- Global Markets Primary Trends
- Performance chart of world markets
- Performance chart of major US market sectors
- Comparison of S&P 500, Technology & Small-Cap Technology
1. Overview to Date: The intermediate-term rally started in early October 2019 has continued into the new year. The markets bounced back from the modest selloff triggered by the US attack on Iran and continued to rally into the first full week of trading in 2020. At this stage, a short-term correction can be expected from the overbought levels that have built up since the October lows.
The long, intermediate-term trends Risk-On signals remain ON. The short-time trend and Risk-On signals also are positive. The major market internals continue to confirm the positive market trends as we move into 2020.
On a short-term basis, the markets remain ‘over-bought,’ and some profit-taking is apparent. As the S&P 500 has made a new all-time high, the percentage of stocks above their 10-Day moving average has declined. This indicates increased buying selectivity in the short term. Buying selectivity is seen in the small-cap technology index (PSCT) made another new high, while the broad-based Russell 2000 small-cap index was down. A short-term sell-off in January should be expected and will represent a good buying opportunity for new equity positions or add to existing positions.
2. Global Markets Primary Trends: Signals are up (green) for all market indexes. The Short-Term Trends continue positive for all markets. These trends are a positive expectation on the health of the world economies not seen since 2017. The market’s plurality and strength bode well for a continued uptrend in world markets in 2020.
3. Performance comparison of the major world markets to S&P 500: All of the world markets in the table above were up last week, except the Russell 2000 Small-Cap Index. Continued strong plurality confirms the strength in the rally across world markets. The top three markets for the week were Nasdaq 100 (QQQ) up 1.98%, Emerging Markets (EEM) up 1.47% and China Index (FXI) up 1.39%. The weakest market was the Russell 2000 Small-Cap Index (IWM) down 0.15%, and EURO STOXX 50 (FEZ) up 0.20%. The China Index was up for the sixth week, and but was not able to break through resistance at 45. Many of the world markets tested their recent recovery highs, though some markets such as Emerging Markets (EEM) and US markets the S&P500, and Nasdaq 100 made new all-time highs.
4. Relative Performance in the US market sectors: Seven of the US Market sectors were up last week. The top three sectors for the week were Communications up 2.32%, Technology up 2.85%, and Health Care up 1.54%. The three weakest sectors were Energy down 0.98%, Materials down 0.23%, and Financials down 0.20%.
5. Comparison of S&P 500, Technology & Small-Cap Technology: Confirmation of the breath of the rally as the S&P 500 made a new all-time high, as did the Technology sector and S&P Small-Cap Technology Index. While last week saw some profit-taking in small-cap stocks with the Russell 2000 Small-Cap Index down 0.15%, the small-cap technology index still closed up the week, making a new all-time high. Technology from large to small-cap remains the market leader.
6. Summary Recap: The markets remain strong with the continued uptrend and the bull market confirmed by positive market internals.
Summary of Risk Signals: Long and intermediate-term risk signals are ON. The short-term risk signal is ON. On a short-term basis, the markets are overbought and subject to a short-term correction, especially from unexpected news events, though the markets are showing resilience. After the US attack on Iran, the stock markets sold off, while Gold and Energy (oil) rallied. Within days the stock markets rallied back and Gold and Energy sold off.
It is the institutions, big money that moves the markets. The sectors and sector groups the institutions drive-up are where the investment profits are made during the rally. My scan shows the top five US Sector Groups over the last month have been Computer Hardware, Automobiles, Marine Transport, Gambling, and Travel & Tourism. Automobiles, Gambling, and Travel & Tourism are in the Consumer Discretionary. Strength in Marine Transport is a positive expectation for the health of world economies. These are investment groups to be watching. Worst performing groups over the last month have been Ties, Steel, Aluminum, Drug Retailers, and Furnishings. While still down over the last month, various REITs are bouncing back, and show opportunities for those looking for dividend yield.
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 2020. Conditions for support for continued uptrend: 1) Federal Reserve continues to be accommodative; 2) improvement in the Chinese economy and continued fiscal 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).
Note: the above are not trade recommendations, but possibilities to watch. The market is volatile and can swing sharply.