Fresh off the holiday break, Coach Dale returned for his Friday Talking Markets residency sporting some bullish glasses….sort of….
WTI & TLT
“The things I want to be long are kind of contrarian, even for me,” Dale said. At the end of this first full week of trading, oil and bonds have been catching Dale’s eye. He thinks both assets look like they are starting to turn.
Dale said TLT is “starting to look pretty good here,” and if it holds above the lows at 84 that will be confirmation that bonds may finally be breaking out. He wants to see that happen (on yields it would be the 10yr getting above 4.20) but he is thinking bonds are going to have a nice rally and that may provide a nice diversification away from the parabolic moves in equities.
Dale is also watching the WTI which has been making higher lows. The realization that Venezuelan oil production will take time and billions to ramp up and rising tensions in Iran gave crude the spark it needed to finally move out of the range it’s been stuck in. Coach is looking at a target of $78 a barrel, which will take some work, but the situation in the Middle East worries him.
If Iran destabilizes or spreads to some kind of regional conflict, it could put shipping lanes in the Strait of Hormuz in jeopardy. Dale says if oil goes through $80 then you’re talking $90 or $100 a barrel.
The Dollar
Dale has been looking for a stronger, not weaker dollar and he was spot on again this week. USD rose for the second straight week. It’s not easy to be a dollar bull in this environment. As Dale put it, “Who wants a stronger dollar? The BRICS want to replace it. The administration wants to take it down. There’s the debasement trade….”
There are strong forces arguing for a fall in the dollar and Dale is on board with that longer-term view, he just doesn’t think it happens now. Dale is looking for 103 on DXY, which he thinks will put pressure on asset prices.
S&P 500
This is where Dale’s bullish view ends. He expected a correction before the new year and it didn’t happen, but he’s not throwing in the skeptic’s towel. (In the last Talking Markets, Vincent Deluard discussed some of the tailwinds pushing stocks higher, which include a pretty robust US economy.)
Always the trader, Dale respects the tape and thinks the S&P could easily rally to its next upside target at 7200, but he sees divergences all over the place which worry him. The XBD (the broker dealer ETF) chart doesn’t look great to him. The prior winners like Nvidia, Palantir and Uber haven’t made new highs. Memory chips are leading this latest record run and the charts look parabolic, but Dale advises caution. If you are in them you can let them ride, but think about taking a little profit and protect the remainder with stops: “I follow the greed-ometer and we’re in the excessive greed part of it right now.”
Bitcoin
Another disconnect that is bothering Dale: crypto. Dale thinks of Bitcoin as a barometer of risk and it’s remained under pressure, even as stocks have rallied. Dale is looking for new lows, with 70K the target that he is currently eyeing. Ouch...
Thank you to everyone who tuned in live…!
Important Disclaimer: It is crucial to remember that this article is for informational purposes only and should not be considered investment advice. Consult with a qualified financial advisor to assess your risk tolerance, investment goals, and overall financial plan.
