Published on February 2, 2018 @ 2:13pm
Inflation remains under the Fed's 2% target, wages jumped higher than expected, the U.S. economy added a better-than-expected 200,000 jobs in January, the unemployment rate held steady at 4.1%, its lowest level since December 2000, and the markets now expect four modest rate hikes for 2018.
All in all, the US economy continues to support the idea of modest growth, while the financial media is now turning its scare tactics to the possibility of tightening monetary policy sooner than expected. However, we're not convinced that will end up being the case, as the current administration is not likely to put any sort of monetary policy in place that could potentially unwind these markets in dramatic fashion.
Sure, the major indices are due for at least a healthy breather, but that's likely got nothing to do with monetary policy at this point. The economy continues to do well enough, but it's clearly not moving at a pace that would suggest a change in policy. And, consumers' savings continue to remain suspect, so there's still a enough concern out there to keep the Fed from getting too overly aggressive on the rate hike front.
As it stands right now, it's far more about whether or not equities have gotten ahead of themselves from a valuation perspective in recent months, as well as some technical set-ups surfacing with a few key financial instruments that may suggest more volatility ahead for stocks and commodities - specifically the dollar and bonds - something we've continued to reference over the last several weeks.
Our analysis predicting a falling dollar months ago has definitely played out, however, we've recently pointed everyone's attention to the strong possibility of at least a short-term rally in the dollar, and that now appears to be underway. The result should put at least temporary pressure on commodities for the time being until the dollar potentially resumes its longer-term trend lower again.
Specifically, we continue to believe the price of WTI crude should come under more pressure soon - hence our oil short via DRIP right now. We suggested an entry into the bearish leveraged oil ETF on January 12th around $9.80 per share, and as of early this morning, DRIP was trading right around $12.30 per share.
That represents a gain of about 25% in just over a few weeks, so for those who got long DRIP , we'd strongly suggest moving up your protective stops in an effort to protect some nice gains there, while giving the idea more room to work its way higher on our analysis that oil "should" move even lower soon.
Gold too continues to face selling pressure on the short-term rise of the dollar. The weekly chart of the primary ETF tracking gold in GLD here shows you gold continues to have a rough week so far, but we actually may end up suggesting a bullish gold trade in one of the leveraged ETF's like UGLD or NUGT soon - specifically once GLD achieves $124 and change, or even better $122. We'll just have to see how the S&P 500 and the NASDAQ behave between now and then. More in that in a minute.
Further, a week ago Monday we suggested the possibility of bonds reversing their downtrend once TLT, the primary ETF tracking the 20+ year treasury bonds broke below a key support level. Well, that finally ended up happening yesterday, however, even bonds are under siege right now.
Provided here is a weekly chart of TLT showing you what we're referring to, and as you can see, even bonds right now are being taken out to the woodshed. At some point soon though, we do expect bonds to stage at least a short-term rally, one that may offer bond investors a little relief, but not one we think isn't worth toying with for the long-term, as we're still very long-term bullish on stocks.
You all know we've been a little cautious on the equity front for a few weeks now - especially once the S&P 500 came just shy of achieving our target of 2,886 a week ago today. Since then, the markets have not been able to find their footing yet, which is why we continue to remain patience with adding any new ideas to our current open list right now.
We did expect the major indices to have a good day on the heels of AMZN, GOOGL and AAPL all reporting their quarterly numbers yesterday, but we did point out just yesterday if those stocks couldn't lift the markets today, that could become a concern on a short-term basis.
Sure enough, despite Amazon being up 4% on the day, AAPL and GOOGL are dragging on the markets today. And, it appears the markets could now be in a position to stage enough volatility to shake some weak hands out there over the next few weeks. However, we do expect volatility in both directions to pick up. Meaning, we'll likely get another big swing back to the upside soon before we'll know if these markets are ready to really back off for a while.
Provided here is a daily chart of the S&P 500, along with some key displaced moving averages and some key retracement levels. As you can see, the S&P 500 appears to ultimately be gunning for its 25X5 DMA (purple line), which interestingly enough also sits right around a key 3/8th's retracement level at roughly 2,753.
It would be at that point the markets could reverse back to the upside. We'll just have to see if the major indices swing back to the upside before then, or if the S&P 500 is heading for 2,753 in a straight line without any sort of relief rally along the way.
Although it's probably a little painful for the buy and hold investors out there right now, there's no question a nice breather would be good for the long-term landscape of stocks, because we've reiterated on several occasions lately the markets COULD NOT simply keep gapping and running higher like it did throughout most of January without having to pay the price at some point, and that's what we're seeing now.
The bottom line is although many of our current open ideas are underwater right now, that's to be expected considering the overall market landscape in recent days. Therefore, we suggest staying the course for the time being, or consider participating in any of our current open picks, or even previously suggested picks once the S&P 500 achieves that above mentioned level of 2,753.
Actions To Consider Today:
Hold DRIP with a near-term target on WTI Crude of $59 per barrel, but trail gains with a protective stop you're comfortable with.
Trail gains in any individual company ideas with protective stops you're comfortable with.
Individual Company Updates:
To view current open individual company picks, log-in here: https://www.vikingcrest.com/member. Note: short-term ETF trades are only provided within the daily newsletter.
If you have any questions or would like further details regarding any of the information provided above - or anything else you're thinking about buying or selling out there - please don't hesitate to call your Rep . at 619-369-9316.