30-Year Bonds on the Move

Further to my post of April 10, 30-Year Bonds have gained a couple of points, as shown on the Monthly chart below.

Price now sits just above major resistance (50% Fibonacci retracement) and is poised to begin reversing the steep plunge that began in mid-2016.

Furthermore, price has now broken above the 50-day moving average of the USB:SPX ratio and is currently at the major resistance level of 0.65, as shown on the Daily ratio chart below.

Inasmuch as we're close to seeing a new "BUY" signal form on all 3 technical indicators, I'd keep an eye on this ratio to determine its strength versus equities in the coming days/weeks (particularly, in light of my comments of May 17), especially, if it breaks and holds above 0.65. If it does, its next target would be the 200-day moving average at 0.70.

As an aside, I'd add that, in the midst of the current political chaos emanating from the White House, President Trump may end up remaining in power for 4 years, but if, in the meantime, he's widely regarded by domestic and foreign political players, as well as the American public, as untrustworthy (in spite of future facts and conclusions reached on current political and intelligence investigations), his tenure could very well end up being unremarkable and devoid of any major accomplishment.

In that kind of environment, this would NOT be a wagon that equity markets could confidently hook up to in a sustainable way, without the risk of accompanying high volatility, in my opinion.

In this regard, watch for a break and hold below the 150 major support level on the SPX:VIX ratio, as well as a drop and hold below zero on the Momentum indicator, as shown on the Monthly ratio chart below.

In that case, volatility will remain elevated and we'll see larger intraday and overnight equity swings.

SPX Gap Fills, Political Chaos & 3 Trillion Dollars

Further to yesterday's post, the SPX has filled one prior gap up (in between the blue lines) and is currently filling a second (in between the red lines) (both made in the latter part of April), as shown on the following Daily chart.

At the moment, near-term support sits somewhere around 2320 (price support) to 2338 (external Fibonacci support shown in yesterday's chart).

A drop and hold below 2320 could see a swift plunge to 2250, or lower and may be influenced by a major change in market perception of Washington's ability (or inability) to function and produce any meaningful progress on the kinds of economic stimulus programs, tax cuts and reforms, etc., as promised by politicians during last year's election and, on which, market players were counting, as they invested heavily from that time...particularly, as the Fed reduces its monetary stimulus measures and continues raising interest rates.

We'll see where any political facts (if they surface), relating to ongoing investigations, lead the markets. No doubt any major shift in overall market confidence (to the downside) would produce such facts and resolutions sooner rather than later, inasmuch as 3 Trillion dollars added since the election remains at stake, as I've described here and here.

10 & 30 Year Bonds Versus Equities

As can be seen from the following long-term view of 10 and 30 year bonds (monthly charts), each is facing an imminent decision...whether to break fairly substantial major support at their current levels and, potentially, fall to levels not seen since the 2008/09 financial crisis, or resume their flight-to-safety bounce to retest prior highs.

Further to my comments of March 25, it's my opinion that if market players catch even a whiff of resistance by the majority of Congress to support and advance President Trump's ambitious agenda, particularly as it relates to tax and regulation reform, infrastructure spending and national security, in a timely manner (i.e. by August or sooner) (not to mention a potential government shutdown after April 28), we'll see money flow flood into bonds and out of equities.

For example, watch for a break and hold above the 50 day moving average and near-term resistance at 0.065 on the following daily ratio chart of 30 Year bonds vs. SPX.

In the meantime, it's difficult to ascertain what will move equity markets one way or the other, as they're mired in a consolidation format after having made 3 Trillion dollar gains in four months (from the November 2016 election), as opposed to what would normally take about a year to achieve (as I had forecast for 2017 in my post of December 1, 2016).

Perhaps, with little major overhead price resistance, equities will form a new leg up, slowly and choppily, until such negative political alarm bells begin to ring. However, we may get an advance warning with bond money flow, as I've outlined above.

3 Trillion Dollars Now at Risk...and More

Three Trillion dollars gained in the U.S. markets since the Presidential election in November 2016 are now at risk...and more.

With the recent failings of two attempts by the President to implement temporary travel restrictions from several foreign countries via his executive orders, and the failure of Republicans to reach a consensus on passing a bill that would have repealed and replaced ObamaCare, one has to wonder whether Republicans can, in fact, ever reach agreement on any of President Trump's economic, fiscal, national security, tax and regulation reform, and immigration reform agenda.

Combine these recent failures together with ongoing intelligence investigations of election activities and of the President and his campaign officials, themselves, as well as the Senate's inability to have confirmed a full Trump cabinet and a new Supreme Court Justice, to date, and we're left with a big question mark in that regard.

Unless Republicans pledge their complete loyalty to the President and become united in their efforts to seriously move that agenda forward as a professional governing party, nothing will be accomplished in the next two to four years. They are risking three trillion dollars that have been pledged by market participants in their faith that they would, in fact, do that very thing...and, likely, much more is at stake.

If they simply attempt to stumble forward, like a bull in a china shop, with fractured ideas and methods without, first, addressing and fixing that problem, they are assuring continued failure of this President and their party. In fact, I'd suggest that their future as a viable governing party is at risk at this very moment and they'll be doomed to limp along forever as an infantile opposition party.

So, the time for individual political posturing and gamesmanship is over. It's time to put your constituents' livelihoods and that of your country's ahead of your own agenda, roll up your sleeves and hammer out solutions with your fellow party members and that of your leader. That's what successful societies do.




Make no doubt about it...markets will make their own interpretations as to how serious politicians are at coalescing and advancing this ambitious agenda. Right now, they're at a crossroads, as evidenced by the pause that the S&P 500 Index has taken this month, as shown on the following Monthly chart of SPX.

Price is sitting just above a 161.8% external Fibonacci retracement level, after hitting a new high at 2400. A drop to the next Fibonacci level would see price hit somewhere around 2200. That would also tie into the next support level (provided by the median of a long-term uptrending channel), as shown on the next Monthly chart of SPX.

Such a drop could be sooner rather than later, as well as swift, and, perhaps, be the jolt that makes Republicans finally sit up and take notice of how their actions (or inactions) are affecting more than just themselves. We'll see if they're willing to take that risk, or whether they can act more quickly than markets.

Monthly SPX

Monthly SPX

Finally, my post of March 10th and update of March 19th mentioned a level of 200 as being an important "new bull market territory" level on the SPX:VIX ratio.

The following Monthly ratio chart of SPX:VIX shows that price has fallen below that level. As long as price holds below that level, we'll see an increase in volatility in the equity markets. We could see price on this ratio drop as low as 150, or lower, if the SPX does drop to 2200.

Any further setbacks for the Republican administration in the near term would, likely, compound existing political problems and contribute to such a drop.

Monthly SPX:VIX Ratio

3 Trillion Dollars Added to Markets Since 2016 Presidential Election

Somewhere around 3 Trillion dollars have been added to U.S. markets since the Presidential election on November 8, 2016, with percentage increases, to date, shown on the following graph of the Major Indices.

U.S. Major Indices: Percentages Gained Since 2016 Presidential Election

The next graph shows percentages gained since January 1st of this year.

U.S. Major Indices: Percentages Gained Since January 1, 2017

Undoubtedly, market participants have faith in President Trump's ambitious reform and stimulus agenda, which was emphasized by today's market reaction to what he delivered in his first Joint Address to Congress last night. I'd dub him as a high-energy hunter-gatherer who settles for nothing less than winning...so, I'd watch market action going forward to gauge how well he's accomplishing his goals.

In that regard, I'd like to see these indices, generally, remain above their 50-day moving averages as confirmation (as outlined in my post of February 11th). Otherwise, a drop and hold below could signal a reversal of bullish market sentiment and endorsement of his unfolding agenda.

U.S. Indices 1-Yr. Daily

Today's "Shout Out" -- 2017 SPX Target Hit 10 Months Early!

Further to my post of February 18th, the S&P 500 Index (SPX) hit this year's projected target of 2400 today (March 1st) -- 10 months ahead of schedule -- and set another new all-time high in the process!

SPX 5-Yr. Daily

All other U.S. Major Indices also participated in setting new record highs today, with the exception of the Utilities Index. It, however, is in a strong uptrend.

U.S. Major Indices 1-Yr. Daily

The following graph shows percentages gained in the Major Indices since January 1st of this year.

U.S. Major Indices: Percentages Gained Since January 1, 2017

With bullish sentiment still strong, the SPX remains on track to hit its 2020 projected target of 2700.

SPX 15-Yr. Monthly

Most world markets were also strong today, especially European markets. We'll see if China picks up the pace in the near future.

World Market Indices

SPX On Track To Meet Its 2400 Target By Year-End

Further to my Market Forecast For 2017, the S&P 500 Index is on track to meet, or even overshoot, its potential target of 2400 by the end of 2017.

As noted on the Monthly chart of the SPX below, price has less than 50 points to go. Bullish sentiment remains strong, and, as of Friday's close, is confirmed by a higher swing high on the Momentum indicator, as shown on the Monthly SPX:VIX ratio chart below.

Monthly SPX chart

Monthly SPX:VIX Ratio chart

Charts vs Pundits & Dow 30 Index At 20,000

Despite some TV and media pundit and investor rhetoric about the imminent implosion of the U.S. markets under President Trump's economic agenda (in the months leading up to the November 8, 2016 Presidential election and, still, to date), we continue to see new market all-time highs being made, along with stabilization and advancement of world markets, in general, since the election.

The following charts illustrate that point. For example, the Dow 30 Index finally broke and closed above 20,000 today, while the S&P 500 Index remains on track to, potentially, achieve the 2400 level by the end of 2017 (as described in my post of December 1, 2016), and closed at an all-time high of 2298.37 today.

Dow 30 Index Daily

S&P 500 Index Monthly

As well, the SPX:VIX ratio also closed at an all-time high today, with the Momentum indicator confirming longer and short-term bullish sentiment in the SPX, as shown on the Monthly and Weekly timeframes (which I mentioned as something to monitor in my post of December 31, 2016).

SPX:VIX Ratio Monthly

SPX:VIX Ratio Weekly

The Nasdaq Composite Index and the Nasdaq 100 Index both closed at all-time highs today.

Nasdaq Composite Index Daily

Nasdaq 100 Index Daily

Even the World Market Index, after its latest and current rally produced another moving average Golden Cross formation in mid-January of this year, shows that foreign markets are also under such bullish influence.

World Market Index Daily

So, while a healthy divergence of pundit/investor viewpoints will, no doubt, continue, it may be wise to consider what the charts are portraying, as part of your "due diligence" trading/investing process. At the moment, momentum is favouring the bulls and will do so, until these charts prove otherwise.

Market Forecast for 2017: SPX at 2400 by End of Year

On November 26th, I posted an article which outlined a hypothetical scenario of the S&P 500 Index reaching 2700 by the next U.S. Presidential election in November 2020.

I realize that this is only one of many possibilities that lie ahead for the SPX. However, given the aggressive economic, tax and fiscal agenda that President-elect Trump is currently promoting, it could, very well, materialize without too much resistance.




In keeping with the trajectory and velocity associated with that premise, I anticipate that the SPX could reach 2400 by the end of 2017, as shown on the Monthly chart below.

Monthly SPX

In last year's market outlook for 2016, I anticipated a rise of around 5-6% in equities, in general, in a run-up to this past November's Presidential election.

As of today's date of December 1st, you will see that the S&P 500 Index has gained 7.2% Year-to-date, as shown on the first graph below, while the Dow & Nasdaq Transport Indices and Russell 2000 Index have gained the most. The Nasdaq 100 Index has been the weakest.

The second graph shows the steep rise of the Dow & Nasdaq Transport Indices and Russell 2000 Index from the day after the election.

The third Year-to-date graph shows the percentages gained/lost for the 9 Major Sectors. 

Energy, Industrials, Financials and Materials have gained the most, while Consumer Staples has gained the least, and Healthcare has lost 4.16%, so far, this year. 

The last graph shows the steep rise of the Energy, Industrials, Financials and Materials sectors, and the decline of the Healthcare and  Consumer Staples sectors, since the election.

CONCLUSIONS

Assuming that volatility will be kept low (which can be monitored in a manner as described in my post of November 26th), I'd project that equity markets, in general, will gain around 11% in 2017. That would place the S&P 500 Index at just above the 2400 level by the end of the year.

In that regard, I think it will be important that Financials, Large-Caps and Small-Caps stay strong and that market participants continue to favour the riskier sectors over their more defensive counterparts. As well, I'd like to see Technology firm up and gain strength to support such a bullish outlook.

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P.S.
By the way, for those who have pooh-poohed the validity or value of my forecasts, I would, respectfully, mention that forecasting is a useful tool for any serious trader/investor to implement in order to track, assess and learn from one's future successes and failures on a short, medium, and long-term basis.

And, they can read my prior years' forecasts at this link and determine their merit for themselves.

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P.S. -- SHOUT OUT TO INVESTING.COM...

As a contributing writer to Investing.com, I'd like to thank them for inviting me, once again, to participate and share my views and for publishing my article at this link on their site on December 28th, along with some of their esteemed contributors. It's a privilege to have contributed to their annual forecasting special during the past few years.



* UPDATE February 21, 2017: Since the beginning of this year, the SPX has already gained 5.65%, as shown on the following Percentages gained/lost graph of the U.S. Major Indices...a little over half-way to its projected 2017 percentage increase.

U.S. Major Indices -- Year-to-Date percentages gained

Market Forecast for 2016: Debt Bubbles and Volatility

As a contributing writer at Investing.com, I'm pleased to announce that they invited me, once again, to participate and share my views on where the markets may be headed for 2016. FYI, you can read what I wrote a year ago, as to what I projected for 2015, here.

I wrote the following article on December 7th: Market Forecast for 2016 -- Debt Bubbles and Volatility. It was published on their website on December 29th and may now be read at this link.

I'd also like to take this opportunity to thank the good folks at Investing.com for this invitation and for publishing my articles for past few years...it's been a privilege!

Good luck to all next year!

* For your easy reference, I've re-printed my article (originally written on December 7th), as follows...

What would cause retail and proprietary trading banks to tighten lending and begin to call in their loans?...possibly a major "accidental international incident" in the (internationally-crowded) Middle East, involving Russia and the West/Europe and/or Middle-Eastern countries? In such a scenario, we may see the price of Oil and Gold spike, contrasting with a major world-wide sell-off in bank stocks, in particular, along with equity stocks, in general. The markets in the U.S. could be especially hit hard, inasmuch as 68.4% of its GDP was comprised of personal consumption expenditures in Q3 of 2015 (it has averaged around 68% since 2008). The question becomes, would banks pass a stress test under those circumstances?

Until then, I think we'll see world Central Bankers continue to inflate equity markets and influence currencies by keeping interest rates low (or relatively low), thereby keeping Oil and Gold prices depressed -- which, then, keeps inflation low -- which, in their minds, could serve to validate their reasons for maintaining low interest rates and/or some form(s) of Quantitative Easing -- perpetuating this never-ending cycle of low economic growth, in which we seem to be stuck and, which, world governments seem to be incapable of, or unwilling to, address.

The question, then, becomes how much could markets advance next year, if a major international incident did not occur? Possibly around 5-6% -- a bit higher than this year's increase, which peaked (as of today's writing of this article...December 7th) at its (daily closing) high of 3.49% on May 21st -- in a potential run-up to the U.S. presidential election to be held on November 8th.

In that case, I'd keep an eye on the Technology Sector and Cyclicals to continue to outperform other sectors in the U.S. and to see if the Financials Sector begins to, substantially, firm up, along with the Industrials Sector. Otherwise, we may only see a repeat of 2015 and achieve around a 4% increase, or less, for 2016. Here's how they've performed, so far this year, as shown on the following Year-to-Date graph of the 9 Major Sectors...

Regarding the Financials Sector, the following three Daily ratio charts are worth noting...they show the strength/weakness of the:

• XLF (U.S. Financials ETF) compared to $SPX
• EUFN (European Financials ETF) compared to $STOX50
• GXC (Chinese Financials ETF) compared to $SSEC

Each chart shows that price is trading at or near major price resistance and their converging 50 and 200 MAs, and that all of these financial sectors are currently weaker than their country's counterpart Major Index...the last two at a considerable discount. Unless we see all three of these firm up and outpace their major indices, I doubt we'll see that 5-6% potential target increase achieved in U.S. equities.

In any event, as mentioned in my post of December 3rd, I'll re-iterate that, "I think 2016 will see greater volatility and much larger swings than we've seen this year." My comments and chart contained therein still apply (and are worth monitoring, along with the above charts and graph, over the coming weeks and months) regarding major resistance and support levels on the SPX:VIX ratio and equity market follow-through.

My Market Forecast for 2015

As a contributing writer at Investing.com, I'm pleased to announce that my article: Market Forecast for 2015 -- "Shift Into Offensive Sectors" -- may be read at the following link (published at their website on December 21, 2014):

http://www.investing.com/analysis/2015-market-outlook:-236448

I'd also like to take this opportunity to thank the good folks at Investing.com for asking me to participate and share my views, not only on this topic, but also in all my other articles that they've published over the past several years...it's been a privilege.

Good luck to all next year!

* For your easy reference, I've re-printed my article, as follows...

Strawberry Blonde: Shift Into 'Offensive' Sectors

As we approach the end of 2014, we can see from the below Year-to-date percentage gained/lost graph of the Major Sectors that markets have favoured the "defensive" sectors (Consumer Staples, Healthcare, Utilities) plus Financials and Technology, while Housing has taken a back seat this year. It's my opinion that we may see a slight shift from, say, February until May of 2015, and a rotation into a more "offensive" approach (into Cyclicals, Industrials, Materials, Consumer Staples, and Housing) if (and only if) market participants are willing to assume more risk, and if Oil doesn't continue to slide down to or below $50.00. If we start to see more major selling in Oil for any sustained period of time, then I believe we'll likely see a major pullback occur in the equity markets...particularly, if the Fed hints at raising interest rates in mid-2015 or thereabouts.

Sector Performance December 31, 2013-December 12, 2014

Otherwise, if Oil stabilizes around 60.00-75.00, we may see a short rebound in the accumulation of the riskier sectors, until, say, May or June. This may involve some profit-taking in the above-noted "defensive" sectors, although, these may continue to outperform again, as they have this year. It really depends on the bottom-line forecasts and targets for overall percentage gains from equity markets to meet the needs of the major institutions and their clients for 2015.

However, I also believe that any further advance in U.S. equities beyond their current levels is dependent on further sustained strengthening of Japan's Nikkei Index, Europe, Brazil, China, Lumber, Copper, Housing, and the Russell 2000 Small-Cap Index. Likely, the US dollar will continue to strengthen if those markets (and those countries' economies) continue to show weakness. Links to my previous posts on these markets can be seen in my latest post here for further explanation.

Year-to-date, the SPX has gained 8.33%, as shown on the percentage gained/lost graph of the Major Indices, below. I think we'll be lucky to see half that increase in 2015 (say, a total of 4% for 2015), as I believe market volatility will increase and markets will consolidate in large trading ranges for longer periods of time in between moves, especially if we see a softening in the U.S. labour markets and wages.

Major Indices YTD Performance