The Week Ahead: Markets To Watch
This is a continuation of yesterday’s The Week Ahead: The Reagan Markets and it focuses on the markets to watch in the week ahead.
Interest Rates & Commodities
The yield on the 10 Year T-Note rose 0.87% last week after yields had declined for a month. There is more important support for yields at 2.20% (the yearly pivot) and the 20-week EMA at 2.185. The decline in yields has been part of the reason that bank stocks have been moving sideways for the past month.
The weekly MACD is still clearly positive and shows no signs yet of a top. The close last week above the prior week’s doji high has triggered a weekly buy signal.
Crude oil prices were barely higher last week but did hold above the prior week’s lows. The weekly OBV is still positive but a strong close now above the $54.32 is needed to turn the daily analysis positive. This would signal that the overall uptrend has resumed.
Gold prices have rallied sharply but while the weekly OBV on the SPDR Gold Trust (GLD) has not turned positive it does look stronger on the VanEck Vectors Gold Miners (GDX). A pullback in GDX therefore may create a good buying opportunity.
A majority of major averages, except the Dow Transport and Utilities, did close the week lower. The small cap Russell 2000 was hit the hardest as it was down 1.47% while the S&P 500 lost just 0.15%. The declining stocks led the advancers last week with 1868 down and just 1222 up.
The bullish sentiment according to AAII dropped 6.6% last week to 37% while the bearish % rose 5.7%. This is a positive sign for the market. The VIX declined sharply last week as maybe the recent put buyers that have been publicized in the press are now getting nervous. The VIX has short-term resistance not at 13.28 but a close above 15, line a, is needed to complete a short-term bottom. This would be consistent with a further correction.
The iShares Russell 2000 (IWM) made lower lows last week but it held just above the $133 level. The quarterly pivot and stronger support is at $129.52 with the clearly rising 20-week EMA at $129.16. The major breakout level and very important support is in the $125.80 area, line a.
The weekly Russell 2000 A/D line confirmed the early December high but has since been correcting. It is well above its WMA and the major support at line c. The daily A/D line (not shown) is still below its WMA and is in a short-term downtrend. This does allow for a further correction.
The Spyder Trust SPY) was higher Friday but still lower for the week as it held above the prior week’s low at $224.96. There is more important support at the late December low of $222.73 with the quarterly pivot at $220.08. Initial resistance stands at $227.40-$227.75 with the daily starc+ band at $229.44.
The daily S&P 500 A/D moved back above its WMA on Friday and unlike the Russell A/D line is now in a short term uptrend, line b. The weekly A/D line is holding near the all time highs and its WMA is still rising strongly.
The analysis of the Nasdaq 100 A/D line continues to look the strongest as does the price action of the PowerShares QQQ Trust (QQQ). The Dow A/D line looks similar to that of the Russell 2000 A/D line which adds to the split short-term outlook.
What to do? The analysis of the stock market in the Reagan years should prepares investors for the reality of wide swings over the next four years. This does not mean that there will not be gains with the new administration.
The intermediate term analysis of the stock market is still clearly positive so the only question is whether we will see a sharper correction before the market moves higher. The improvement in the economy is also a positive for the 1st quarter. A strong earnings season would help convince investors to buy stocks.
Despite the near term weakness I still would look for the small cap stocks to outperform over the next few months. I higher close this week with positive A/D numbers will indicate the Trump rally has resumed.
My technical review of the transportation stocks last week indicated that it is bottoming and could again lead the market higher. Viper Hot Stock traders took good profits on CSX and another long trade, Checkpoint (CHKP) was up 7% last week.
If there is a deeper correction it should be another good buying opportunity for investors. There are signs that the health care and the biotech stocks may again lead the market higher as their quarterly pivot analysis is positive.