traders focus on the potential reward of every investment and not the risk.

Also the poor performance of hedge funds has reinforced my long held view that for most individuals basing your investment on a macro view of the global economy and markets is not a good idea. It is also the reason that I do not support those who want to force the Federal Reserve to stick to a pre-determined economic plan as opposed to adapting to the economy the Fed  is facing. Each recession and economic recovery are different and cannot be defined by set rules.

Investors and even traders should concentrate on determining whether the economy is expanding or contracting as well as whether the S&P 500 is in a bull or bear market.  As long as the economy is expanding and stocks are in a bull market investors should be in the stock market.

Since the spring of 2009 my stock market outlook has remained positive as my unique analysis of the advance/decline data has shown no negative signs as it did in 2007.  During the same period my analysis of the economy has never indicated that we have dropped back into a recession. As many may recall in in 2010 and 2011 there were periods when many felt that a recession was inevitable.

In terms of price targets I only discuss price targets that are based on the charts or technical analysis.  The current weekly chart of the Dow Industrials shows that the trading range, lines b and c, was completed in July.  Using the width of this trading range one obtains an upside target for the Dow at 21,332, line a.

The similar trading range in the S&P 500, lines c and d, has upside targets at 2456. This is 8.5% above Friday’s close which is not an unreasonable target in 2017.  The longer-term monthly chart shows the eighteen year trading range (lines a and b) that was completed in May 2013, point 1.

When there is an increase in bearish sentiment, as there was last summer, I have told investors to focus on the bullish nature of this breakout. The upper boundary of this range was 1576 and the lower end was at 666. Therefore the width of the formation was 910 points. This added to the breakout level of 1576 results in an upside target for the S&P 500 at 2486. It is likely significant that these two target levels derived from two different ranges are so close together.

The iShares Russell 2000 (IWM) is up 17.6% since the election as the markets are convinced that the small cap stocks will benefit the most from the Trump presidency.  The monthly chart shows that a broad trading range, lines b and c, developed in 2015 and 2016.

The November close at $131.61 completed the trading range and Viper ETF traders bought on December 5th at $131.95. The completion of the monthly range has long-term targets at $159.91, line a, which is over 17% above current levels.

The monthly Russell A/D line broke through its resistance, line d, last summer. The A/D line made a new high in November and is on pace to make another new high in December. The weekly and daily A/D lines are also in solid up trends and show not clear signs yet of even a short-term top.

This analysis does not mean the Dow will not reach 40,000 but if it does there should be meaningful corrections along the way.  This chart from dshort.com  shows the eight meaningful corrections since the bear market low in 2009. During the market euphoria that occurred from the 1996 election until March 2000 high there were a number of market corrections including the 22% drop in 1998.

It will be important for investors to use technical analysis including relative performance and on-balance-volume (OBV) to target those ETFs and stocks that are leading the market higher. Over the past few weeks there has been a rotation into sectors that had been lagging the market.

The Economy

There was a flood of economic data on Wednesday along with the FOMC announcement.  The headline Retail Sales number came in below expectations at 0.1% as a drop in auto sales had a big impact. Industrial Production and Business Inventories were also lower than the consensus estimates.

The Philadelphia Fed Survey came in strong at 21.5 which was well above the consensus estimate of 10.  The chart had formed higher lows over the past year, line a, prior to the recent surge. In the report “Manufacturers were much more optimistic about growth over the next six months.” The Empire State Manufacturing Survey was also strong and the flash PMI Manufacturing Index increased over the past month.

Builders are also quite bullish despite the increase in mortgage rates as the Housing Market Index rose to 70 from 63 the prior month.  The volatile Housing Starts Friday dropped 18.7% in November but this is typically a wide-ranging data series.

On Monday we get the flash reading on PMI Services followed on Wednesday by the Existing Home Sales Index. The main data is on Thursday with Durable Goods, GDP, the Chicago Fed National Activity Index and Leading Indicators. Friday we have the New Home Sales and Consumer Sentiment reports.

Interest Rates & Commodities

The yield on the 10 Year T-Note continued to surge last week, closing at 2.597%. The next widely watched target is in the 3.00% area.  Bonds are very oversold and the rise in yields has stretched the rubber band tight.

Crude oil closed higher but off Monday’s highs. The HPI did make a new high for the year. While several CNBC pundits say crude oil can’t overcome the $56 level the technical outlook suggest it can. Anytime someone in the financial media uses never or always I become skeptical.

Gold was crushed in reaction to the stronger dollar and looks ready to test the late 2015 lows.

Market Wrap

The major averages made their highs Tuesday but most other than the Dow Industrials closed the week lower.  The Dow Transports, which had led the market higher, closed down 2.5% followed by a 1.7% drop in the Russell 2000. The S&P 500 was down a fraction while the Dow Utilities were up 1.8%.  For the first time in many weeks the declining stocks led the advancing ones by a 2-1 margin.

The weekly chart of the Spyder Trust (SPY) shows that a doji was formed last week. The doji low was $224.05 so a close this Friday below this level will trigger a doji sell signal. The chart shows a well-defined trading channel, lines a and b, as the SPY came close to the weekly starc+ band last week. It now stands at $228.94.

There is minor support now at 222.84 and the rising 20-day EMA with more important in the $220.50-$221 area. The 38.2% Fibonacci retracement support from the November 4th low is at $219.38.  The weekly S&P 500 A/D line has turned lower but is well above its now rising WMA. There is major support at line c, which was former resistance.

The NYSE Composite came close to the 2015 high at 11,254 (line a) before it turned lower. The 20 day EMA and lower starc- band are now in the 11,000 area with further support at 11,908 which is 2% before Friday’s close.

The NYSE A/D line pulled back to its WMA on Wednesday before it turned higher.  A drop below the WMA and the support at line c would make a more complex correction likely. A convincing drop below the early December lows would be a sign of more weakness. The weekly A/D line did make a new high with the close on 12/9.

What to do?   The lower close last week increases the odds that we will see an overdue pullback. Many of the averages do not have to drop much before they reach good support.  I would expect that even if there is not much of a pullback the sector rotation will occur.

There are a number of ETFs that have not participated in the post-election rally and they are now closer to more important support. Several of the more defensive sectors bottomed a few weeks ago and did perform well this week.

Those who are not in the market should start a dollar cost averaging program is the market continues to correct or starts to move sideways. Look for a well-diversified ETF that has a low expense ratio.

Viper ETF clients are long a number of different sector ETFs and have open orders to by several on a further pullback before the end of the year.

The Viper Hot Stocks Report recommends both long and short stock positions based on the weekly scans as well as the monthly indicators. There were an equal number of new buy and sell signals after last week which will be examined for new recommendations.

Each service is only $34.95 per month and includes regular trading lessons as well as the twice a week reports. New subscribers receive four of the most recent trading lessons and subscriptions can be cancelled anytime online.

 

 

 

 

 

 

 

 

 

 

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The Week Ahead – The Markets According To Trump

Posted by on Dec 11, 2016

The Week Ahead – The Markets According To Trump

For investors 2016 is likely to be the best Christmas in many years especially in light of how the year started out. The stock market’s perception of how stocks will benefit in the new Trump world has clearly caused a stampede into stocks.  A several billion-dollar buy program hit the market last Wednesday afternoon which triggered one of strongest daily gains.

The focus has been on the Dow Industrials as a number of traders were wearing their Dow 20,000 hats on the NYSE floor last week. Until last week the Dow’s rally has been narrowly based as according to Paul Hickey from Bespoke ” The top five stocks account for 700 of the just under 1,300 gain” with Goldman Sachs (GS)  contributing 400 points or almost 1/3 of the Dow’s gain.

With Caterpillar (CAT) the Dows best YTD gainer up over 47%, there are four Dow stocks, Nike (NKE), Cocas-Cola (KO), Pfizer (PFE) and Disney (DIS) are all still down for the year. Disney has regained much of its losses as it is now up over 12% this quarter.

The weekly chart of Goldman Sachs (GS) shows that it broke its weekly downtrend in August, line a, when it closed at $162.11. The weekly relative performance completed its bottom on October 14 (line 1) as the RS broke its downtrend (line a). This was confirmed by the move in the RS above resistance at line c. It is up 33% since the election.

The stock is now very close to its all time high of $247.92 from the end of October 2007. Now maybe the stock ‘s strength is based on the anticipation that deregulation will make GS even  more profitable than it was in 2007. Of course it is also possible that the stock is rising because of the influx of Goldman executives into the new Trump administration. On a personal note  I am not in favor turning the Treasury Department over to another Goldman employee as their past performance has been less than impressive.

Now either explanation could be bullish for the stock of Goldman Sachs but does that mean you should now jump into the stocks that have been leading the Trump rally? The powerful action last week (see Market Wrap) does favor even higher prices as we head into the end of the year but things may be different as we move into 2017.

In my many years observing and investing in the stock market I have found that getting into crowded trades has generally turned out badly.  Instead those markets that are out of favor generally have a much better risk as well as reward profile.

The dismal performance of hedge funds who often pile into the same trade is an example of how this approach does often not work.  Financial stocks make up about 12.8% of the S&P 500 while information technology makes up more that 21%.  Health care makes up 14.7% and it could bottom in the coming weeks.

The beaten down consumer staples sector has a weighting of 9.9% but it is only up 4.8% YTD.  Both the Technology Sector Select (XLK) and Consumer Staples Sector Select (XLP)  have been recommended to Viper ETF traders.

Both were recommended with just a 5% initial risk while buying the SPDR S&P Regional Banking ETF (KRE) now would require a stop under the four-week lows and a risk of 11.5%. The Viper position in KRE, as discussed in last week’s trading lesson “Developing An Exit Strategy”, were sold a few weeks ago but even though I got out early I prefer selling into strength.

For those of you who are dying to jump into this market I would continue to recommend you favor those out of favor stocks or ETFs where the technical studies are turning positive.  I would also caution you not to alter your regular risk management approach to investing or trading. When a portfolio takes a  big hit after chasing a market it can have a long-term impact on performance. I also know that even the best laid plans of a new president are difficult, if not impossible to implement.

The S&P 500 has already exceeded most targets from Wall Street strategists as their average year-end target was 2146. It has certainly been a choppy year for the stock market despite the positive long-term readings from the advance/decline lines.

In an early June column I focused on the upside breakout in the monthly A/D line. It turned up in November and is on pace to make another new highs in December. The NYSE Composite is now just below the 2015 high, line a.

I concluded then that the “The technical evidence, despite the concerns over the economy and the weak jobs report, still favors even higher prices. Very few analysts or investors are looking for sharply higher stock prices in the 2nd half of the year but I think it is a real possibility. I would not be surprised to see the S&P 500 reach the 2200 level and 2300 is a real possibility.”

Even though a large number of reliable technical measures entered overbought territory a couple of weeks ago that has not stopped the market from moving even higher. A move in the Dow above 20,000 is a real possibility before Christmas but it will be more difficult for the S&P 500 to overcome the 2300 level.

Looking at the Wall Street strategists forecasts for 2017 the average target is at 2345 which is 3.9% above Friday’s close.  In my view the S&P 500 is likely to trade as high as 2400 and as low as 2120 in 2017 but I have no idea where it will close.

The latest reading from AAII shows that 43.1% are now bullish which is down from 49.9% two weeks ago. It is still below the long-term average at 38.4% but has not yet hit extreme levels above 55%. The bearish % rose to 26.4% as it is up from a recent low of 22.1%.

It should not be a surprise that CNN’s Fear & Greed Index is at 86 indicating extreme greed which is up from 42 and fear territory just a month ago. The longer term chart shows that is peaked near 90 during the summer and then dropped to 20 just before the election

There were a large number of large hedge fund managers that were bearish at the end of the summer and so far not many have changed their position yet.  In September I felt that their high profile negativity was bullish not bearish for stocks.

Many columnists used their negative outlook to support their own bearish forecasts as one commented that all of these big, smart traders couldn’t be wrong. I would be a more concerned if the perma bears, like Marc Faber or Peter Schiff, finally turned bullish on stocks.

The analysis of the small cap S&P 600 reveals that the 5-day MA of the % of stocks above their 50 day MA has risen to 81.90%. It is now very close to the April and July highs as it is one STD above the mean at 52.83%.

In contrast the same analysis of the Nasdaq 100 shows that only  57.7% are above the 50 day MA which is just above the mean at 53.6%.  The 5-day MA peaked well above the 80% level earlier in the year. For stocks pickers and subscribers to the Viper Hot Stocks Report this means that there should be more good stocks to buy.

The Economy

The strong economic data last week helped support the market’s bullish tone. Data on the service sector was strong last Monday as both the PMI Services Index and the ISM Non-Manufacturing Index are indicating strong growth.

Factory orders were up 2.7% in a mid week report but Friday’s sharp increase in the  mid-month reading on Consumer Sentiment to 98 really cheered stock investors as we head into this week’s FOMC meeting.

The economic calendar is full this week as in addition to the FOMC announcement Wednesday we have the PPI, Retail Sales , Industrial Production and Business Inventories. They are followed on Thursday by the CPI, Philadelphia Business Survey, Empire State Manufacturing Survey and the Housing Market Index.

On Friday we get the latest data on Housing Starts and quadruple witching which is the expiration date that includes stock index futures, stock index options, stock options and single stock futures.

Interest Rates & Commodities

Both short and long-term yields continued their dramatic rise heading into the FOMC meeting. It is hard to quantify how much of the decline in bond prices has been in reaction to the hiking of rates this week.  Certainly the change in rates seems to be pricing in a series of rate hikes in the year ahead. Bond traders may have bought the rumor but will they sell on the news?

The rise in the yield of the 30-Year T-Bond yield has been more relentless than I expected  as it has moved well above the 3% level in the past four weeks. The downtrend from the 2011 and 2014 highs, line c, has now been broken.  The next major resistance is in the 3.85-4.0% area, line b, with additional chart resistance above 4.5%, line a. Yields are well above the rising 20-week EMA at 2.683%.

The last equally sharp rise in yields occurred in 2012 as yields moved from 2.50% to 3.90%. A similar rise in yields now could take yields to the 3.50% area.

The February crude oil contract has soared from the early November lows and now looks ready to break out of its trading range, lines a and b.  This has upside targets in the $60 area. The HPI formed a bullish divergence at the low, line d, that was confirmed by the break through major resistance at line c.  It is acting stronger than prices and traders bought the energy ETFs on the November 29th drop.

Market Wrap

For the second week in a row the gains last week were broadly based with 2451 advancing stocks and just 666 declining.  Both the Dow and S&P 500 were up just over 3% while the Russell 2000 was up an impressive 5.6%. Even the previously lagging Dow Utilities were up over 2%.

In terms of sectors both the financial and technology stocks were up strong, up 4.6% and 4.3% respectively. Telecommunications, consumer goods, basic materials and consumer services were all up over 3% while health care gained just 0.64%.

The NYSE Composite finally overcame the resistance at 11,000 and is now just below the 2015 high at 11,254, line a. The NYSE has been lagging the other major averages and is now starting to catch up. The weekly NYSE A/D line shows a bullish zig-zag formation as it has turned up after testing its WMA.

The NYSE has closed above the daily starc+ band for the past three days  and the daily A/D line is now well above its rising WMA. The McClellan oscillator turned down on Friday after making a marginal new high last week.

The red hot iShares Russell 2000 (IWM) had another good week though it did form a doji  at monthly pivot resistance on Friday. The close was also above the daily starc+ band.  The daily doji a week ago set up a good buy on Monday’s open for Viper ETF traders.  There is extended monthly pivot resistance now at $146.

A daily close below $137.75 will trigger a daily doji sell signal but there is good support now at $134-$135 with the 20 day EMA at $131.81.

The daily and weekly A/D line analysis is positive on the SPY, QQQ and DIA as the Dow Industrials A/D line has finally overcome its major resistance.

What to do?   As the major averages continue to power to the upside many who are underinvested in stocks wish they had more. I think the main danger now is that investors may jump into stocks once they see how poorly their bond funds have done this year. Even though it is not easy I think a patient approach will be rewarded as yields are likely to turn lower in the next month.

In April I suggested that “those who were not invested should consider a dollar cost averaging program where six equal investments were made over a period of time. Those non-active investors should consider a broadly diversified ETF like the Vanguard Total Stock Market ETF (VIT) or the Vanguard MSCI Europe (VGK).’

Though these ETFS are much higher now this I think is still the best approach for those not in the market.  As I mentioned earlier there are still some ETFs that are still declining or have just bottomed and the risk on these ETFs is more reasonable.

Though it may be surprising there are a number of stocks that are trading near their yearly lows and just need a strong close on good volume to complete their weekly bottom formations. I am looking for stocks like this to recommend to the Viper Hot Stock clients.

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