Bill Baruch, president and founder of Blue Line Futures, previews E-mini S&P, Gold, Crude, and T...
The Week Ahead: Barron's Roundtable—Too Cautious Like 2013?
01/23/2015 4:31 pm EST
In his review of the first part of Barron's Annual Roundtable, MoneyShow's Tom Aspray tends to focus on how they view the economy and stock market; here, he highlights why the 2013 Roundtable has turned out to be quite an interesting comparison to this year's panel.
The stock market got another monkey off its back last week as the ECB finally came through with a plan for quantitative easing that was slightly larger than the market expected. Stocks had already been rebounding ahead of this news and subsequently accelerated to the upside. This is despite the fact that no one can know yet if their plan will even succeed.
Every January, Barron's has their Annual Roundtable panel where they assemble ten well known investment experts and get their thoughts for the year ahead. The first part was published last weekend and I always find it an interesting read.
Though I have no affiliation with Barron's, I continue to recommend that all serious investors should be subscribers or at least check out the Roundtable issue at their local library.
As I discussed two weeks ago (Another Double Digit Year?), my technical appraisal of the stock market suggested that the S&P 500 could reach 2263 sometime in 2015 (a 10% gain). But I have consistently stressed that forecasting a year out is a fool's game.
I feel much more confident forecasting 3-6 months out and next fall I should have a better idea how the stock market will finish 2015. In October, when the sentiment was getting more bearish, I made the case (Is This the Beginning of the End?) why investors then should not yet be worried about a bear market or new recession.
Though I find the individual recommendations of the Roundtable experts interesting, I tend to focus on how they view the economy and the stock market. This year, Barron's summed up by saying "On the whole, they expect interest rates to stay unnaturally low and the US to lead the world in economic growth. Yet, they doubt that will translate into robust gains for the stock market."
In fact, the most bullish was Delphi Management's Scott Black who was expecting "that the Standard & Poor's 500 will return 10% this year-an 8% price advance and a 2% dividend yield." Even those who think the lower crude oil prices will be a positive for consumers and the economy were not expecting strong market gains.
Most do expect that interest rates, along with inflation, will remain low and they generally do not expect a US GDP growth of much more than 2-2.5%. I think the economy is likely to do much better in 2015.
In a review of previous roundtable discussions, I found the Roundtable of 2013 to be quite an interesting comparison. There was quite a split in the opinions in 2013, but even the most positive analysts were not looking for more than a 10% gain.
Many were quite bearish as Barron's commented then "Best we can summarize it, they fell into two distinct camps-those who foresee an improving economy, quiescent inflation, rising corporate earnings, and decent gains for stocks-and those who expect the interest-rate-suppressing policies of the Federal Reserve and 37 similar institutions to end in recession, depression, and 'national confrontation,' otherwise known as war."
Of course, stocks had one of the best years since 1997 in 2013 as the S&P 500 gained over 32%. Of course, many of the experts' individual stock picks did quite well in 2013, but the very bearish forecasts on the markets clearly did not work out.
The stock market had one main thing in common technically at the start of both
2013 and 2015. On December 12, 2012, the NYSE A/D line made a new high and December
29, 2014, the A/D line also made another new high. It is again acting stronger
than prices as we head into 2015, just as it did in early 2013.
Since the start of 2014, global markets have been nervous about the ECB meeting last Thursday, so some will be surprised to see that the German Dax Index had already closed at a new high on January 16, breaking through the resistance at line a. The completion of the trading range (lines a and b) projects even further gains for the DAX in the months ahead.
The broader STOXX Europe 600-that represents large, mid, and small capitalization companies across 18 countries of the European region-has also broken through the year-long resistance and also looks quite bullish.
NEXT PAGE: What to Watch|pagebreak|
There also has been some improvement in the economic outlook as the EuroZone waits for the outcome of the Greek elections on Sunday January 25. The German Purchasing Manger's Index rose to a three month high and the Markit EuroZone PMI has turned up, as indicated in this chart from Markit. A break of the downtrend I added, line a, in the 55-56 area, would be a positive sign.
Some data on US manufacturing continues to suggest a slowdown, but last Friday's flash PMI Manufacturing Index of 53.7 still indicates moderate growth as it was just below the final reading from December of 53.8.
In last week's trading lesson Are the Homebuilders Still in a Bear Market?, I took a look at the disappointing action of this industry group since the bear market low of 2009. The housing data last week was quite good as both the Housing Starts and Existing Home Sales were surprisingly strong. The home construction stocks are not yet responding to this positive data.
This week, we get the S&P Case-Shiller HPI on Tuesday, along with New Home
Sales plus the Pending Home Sales Index on Thursday. This is just part of a
busy calendar, with Monday's PMI Services Index and Dallas Fed Manufacturing
On Tuesday, we also get Durable Goods, Consumer Confidence, and the Richmond Manufacturing Survey. The focus, I believe, will be on Consumer Confidence in light of the continuing decline in gas prices. The long-term chart (courtesy of dhsort.com) shows that the downtrend I have added, line a, was broken in early 2014. A move above the 100 level is not out of the question later this year.
The FOMC Meeting begins on Tuesday with an announcement, but no press conference on Wednesday. There are several important reports on Friday, including GDP, Employment Cost Index, Chicago PMI, and the University of Michigan's month-end reading on Consumer Sentiment.
What to Watch
I thought last week that the close on January 16 might be important and this week's rally supports that view. The major averages had dropped below their quarterly pivot levels but then rallied to close the week back above their pivots (see Pivot Table here). This was a strong enough sign that I recommended traders buy the Spyder Trust (SPY) on Friday afternoon.
The strong close this week, which may be above the prior two week highs, supports the bullish interpretation but further gains are needed in the next two weeks to signal a breakout to the upside. The quarterly pivot levels and the recent lows are now even a more important level of support.
The strong close this week will cause most of the weekly studies to turn higher. As I have been noting, the fact that most of the weekly studies did confirm the recent highs is a positive for the intermediate term.
The daily studies are slightly positive and it will take further gains before turn they can turn strongly bullish. The healthcare sector looked strong as we started last week, and in Three Market Leading Healthcare Picks, I recommended stocks which showed up as positive basis my weekly and monthly technical scans.
The sentiment picture improved some last week as the bullish % from AAII dropped from 46.11% bullish to 37.14%. This is the lowest reading since October 2nd, which was two weeks before that important low.
Also, now 30.79% are bearish so it looks like all those "impending bear
market" articles are having an effect. Remember it is a big
mistake to change your outlook based on any analyst (myself included) without
doing your own research.
The 5-day MA of the % of S&P 500 stocks above their 50-day MAs did turn up last week, closing last Thursday at 44.94%. On January 20, it dropped to a low of 41.36%. Turning up from moderately oversold levels is consistent with the end of the market's correction.
The daily chart of the NYSE Composite shows an apparent continuation, or flag formation, lines a and b. The resistance is in the 10,960-80 area, so a close back above the 11,000 would be an upside breakout.
The monthly projected pivot resistance is at 11,111, which is just below the September high. The 127.2% Fibonacci retracement target from the formation is at 11,279 and just below the quarterly pivot resistance at 11,309.
The week ending 1/16 the NYSE dropped below the quarterly pivot at 10,597 for several days before closing the week 10,660. This is why using price based levels, like the quarterly pivot levels, that are based on three months of prior data can help you navigate volatile markets.
The weekly NYSE Advance/Decline made a new high at the end of 2014 and will close the week near the old highs. This is evident from the daily A/D line, which is back to resistance at line c. The A/D line is above its WMA, which is trying to turn higher with long-term support at line d.
The McClellan oscillator has now convincingly moved above the zero line and broken the downtrend, line e, that connects the November and December highs. The Osc formed a short-term positive divergence at the recent lows, line d.
The weekly on-balance volume (OBV) made a significant new high at the end of 2014 but close the week back above its WMA. With a strong close this week, it could reverse back above its WMA.
The rising 20-day EMA is at 10,726, which represents first support.
NEXT PAGE: Stocks|pagebreak|
The Spyder Trust (SPY) after the low of $198.55 on Friday, January 16, closed that day at $201.63 and well above the quarterly pivot at $199.42. The high last week appears to be just under $206 and a close above $206.50 should make those on the short side even more nervous.
There is further resistance in the $209 area with the weekly starc-
band now at $217.26. The upper trend line (line a) is just below this level.
The 1st quarter projected pivot resistance is at $230.02 (courtesy
of John Person's software).
The slightly rising 20-day EMA is at $203.26 with the 20-week EMA at $201.85. There is more important weekly chart support at line b.
The weekly on-balance volume (OBV) did make a new high late last year confirming the price action. It has turned up but is still below its WMA. A higher close this week should take the OBV back above its WMA. The initial weekly support at line c, was broken in October but the OBV held well above the long-term OBV support at line d.
The daily S&P 500 A/D line (not shown) has moved well above its WMA and
has broken its short-term downtrend.
The weekly chart of the SPDR Dow Industrials (DIA) shows that it has dropped below the 20-week EMA each of the past three weeks but closed well above the lows. The recent correction low of $172.12 was above quarterly pivot $171.99.
The daily starc+ band now stands at $180.69, which is just below the all time high of $180.71. The weekly starc+ band is significantly higher at $185.93
The weekly relative performance determines whether the Dow is acting stronger or weaker than the S&P 500. It is still in a long-term downtrend, line f, so it continues to be weaker. The RS line is in a range and a move above the September highs to signal that is getting stronger.
The Dow Industrials A/D line (not shown) held above the December lows and closed the week above its WMA. It is now testing its downtrend.
The weekly OBV may close the week above its WMA, which would generate a buy
signal from Aspray's
OBV Trigger (AOT).
The PowerShares QQQ Trust (QQQ) had a sharp rebound this week as it was one of the strongest major average as it had closed back above the quarterly pivot at $99.67 the prior week. The correction low was $99.36 with the uptrend on the chart, line a, at $97.59.
The next resistance is at $105.25-$105.86 which is the upper boundary of the recent trading range and the daily starc+ band. The November 2014 high was $106.24. The monthly projected pivot resistance is at $108.76 with the weekly starc+ band at $109.12.
The weekly relative performance will close the week back above its WMA, which is a positive sign. This suggests that the Nasdaq 100 may again be ready to assume leadership.
The weekly OBV did not confirm the November highs as indicated by line c. It has turned up but is still well below its WMA. If QQQ makes a new high, it will be important that the OBV also makes a new high.
The Nasdaq 100 A/D line (not shown) has moved back above its WMA and could
test the flattening WMA on a pullback.
The iShares Russell 2000 Index (IWM) has been in a narrow range for the past three weeks. It had a recent low of $114.20 that was below the quarterly pivot at $114.73 but did not close below it.
The weekly chart still shows a major trading range, lines e and f. The most recent high at $121.41 was slightly above the prior two week highs but a strong close above this level is needed to confirm a breakout.
A close back above the last week's high at $119.39 would be positive as it
would be above the prior two week highs. The weekly starc+ band is now at $126.05.
The weekly relative performance broke its downtrend, line g, in November but has not yet completed its bottom formation as it has stayed in a trading range.
The weekly OBV turned up this week but is still slightly below its WMA. It also shows a trading range with key resistance at line h. The daily OBV is still below its WMA as the volume on the recent rally has not been impressive.
The 20-day EMA and initial support is at $117.29 with further at $116.
NEXT PAGE: Sector Focus, Commodities, and Tom's Outlook|pagebreak|
The iShares Dow Jones Transportation (IYT) had strong gains last week though it was hit with profit taking on Friday. I discussed the Transports in detail in last Wednesday's Are the Transports Turning the Corner?
Though the closing data is not complete yet, it looks as though the weekly studies did reverse back to positive last week.
The Select Sector Energy (XLE) tried to rally a bit further last week, and surprisingly, the oil & gas stocks were quite strong. It will be interesting to see how the stocks react once we get more earnings.
The Select Sector Materials (XLB) did not have a Friday close below the quarterly pivot on the most recent correction, so the trend is still positive. It needs to close above the early December high to turn positive.
The Sector Select SPDR Financial (XLF) tried to rebound last week, but it is still below its flat 50- and 200-day MAs as well as the quarterly pivot.
The March crude oil contract bounced briefly in reaction to the death of the Saudi king but closed the week down another 6%. The week of January 16, crude oil formed a doji so a close above the doji at 51.73% is needed to trigger a high close doji buy signal.
The SPDR Gold Trust (GLD) and Market Vectors Gold Miners (GDX) had another strong week closing higher. GLD is getting closer to its long-term downtrend as it has rallied back to the summer lows. Volume in GLD has been strong in the past three weeks.
GDX seemed to lose a bit steam late in the week but still closed higher. There is next strong resistance in the $24-$26. Given that both are well above support does not favor chasing them at current levels.
The Week Ahead
The market was hit with profit taking on Friday as the selling picked up going into the close. Still the major averages did close the week higher so this coming week's close will be important.
A strong close would clearly shift the weight of the evidence to the bullish side. It would take a close below last week's low to reverse the recent positives. The weak close on Friday did spook some traders but the A/D numbers were not that negative.
The long-term positives from the technical studies still suggest that we are in the process of completing a correction. The strong reading from the Leading Indicators last Friday are still signaling a healthy economy and it would take many months for this key indicator to turn negative.
There were some positive signs in the semiconductor stocks last week and they look to be good risk/reward buys at the levels I recommended in Will These Stocks Ignite the Tech Sector?
Both these stocks and the recent healthcare recommendations followed the criteria I outlined in my six point check list for 2015.
I still no reason to change your portfolio as I think that despite the recent volatility stocks are still the best place to be in 2015. Be sure to have a plan and consider using the quarterly pivot analysis to monitor your positions. Be sure to review your portfolio and do your weekend homework.
Don't forget to read Tom's latest Trading Lesson, Are the Homebuilders Still in a Bear Market?
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