- Overview to Date
- Global Markets Primary Trends
- Performance chart of world markets
- Chart of China Large-Cap (FXI)
- Performance chart of major US market sectors
- Sector and Stock Highlight; S&P 500, Technology and Small-Cap Technology
- Risk-On assets vs. Risk-Off assets
- Summary
1. Overview to Date: Since the December 2018 lows, the S&P 500 rallied about 30%. The S&P 500 made a new all-time high on July 26. Since July, the markets moved into a period of consolidation. Starting at the October lows, the markets rallied through the July highs, and many markets are making new all-time highs. These new highs along with positive long, intermediate, and short-term indicators are signaling and confirming a new rally, and the continuation of the long-term bull market started in 2009.
The long and intermediate-term indicators are positive. Strength in the markets since the October low has pulled short-term indicators positive. For NYSE stocks, advances vs. declines are positive, and stock points gained vs. lost and up volume vs. down volume has turned positive.
The markets and various indicators have confirmed an expected rally as we move towards December, though some short-term correction should be expected. With the indications of a positive uptrend, these dips will be buying opportunism for many asset classes.
The markets made new all-time highs this week that were not confirmed by the number of stocks above their 10-day moving average and cumulative net volume. These short-term divergences indicate the markets may be entering a short-term consolidation or pullback over the next couple of weeks.
2. Global Markets Primary Trends signals are up (green) for all market indexes except the China index (FXI). Even though there was some pullback last week, the green primary signals for the markets continue to illustrate the strength in the world markets. The Short-Term Trend Values are positive for all markets except China index. A key point and take-away, these trends are from a positive expectation on the health of the world economies not seen since 2017.
3. Performance comparison of the major world markets to S&P 500: Seven of the world markets were up for the week. There were some pullback and softness in most markets, but not all. The EURO STOXX 50 (FEZ) made a new recover high. Russell 1000 (IWB) and S&P 500 made new all-time highs. Continued positive signs for world markets. The China Index took a hit over trade news, see notes below. The top three gainers for the week were Russell 1000 up 0.99%, S&P 500 up 0.92%, and Russell 3000 up 0.91%. The weakest markets were China Index down 3.77%, Emerging Markets (EEM) down 1.26%, and World Stock Fund (ex/US) down 0.27%.
4. China Market Index (FXI) Bellwether Market. Watching the China market as a bellwether indicator. After some unsettling news about details and when the Phrase 1 of the trade agreement will be signed, the China Index sold off. China and other markets remain impacted by trade news. The signing of the Phase 1 trade agreement would lift the China Index.
5. Relative Performance in the US market sectors: Eight of US Market sectors were up for the week. The noticeable shift from the last few weeks from sectors that benefited increase from the increase in bond yields. Financials (Banks) and economically sensitive sectors Material and Industrial sold off some. The top three sectors for the week were Health Care up 2.45%, Real Estate up 2.04%, and Utilities up 1.78%. The two weakest sectors were Energy down 1.01%, and Financials down 0.30%.
6. Sector highlights, Technology Sector and Small-Cap Technology Index: Technology stocks and funds lead the markets both up and down. The chart below shows the S&P 500 in the top panel, the Technology Sector in the middle panel, and the S&P Small-Cap Technology Index in the third panel. S&P 500 and Technology made new all-time highs. Small-Cap Technology Index traded sideways as did other ‘Risk On’ assets (see Section 7). Continue to see institutional investors look for value and growth investments.
7. Risk-On asset vs. Risk-Off assets: With the breakout in the major indices, investors have been moving money into ‘Risk On’ assets. The table below shows strength in various ‘Risk-On’ assets like Emerging Markets (EEM), EURO STOXX 50, Copper, and the broad market S&P 500. See how these compare to ‘Risk-Off’ defensive assets that had been strong groups during the July to September market consolidation. Not included in the table (my omission) is the ‘Risk-On’ asset S&P Small-Cap Technology Index with a percent change of 12.71% (Nov 8) and 10.24% (Nov 15).
8. Summary: From December 24th, 2018 market 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. In July, the markets entered a period of consolidation pattern with profit-taking and sector rotation. On increasing volume, the S&P 500 has closed above the July highs, signaling an end to the consolation and continuation of the long-term market rally.
Long and intermediate-term indicators are positive. Short-term indicators have turned positive. Though erosion in some short-term breadth indicators points to a short-term pullback or consolidation, such a consolidation would be a setup for a December rally.
Summary of Risk Signals: Long to intermediate-term risk signal is ON. The Intermediate-term risk signal is ON. The short-term risk signal has turned ON.
The markets and various indicators have set up for an expected strong rally as we move to December. Last year’s hard December selloff is still fresh in investors’ minds. As a rally builds, there has been an initial resistance by investors to recommit funds. But as the rally continues, there will be a rush to commit funds.
It is the institutions, big money, that moves the markets. The sectors and sector groups the institutions drive first after a correction or consolidation will be where the investment profits are in the next rally. My scan shows the top five US Sector Groups over the last month have been Nonferrous Metals, Furnishings, Heath Care Providers, Drug Retailer, and Computer Hardware. These are investment groups to be watching. The five worst-performing groups have been Real Estate Holdings, Travel & Tourism, Brewers, Distillers & Vintners, and Gas Distribution.
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 and continuing into 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.