- Global Markets Primary Trends
- Performance chart of world markets
- Performance chart of major US market sectors
- Dow Jones US Railroad Index makes new highs
- Russell 1000 Growth index vs. Russell Value Index (new high)
1. Overview to Date: An intermediate-term rally started in early October 2019 has continued into the new year. The markets have rallied strongly into January. At this stage, a short-term correction can be expected from the overbought levels that have built up since the October lows. The markets continue to rally and shrug off bad news, and market action has yet to signal a short-term correction.
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 continues to confirm the positive market trends as we move into 2020.
On a short-term basis, the markets remain ‘over-bought’. As the S&P 500 has made a new all-time high, the percentage of stocks above their 10-Day moving average declined, indicating investor selectivity. Yet investor buying stepped in again last week. The S&P 500 made another new all-time high as the percentage of stocks above their10-day increased showing broad-based buying. The Russell 2000 small-cap index rallied to test its all-time high made back in August 2018. While the markets may be ‘overbought’ on a short-term basis, this has not stopped investors from putting money into the markets.
2. Global Markets Primary Trends: Signals are up (green) for all market indexes. The Primary and Short-Term Trend continues 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. Continued strong plurality confirms the strength in the rally across world markets. The top three markets for the week were Russell 2000 (IWM) up 2.54, Nasdaq 100 (QQQ) up 2.27%, and Russell 1000 (IWB) up 1.95%. The weakest markets were the EURO STOXX 50 (FEZ) up 0.66%, China Index (FXI) up 1.33%, World Market Index (EFA) up 1.34%. The China Index was up for another week and closed above resistance at 45 (see the chart below). Many of the world markets made new recovery highs, with some making new all-time highs.
4. Relative Performance in the US market sectors: All of the US Market sectors were up last week over one percent, except for energy which was down. The top three sectors for the week were Utilities up 3.66%, Technology up 2.94%, and Communications up 2.76%. The weakest sector was Energy down 1.15%. Interest rate-sensitive sectors like Utilities and Real Estate have rallied since the October selloff from investors looking for yield. The Utilities sector index made a new all-time high last week.
5. Dow Jones US Railroad Index: Products are shipped on railroads. The Railroad index represents an expectation by investors in the health and growth of the US economy. The Dow Jones US Railroad Index made a new all-time high last week, signaling positive expectations in the US economy by investors.
6. Russell 1000 Growth index vs. Russell Value Index: Another indication of market strength is the Russell 1000 Growth index vs Russell Value Index. Growth stocks lead the broader markets higher. In late August 2019, growth stocks got hit with profit-taking after a strong rally from the late 2018 lows. As the S&P 500 made new highs, various market gurus noted the weakness in growth stocks as a warning of an upcoming major market selloff. The selloff did not happen, and growth stocks have rallied. Russell Growth vs Value index has made a new high, confirming the new high in the broader market.
7. Summary Recap: The markets remain strong with the continued uptrend and a bull market confirmed by strong long and intermediate-term market internals. Short-term indicators remain strong though overbought.
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 at risk of a short-term correction.
It is the institutions and big money investors that move 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, Internet, Marine Transport, Transportation Services. Strength in Marine Transport, Transportation Services, and a new all-time high in the US Railroads index show a positive expectation for the health of the US economy by investors. These are investment groups to be watching. Worst performing groups over the last month have been Aluminum, Ties, Steel, Auto Parts, and Banks. REITs are bouncing back and show opportunities for those looking for dividend yield. Specialty REITs have moved to ten on the top sectors list.
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 (Phase One deal has been signed); 4) broader participation and strength in the small-caps (small-cap stoa are rallying) 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.