Our forecast has not changed since last year regarding the major indexes. We have been bullish and have expected a liquidity-driven rally courtesy of the Federal Reserve. We still expect a major top in the stock market into Q2 2021. We have held long positions in various stocks and given the green light for members to remain long with leverage in the equity market into our target dates in the second quarter of this year (dates reserved for Gold Members). We have hedged with a volatility trade since late December. We have core positions in metals as they may explode anytime, with the intention of adding heavy leverage very soon. Energy remains a favorite of ours and looks to be one of the biggest winning sectors this year.
We are in for a busy week of economic releases with more central bank action also on the schedule. The Federal Reserve will release its monetary statement on Wednesday, and while Jerome Powell & Co. are not expected to change their policies in any significant way, the Fed could hint at a closer collaboration with the new administration. As for the economy, the CB consumer confidence numbers will be out on Tuesday, the durable goods report is scheduled for Wednesday, the first reading of the fourth quarter GDP on Thursday, while the week will end with the Core PCE Price Index, Personal Spending, and the Chicago PMI.
Market internals deteriorated slightly due to the weakness among small-caps, but the key breadth measures are still at or near their bull market highs thanks to the broad-based rally of the past few months. The Advance-Decline line seems to be topping out despite the new all-time highs in the major indexes, even though advancing issues outnumbered decliners by a 5-to-4 ratio on the NYSE and a 3-to-1 ratio on the Nasdaq.
A quick test of support in the days following the Wednesday Fed meeting would be a pattern to follow and watch. Markets sold off on Friday ahead of the Fed meeting this week which is highly unusual. The Fed has a strong pattern of levitating markets into their meetings. We will be watching closely for any technical damage created from the next pullback.
The next explosive trade will be in metals after we see completion of this consolidation. We are confident we will execute this trade in leveraged ETF’s and options sometime in February.