The Week Ahead in Stocks Jun 18th

Was last week the straw that broke the market’s back? The Fed raised rates and signaled four hikes in 2018, with three forecast next year. An end to QE was announced by the ECB. Meanwhile Trump imposed more tariffs, made more enemies (and one noteworthy, but questionable friend) and the G8 is now not only G7, but more like G6. To cap it all off, a top can be counted on the leading index, the Nasdaq (QQQ), and Monday’s open is due to gap below the trend channel.

Yet while this call is perfectly valid, we should say it is not currently our view and there are bullish alternatives. Of course anything is possible, but not every scenario carries the same probabilities, and there is not much evidence for a top at this moment.

Counts and targets are very useful tools, but they must be taken in context. They are only one part (Technical) of our FITS (Fundamental, Inter-market, Technical and Sentiment) approach. The market leaves us constant clues (hence our search for evidence), and these continue to support our calls for a blow off move leading into a significant top later this year. Fed tightening and ECB ending QE can be viewed as bullish developments as they are the product of strong economies.

Monday’s gap lower is therefore setting up an opportunity in the coming sessions. It will show us which stocks have underlying strength. Those able to hold bullish patterns, or successfully re-test break-out points in a broader market sell-off will be our main focus as they will be the first to turn higher again.

Good luck and good trading.

Andrew McElroy
Chief Stocks Analyst

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