I hope everyone had a profitable 2016. If not, I hope you learned from your mistakes and will make 2017 profitable. I am surely excited about the New Year. This post will be to share a handful of charts I am watching and a few predictions as we head into 2017.
1) US Stocks Continue Higher
Using the S&P500 as the example here, aslong as we are above ~2,120 to 2,130 the bias is higher. I am part of the camp that believes the bull market did not start until the breakout in 2013, not 2009. The trading range between 2015 and part of 2016 was an under the cover bear market. I welcome any pullback, but would also count any sideways consolidation as the same effect. I think near-term sentiment has been stretched, but if we continue to see such enthusiasm and buying of the market I believe we can get above 2,500 sometime during the year. Consensus among the sell-side all calling for a bullish year makes me think we may not end the year there though.
A month and a half ago I posted about Stocks breaking out relative to bonds, above the 2007 highs. As long as this holds, the bias in stocks continues to be higher and the place to be.
2) Dow Jones Industrial, Transports, and Mid Caps Outperform
I did a post two weeks ago about the Dow Industrial leading and I still continue to believe that. I also feel the Dow Transportation Average has a chance to breakout of a major base following its intermediate term downtrend line breakout. If this gets going, this would be huge for stocks as a whole in my opinion.
Mid Caps have consolidated there outperformance from 1999 over 2010 to 2016. We are breaking out and if this holds, I expect Mid Caps to get back in the leadership position.
3) Value Outperforms Growth
Growth names have been outperforming since 2007, but the trend has now changed. Portfolio allocations should favor Value over Growth in 2017 and forward aslong as this breakout holds. Value names include XOM, BRKB, JPM, BAC, CSCO, GE.
4) Dollar Continues Higher
The Dollar has consolidated its monster run from 2014-2015 constructively. Momentum has maintained in a bullish range, and we are above the 61.8% extension of the 2001-2008 dollar decline. I believe we can see 111 in the Dollar this year.
5) Yields Go Higher and Financials Outperform
It’s obvious yields have been on a tear this year. The strong move has come from the false breakdown below the 2012 lows. Since then bonds have been crushed and financial stocks have been the leaders. While I am aware we may be stretched here, and are still in a extremely long downtrend, the fact that Treasury Inflation-Protected Securities (TIPS) and commodities have performed well make me believe there will be a fight for a longterm breakout. Also on a non-technical aspect, I feel many of the things President Trump talks about doing are inflationary, and we may be seeing the market price that in now.
I believe the 10-year yield goes to 3% or 3.5%.
Continuing from above, Financials are the worst looking on a relative basis since 2009. If this move isn’t a fakeout, they have great times ahead. Not to mention the participation from Financials is bullish towards the overall market with their S&P500 weighting at ~15%.
7) Stocks Outperform Commodities
It’s clear stocks have been the place to be compared to commodities since 2009. An interesting development I see is the potential inverse head and shoulder pattern that has formed up here at new highs in 2016. If this ratio breaks out, this is another confirmation for the bullish outlook on stocks.
8) Crude Oil Goes Higher
Crude has been bottoming over the past two years. I see an extended inverse head and shoulder pattern down here with a huge bullish momentum divergence. I am not a buyer yet as we are still oversold and any rally seems to get soldoff. I believe potential future geopolitical conflicts will take Oil higher, and I have targets of $70-80 in 2017.
Bonus: 9) Facebook Goes Lower
Facebook has been sucking on a relative and absolute basis lately. I think its time for a rest and I believe we see 95 in Facebook this year.
Thank You and Happy New Year!
