Global Markets Trends and Review Week Ending October 11, 2019
- Overview To Date
- Performance chart of world markets
- Chart of China Large-Cap (FXI)
- Performance chart of major US market sectors
- Russell 1000 Growth Index vs. Russell 1000 Value Index chart
- Sector and Stock Highlight; Technology & P&F chart of Apple
- Summary
Overview To Date: Since the December 2018 lows, the S&P 500 has rallied about 30%. The S&P 500 made a new all-time high on July 26. After the August correction, the S&P 500 rallied but found resistant below the July all-time high. Since late August, the S&P 500 and other markets have experienced sector rotation and movement out of riskier assets. The S&P 500 and other markets have continued in a sideways market correction, selling off into the first week of October. There has been correction over signals, but the S&P 500 index needs to close above its July high to confirm a continuation of the long-term bull market.
The week started with a selloff on Monday and Tuesday. Concerns again over world economies, trade tensions, and how will the central banks respond to slowing economies. There were dovish comments from some US Federal Reserve members. It was after the restart of trade negotiations between China and the US, the markets rallied. Then a partial trade deal was announced, the S&P 500 gapped up, and Friday was a strong market up day.
The long and intermediate-term indicators are still positive. While market turmoil has eroded short-term indicators, last week’s rally started pulling short-term indicators back positive.
This week illustrated again the value in analyzing the US sectors to see where the institutional investors are putting their money. Remember, it’s big money that drives the money. The results might surprise you this week. See more in section 4 below the “Performance chart of major US market sectors”. After the early sell-off, the markets rallied, and all of the world markets were up for the week. The Primary Trend signal is now up (green) for all market indexes except the Russell 2000 (IWM), and it is almost there. The Short-Term Trend Values turn positive for all markets except Russell 2000.
2. Performance comparison of the major world markets to S&P 500: Like the previous week, most markets sold off on Monday and Tuesday and then rallied up strongly. All of the world markets above were up for the week. The top three gainers were EURO STOXX (FEZ) up 3.17%, China Index (FXI) up 2.71% and MSCI (EFA, non-US and Canada world index) up 2.15%. The most active rally week in some time. The markets still need to get through resistance at the July highs for the rally to continue. Noticeable in the chart below, how the world markets are moving together impacted by the same world economic and trade news.
3. China Market Index (FXI) Bellwether Market. Continue to watch the China market as a bellwether indicator. The China index sold off early in the week and then rallied strongly on positive trade news. China Index was up 2.71% for the week. The index rallied to test the top of the bearish chart pattern at the downtrend line and closed above the 200-day moving average. The chart indicates an expected pop up on a China/US trade deal. The China index continues to weigh on the world stock indexes.
4. Relative Performance in the US market sectors: This week again illustrates how analyzing the US Market sectors indicates where the institutional investors are putting their money. It is institutional money that moves the markets. The top two sectors for the week were Materials up 1.85% and Industrials up 1.57%. Both sectors are economic sensitive and value sectors. Last week both of these sectors were down. A noticeable swing in institutional sentiment. The next most active sector was Technology up 1.27%. Technology is a growth sector. The three weakest sectors were Utilities down 1.31%, Consumer Staples down 0.91%, and Real Estate down 0.43%. Money moving out of defensive sectors. Institutions are looking for value plays and potential pop in the economy with a China/US trade deal, but are still looking to Technology for growth investments.
5. Russell 1000 Growth Index vs. Russell 1000 Value Index: Growth stocks took a hit in the August and September sell-offs, as can be seen in panel two in the chart below. The growth vs. value relative strength showed growth stocks bouncing back. With at least some institutional money moving back into growth. This relationship is a significant market trend to watch. Movement back into growth is supportive of a healthy market and continued long-term market uptrend.
6. Sector and stock highlight, Technology, and Apple: Technology stocks and funds lead the markets both up and down. Technology has been in a correction during August and September. During the market correction, the relative strength of Technology to the S&P 500 has remained positive. It was one of the most active sectors last week, up 1.27%. Institutions are moving some money back into Technology and growth sectors. All Technology groups were up on Friday. The top three Technology groups were Computer Hardware up 3.54%, Software up 1.20%, and Components & Equipment up 1.99%. Part of the Computer Hardware group, Apple gapped up Friday on good volume making another new all-time high, up 4.05% for the week. See the P&F (point & figure) chart below for Apple.
Apple (AAPL) broke out on Friday, making a new all-time high (ATH). Apple is a bellwether stock, heavily owned by institutional investors. According to Nasdaq filings, institutions own 60.73% of the Apple stock. Continued strength in Apple will pull the technology sector and growth stocks up.
7. Summary: From December 24th 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 March, the markets moved into short-term correction mode. After correction over signals, the markets, as measured by the S&P 500, rallied to make new all-time highs in July. The markets entered another correction in August that has continued into the first week of October. Strong market internals and the S&P 500 closed about 2950 produced correction over signals. To confirm the bull market rally, the S&P 500 needs to close above 3025 and make a new all-time high.
Long and intermediate-term indicators remain positive. Short-term indicators have eroded and indicate a continued period of investor caution.
Summary of Risk Signals: Long to intermediate-term risk signal is ON. The Intermediate-term risk signal is ON. The short-term risk signal is turning up.
Next week launches the Q4 earnings season. Companies that meet or exceed earnings expectations will be rewarded, and companies that do not will be punished.
Warning: investors have short-term memories and remember last year’s major Q4 correction. As again seen by last week’s action, the US and world markets remain news-driven and can quickly turn negative and selloff by bad news.
The significant market risk is the China/US trade negotiations. If those negotiations break down, watch out, there will be a sharp selloff in the US and world markets. If a trade deal is reached, there will be a sharp rally that could start another leg in the long-term bull market.
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 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) though a hard exit is still a possibility.
Note: the above are not trade recommendations, but possibilities to watch. The market is volatile and can swing sharply.