Week Ahead
Navigator Algorithms – 100% Long
A quick reminder, I am still vacationing, so this outlook will be brief. I will be back to my daily commentary after the New Year. In the meantime and other than buy and sell signals, the commentaries will come weekly, and they will be brief.
Surfing the charts this weekend, I came to a few conclusions. First, there is additional confirmation that the economy is on the mend. Second, navigating the sectors right now has been a bit like a relay race – lots of stops, starts, curves and passing the baton back and forth.
On the economic front, Dr. Copper is confirming an economic turnaround. Though not always perfect, the Doc has a fair record of predicting economic growth. Copper prices decisively broke their 10-year downtrend this month. Let me be the first to welcome Dr. Copper back to the party.
Speaking of parties, Oil is seeking an invitation as well. While it has yet to break its recent downtrend line, it is well on its way to test it. Recall that they were paying us $50 a barrel to buy oil in April, now we need to pay them $45 a barrel. Take a wistful look at the 1980’s prices at the gas pump – going, going, gone!
I am also keeping an eye on the U.S. Dollar. The dollar index ($DXY) is throwing a pattern indicating it could break its current support and head to the 2008 lows.
So is this U.S. Dollar decline a problem? Well, if they are selling dollars, the question is, what are they doing with the proceeds? So far, global stock markets are rising. For now, I am interpreting the dollar sell-off as fear abating while investors shift into “risk-on” assets. This investor behavior endorses the buying in copper and oil as anticipating an economic turnaround.
Nevertheless, let’s keep an eye on the dollar. If the outflows head somewhere else, we may need to reevaluate.
Turning to the sectors, the relay race is running two batons back and forth. Since the race started with investors shifting tech profits in the real economy sectors – when the real economy sectors are short-term overdone, they shift back to tech and vice versa. The baton passed back to the Tech Monsters on Thursday.
My two favs – oil and financials – do look a bit overextended at the moment, while tech looks poised to move higher. Apple (AAPL), Netflix (NFLX), and Amazon (AMZN) all look interesting after consolidating since August. Take a look. The yin-yang shift back and forth between the tech monsters and the real economy sectors is poised to continue.
My bottom line continues: the market looks healthy but lofty.
Careful tomorrow, as it is month-end. The end to an incredible month, indeed, starting with Hockey Stick Vaccine Day on November 9th.
By the way, we have yet to kick the hockey stick high from that day, maybe tomorrow if the force is with us?