Global Markets Trends August 9, 2019

Global Markets Trends & Review Week Ending August 9, 2019

Global Markets Trends and Review Week Ending August 9, 2019

  1. Review of global markets starting with the US
  2. Performance chart of world markets
  3. Chart of China Large-Cap (FXI)
  4. Performance chart of major US market sectors
  5. Large-Cap (S&P 500) vs. Small-Cap (S&P 600)
  6. Sector Highlight; Technology, Restaurants & Bars and Consumer Specialized Services
  7. Seasonality of the S&P 500
  8. Summary

Overview To Date: Since the December 2018 lows the S&P 500 had rallied about 30%. The S&P 500 made another new all-time high on July 26. With talk about trade wars and concerns over interest, the market had started selling-off the previous week. Monday saw a big down day, with many markets and equities gapping down on open. Most markets and sectors finished the week up regaining a part of their losses over the last two weeks.

Was Monday a selling copulation day and the markets will rally from here or is there still more to come? Copulation days are signaled by 90% down volume vs. up volume. Monday was a 90% down day in volume and other internal indicators. The same happened on May 13. May 13 was followed by a couple of up days on weak volume, with no clear correction over signals. The sell-off resumed until June 3. On June 4 strong buying volume and other market internals indicated a correction over and the markets rallied from there. The market action since Monday’s selloff has been good, especially Thursday 86% volume up day. The markets are nervous. August is seasonally a weak month, so do not be surprised if markets remain unsettled, sending mixed signals over the next few weeks. See the section below on seasonality of the S&P 500.

With all the news and noise about interest rates and trade wars, it was the continued drop in interests worldwide that triggered the selloff. As noted below, the US 20+ Year Treasury Bond ETF (TLT) is up almost six percent over the last month, with the yield dropping to 2.03% on Friday. The US 2 Year Treasury yield fell to 1.59% on Monday, ending the week at 1.63%. The drop in interest rates worldwide raises concerns about economic slowdown or even sliding into a recession.

All of the world markets were down last week. The Primary Trend signal remains up (green) for only four markets, all US. The remaining world markets and the US Russell 2000 have all turned down. The Short-Term Trend Values for all markets have also turned down.  The continued weakness in the world markets vs. the major US indexes shows investors’ concerns over risk and the world economy. As mentioned in this newsletter during October of 2018 before the November-December selloff, weakness in the non-US world markets is a concern to monitor.

Performance comparison of the major world markets to SP500:  All of the world markets closed down for the week.  The four down the most were China down 2.81%, Emerging Markets down 1.68%, Russell 2000 (IWM) down 1.28%, and Vanguard World Fund (ex-US stock) down 1.20%.  Continued weakness in the non-US world markets is a concern to monitor.

China market index (FXI) Bellwether Market.  Continue to watch the China market as a bellwether indicator. Of all of the world markets in the table above, China was down the most at 2.81%. Weakness in China spills over into other world markets. In the chart below, the China index broke through support at 39.5 and found support just above 38. Next support level is at the November 2018 intra-day low of 37. Should that support break, that would signal the potential of significant market and economic downturn.

Relative Performance in the US market sectors: Six of the US sectors were up last week. Defensive sector Real Estate was up 1.80%, and Utilities up 1.20%.  The Materials sector was up 0.70% on strength in Gold and Gold Mining. The week’s sell-off was fairly broad-based. The week saw institutional selling, moving money from stock and equities into non-equities such as bonds. The US 20+ Year Treasury Bond ETF (TLT) was up another 2.59%, almost six percent over the last month. 

Large-Cap (SP500) vs. Small-Cap (SP600):   The S&P600 small-cap is still lagging the S&P 500. Both ended up down fractionally for the week. Over the last month, S&P600 small-cap is down 1.57%, and the S&P 500 down 1.87%.

Sector highlight, Technology, Dow Jones Software Index, US Restaurants & Bars Index, and Specialized Consumer Services Index:  Technology stocks and funds lead the markets both up and down. Technology Index was down for the week 0.71.  Technology remains the best performing sector since the December 2018 lows, up 27% year-to-date.

Dow Jones US Software Index, US Restaurants & Bars Index, and US Specialized Consumer Services Index; With last week’s early selloff all three industry sectors closed up. Restaurants & Bars sector made a new high. Software index touched it’s support from the December 2018 low and rallied up. Specialized Consumer Services index rallied, closing the week near its previous high. All indicative of underlying market strength.

Seasonality of the S&P 500: Seasonally August is one of the weakest months along with March. The graph below is from StockCharts. So mixed market(s) for the remainder of the August is probable.

Summary: From the December 24th low, the world markets started a strong rally. The market strength in US markets was confirmed by positive market internals not seen since the low in 2016.  These positive market internals remain in effect. Long to intermediate-term risk signal is ON projecting a continuation of the long-term bull market started in 2009. The June rally with strong market internals turned the intermediate to short-term risk signal back to ON. The sharp sell-off sparked by interest rate concerns over the last few days through Monday pulled the short-term risk signal to OFF. The markets were back into correction mode. Thursday strong volume up day set up a correction over signal, but few more up days with strong volume are needed to confirm correction over. As pointed out above, August is a weak month and market action my be very mixed over the next few weeks.

Summary of Risk Signals: Long to intermediate-term risk signal is ON. Intermediate-term risk signal is ON but caution is warranted. Short-term risk signal is OFF subject to confirmation of correction over signals and a resumption of the 2019 rally.

The purpose of this newsletter is to identify the primary trend of the major global markets. Good market investment returns are made by investing and trading with the primary market trend. US market internals and worldwide markets trends point to a continued positive investment environment in 2019. Conditions for support for continued uptrend: 1) Federal Reserve continues to be accommodative; 2) improvement in the Chinese economy and continued stimulus; 3) positive resolution of the US/China trade deal; 4) broader participation and strength in the small-caps. 5) No hard BREXIT (British exit from EU) though a hard exit is becoming more likely.

Note: the above are not trade recommendations, but possibilities to watch. The market is volatile and can swing sharply.

Posted in Global Markets Trends.