Risk On is Off!

August 6, 2017

Weekly Market Outlook

By Keith Schneider


US equities markets continue to churn, treading over swamp-infested waters, as the unemployment numbers improved again (4.3%) by dropping to the lowest levels since 2001, showing that a recession is not imminent (big positive).

Speaking of the swamp: on Capitol Hill, Trump had another rough week as he was forced to sign the Russian Sanctions bill; while at the FBI, Mueller just hired a small army of investigators to take a gander into Trump’s finances.

Meanwhile, the seven-year itch (give or take a few years) seems to be affecting investors’ love affair with growth stocks. The hand-off from growth (VUG) to value (VTV) is intensifying, as shown by our indicators, which illustrate bottoming action in those forlorn and beat up value stocks. This is worth noting, as this development follows one of the most extended periods of underperformance for value investors.

Our new Big View: Risk On/Risk Off gauge is glowing red, and three of the four key US Equity Market indexes still have intact (bearish engulfing) short-term patterns.  IWM (the Russell 2000) is the weakest index (-1.23% for the week), while the Dow Industrials (+1.19% for the week) made a new all-time high, up eight days in a row.

The volume pattern on the Dow is extremely strong, with five accumulation days over the past two weeks, which shows institutional buying; while the QQQ (NASDQ 100) is indicating the inverse.

Another concern is the deterioration in the breath, as New High/New Low readings are weakening. Worth noting is the S &P 500 has closed lower than its opening eight times over the past nine days. Huh?  If this is confusing, check out this week’s video and that should clarify things… maybe.

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