Global Markets Trends & Review Week Ending July 5, 2019

Review of global markets starting with the US
Performance chart of world markets including a chart of Euro STOXX 50 ETF
Chart of China Large-Cap (FXI)
Performance chart of major US market sectors
Large Cap (SP500) vs. Small-Cap (SP600)
Sector highlight Technology and Consumer Specialized Services
Summary

Overview To Date: Since the December 2018 lows the S&P 500 had rallied about 26% making a new all-time high on May 1. The S&P 500 sold off during May, about 8% as investors were rattled by negative news. Since the June 3rd low, the market has rallied back strongly making new highs.

While volume was light with the US July 4 holiday, markets were up. S&P500 made another new all-time high, as did the Dow Jones Industrial average. Moreover, the Technology sector ETF (a non-defensive and growth index) also made a new all-time high.

All of the world markets have their primary and short-term trends up. Investment uptrend signal (green) across all of the markets.

Performance comparison of the major world markets to SP500: Nine of the world markets in the above table were up last week. The top five markets were US markets. World markets like the Euro STOXX 50 ETF (50 largest eurozone companies) continued to rally. (See the chart below) This shows investors willing to move into more risk-on investments. Continue to see good plurality as the markets move up together, indicates continued strength in the market’s uptrend. The only down market was the China index but down only 0.14%.

The Euro STOXX 50 ETF (FEZ) closed up again last week. Indicates investor willingness to move into more risk-on investments.

China market index (FXI) Bellwether Market. Continue to watch the China market as a bellwether indicator. China index rallied on the expectation of good news then was down for a couple of days. This was a classic, buy on the rumor and sell on the news. China index is showing good strength since its late May lows.

Relative Performance in the US market sectors: All eleven of the US market sectors were up except energy. The top four were a combination of defensive and non-defensive sectors. Real Estate (defensive) up 2.56%, Technology (non-defensive/growth) up 2.45%, Communications (non-defensive/growth) up 2.42%, and Consumer Staples (defensive) up 2.29%. Why are both defensive and non-defensive sectors up? Large institutions have been increasing their equity exposure (investment) across many market sectors.

Large-Cap (SP500) vs. Small-Cap (SP600): While the S&P 500 made marginal new high, the S&P600 small-cap index has lagged. The S&P600 small-cap index was up for another week, indicating movement into more risk-on investments.

Sector highlight, Technology, and Specialized Consumer Services Index: Technology stocks and funds lead the markets both up and down. It was weakness in technology starting in May 2018 that warned of possible correction in Q4 2018. After a strong recovery from the May 31, 2019 low, the Technology ETS index (XLK) made a new high last week along with a new high in the SP500. This is a good indication of continued strength in the markets. The Technology index is now up 40% since its December 2018 lows.

US Specialized Consumer Services Index made another new high. Specialized Consumer Services Index is part of the non-defensive consumer Discretionary Sector.

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. 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 has turned the intermediate to short-term risk signals back to ON.

The S&P500 made another new high, and this week it was confirmed by a new high in the Dow Jones Industrial Average. A lack of a new high in the ‘Industrials’ index since the December 2018 lows had been sighted by some analysists as a negative of the health of the market. The Industrials new all-time high is another indication of a healthy market likely to continue to make new highs. The new market highs were also confirmed by a new high in the NYSE (New York Stock Exchange) advance-decline line and NYSE all-issues new 52-week highs.

AAII (American Association of Individual Investors) survey of individual investors is bearish. Individual investors are notoriously wrong about the market direction. They are bullish at market tops, and bearish at market bottoms. The fact that individual investors remain bearish is a good indicator of continued market strength. When individual investors are bullish, watch out.

Trading volume is seasonally low during the summer months. Markets can be easily moved on modest volume. This continues to be a news driven market with nervous investors, so expect price volatility.

While defensive sectors and stocks have lead non-defensive/growth sectors, money is flowing back into non-defensive (growth) sectors as seen in the strong rally in technology. The Technology Index EFT (XLK) is up 40% since its December 2018 lows.

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.