No Market for Passive Investors

November 25, 2018

Weekly Market Outlook

By Keith Schneider


US equites retreated yet again this week, down - 4% on average leaving 3 out of 4 key benchmarks indexes down for the year. Volume patterns show institutional selling with only one accumulation day over the past several weeks. FANG stocks plus APPL continue to falter, which casts a dark cloud over the market.

From our vantage point, this is no time to be a passive investor as sentiment for this approach has reached a fever pitch. However, even savvy investors trying to navigate their way through this down move are finding the classic safety plays marginally profitable.

While US Bonds have bounced from lows set in early November, they have not offered much of a reprieve since the beginning of the swoon starting in October. Consumer staples and utilities, other classic safe havens, have not offered much upside exhibiting mostly sideways action.

In fact, Bonds are the catalyst pressuring stocks. The 35-year downtrend in rates is most likely over and other than a short-term technical bounce from current levels, bonds should remain under pressure. Further rate increases from the Fed are on the horizon.

Other fissures include a strong dollar and oil prices that went from a wild bull to a bear market in a matter of weeks, thus hinting at a global economic slowdown.

The turkey week take-aways are:

  • Long term Momentum readings for Equities based on our Real Motion indicators have weakened to levels not seen since late 2016 (for more about Real Motion’s predictive power  http://www.marketgauge.com/real-motion/replay/live/)
  • The Dow Industrials ($INDU) and Value (VTV) stocks retreated to distribution phases on their daily charts leaving us without clearly defined leadership
  • Gold is outperforming stocks, but must clear 1245 to really get going
  • Short term momentum readings are showing a potential bullish divergence in the NASDQ 100
  • The US Long Bond has bullish short-term divergence on our Real Motion Indicator
  • A sentiment indicator is hovering at oversold levels so along with the short-term divergences noted above we could be setting up for a technical bounce that should be sold into at overhead resistance

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