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Markets To Watch In The Week Ahead

Posted by on Feb 4, 2017

Markets To Watch In The Week Ahead

Interest Rates & Commodities

The yield on the 10 Year T-Note rose slightly last week and the lower wage growth in Friday’s job report has more now looking for a rate hike in May. The weekly chart of the inverse iShares Proshares 20+ year Bond (TBT) appears to have completed its correction 4 weeks ago as it dropped down to good support at line b.

On a move above the late 2016 high of $42.72 the quarterly pivot resistance (QR) is at $45.25. The weekly OBV bottomed in early November before the election and just pulled back to its rising WMA on the correction. It is acting stronger than prices.

The April Crude oil contract was higher last week and the daily indicators are now positive. Still a move above $57 is needed to signal upward acceleration. There is initial weekly support now at $52.40.

The gold and gold mining stocks closed the week higher and the weekly studies do suggest that a bottom is in place.  However they are extended so a pullback should be a good buying opportunity.

Market Wrap

Even though stocks rebounded sharply Friday with the Dow Industrials recording the best day in two months but it still closed the week slightly lower. The Dow Transports were the weakest down 2.1% while the Russell 2000 gained 0.52%. The slightly higher close in the broadly based S&P was a plus as was the 1914 to 1184 positive margin in advancing over declining stocks.

According to AAII the bullish % of individual investors rose 1.2% last week to 32.8% and the bearish % was up a bit at 34.2%.  It has been above 30% for three weeks in a row. This is what one would expect during a correction. The CNN Fear & Greed bounced to 60 on Friday up from 51 and is in greed territory. It was 70 a month ago.

The Sypder Trust (SPY) spent most of the week trading above and below the 20 day EMA which is now at $227.76. The close was back above the breakout level, line a.  The flag formation has upside targets in the $232-$234 area with the weekly starc+ band at $234.99. There is quarterly pivot resistance at $240 and the yearly projected resistance from a recent Viper Trading Lesson is at $241.26.

The S&P 500 A/D line turned up from support at line c (see arrow) and closed well above its WMA.  This reinforced the uptrend and the weekly A/D line closed at another new high. There is first chart support at $226.41 which was the week’s low with further at $225.

The broad trading range in the iShares Russell 2000 (IWM) has been in effect since the December 9th high at $138.25.  For the past month I have been pointing out that this is likely a continuation pattern or a pause in the uptrend. It has lasted long enough to turn many negative on the small cap stocks which is quite normal.

On the upward completion of the trading range the initial targets are in the $144 area (see arrow) which also corresponds to the quarterly pivot resistance. There is good support in the $133-$133.50 area and the late November highs. The daily Russell A/D line has moved back above its WMA and needs to overcome the resistance at line c, to signal that the correction is over.

Viper traders and investors are still long the PowerShares QQQ Trust (QQQ) from December. It closed a bit lower last week but the weekly and daily A/D lines made further new highs.  The QQQ and XLK shows no signs yet of a top.

What to do?    I last looking for a higher weekly close last week to confirm that the correction was over but I had to wait until Friday. I have been favoring the SPDR S&P Regional Banking ETF (KRE) and the Vanguard Financial (VFH) which have become out of favor on Wall Street. Both closed up 2% on Friday and a move to new highs this week will be bullish for the overall market.

It will take several more days of strong market internals to start the A/D lines trending higher. this would increase the odds of another 4-6% on the upside. Even on the down days last week the A/D numbers were not too bad and it would take a few days of 3 or 4 to 1 or worse negative A/D numbers to turn the daily A/D lines back into the corrective mode.

New negative intermediate term signals from the A/D lines would take many weeks or several months to develop. This indicates the market can move higher at least until the spring.

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