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Oil and Yield’s Rise May Soon Fade, Sparking The S&P 500 Rise To 3,000

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Stocks finished mostly flat, ending the day on the S&P 500 up by roughly ten bps. The morning rally faded by mid-afternoon wiping out the gap higher that started the day. Not an unusual occurrence since we see this type of price action on a regular basis. Support continues to rest around 2,716, but I have added a trend line in green, for the sake of adding one, to see what happens to it tomorrow. It is too early in the game to name a new trend line, so we will wait and see. I still think the S&P 500 has a clear path on to 2800, before hitting choppy waters again.

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The technology sector (XLK) also stalled out today, but like the S&P 500, it appears to be more of gap fill than anything.

The setup in the Russell 2000 also looks very bullish, with that rising triangle, and it seems like a breakout might happen soon.

Consumer stocks managed to break out strangely, basically trading sideways through the pattern. Not exactly a sign of strength, but it sure is better than it going down.

Amazon still hasn’t broken out; I’m surprised it has taken this long. But volume has been light, and the RSI is still trending lower. Maybe tomorrow.

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Treasury Yields

Treasury yields on the 10-year are still hovering just below 3.03 percent, with no breakout yet. It seems like every analyst or commentator is sure yields are going higher. But, I keep thinking yields are done rising. Right now, I am in the minority camp on this topic. Then again, I was in the minority when I was calling yields to breakout. I have my reasons for thinking yields will not continue to rise. I believe inflation rates will start coming down, once the price of Oil starts leveling off.

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Oil

Oil is another thing people have gotten overly bullish on, and again I find myself in the minority thinking oil prices may be about finished rising. I feel like every day we have someone predicting oil to rise to $80 or higher. Where were all these guys when oil was $50 or even, $60? Nowhere to be found.

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Dollar

We must remember something when it comes to Oil; it has had the benefit of a weakening dollar over the past year or so to rise. Now, the dollar appears to be going the other way, and I suspect that it will continue to rise. Not for the apparent reasons, but because Draghi had so much success stoking the European economy with a cheap Euro, and let’s face it, the Euro’s advance is what is killing the Euro region, which is why it suddenly has seen moderating growth. Just like the BOJ doesn’t want a strong Yen, which has also strengthened materially over the last year. So, if the Fed is intent on raising rates, then the ECB and BOJ’s best interest might be to continue their current programs of easy money to weaken those currencies once again, while they can. The chart for the dollar index has not officially broken out, but it is pretty close.

Deposit rates on Eurodollar’s, dollars held abroad, are still high, and that would suggest to me that dollars are in demand outside of the US.

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3,000 Still On Table

With many of my predictions for 2018, such as rising oil, 3 percent on 10-year Treasury yields, rising inflation already being hit this year, I’m beginning to go in another direction, because I’m seeing changes occurring at a faster pace than I expected. I think for the most part this is all a positive for equity prices, keeping intact my prediction for 3,000 on the S&P 500.

That is it.

Mike

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Tags: #sp500 #oil #inflation #yields #euro #yen #dollar