December 16, 2018
Weekly Market Outlook
By Keith Schneider
US equites remain under relentless pressure, giving up some hard-fought gains earlier in the week. Stocks dropped about - 2% on Friday and all key indexes closed negative for the week. Equity outflows hit $46 billion, a record according to Lipper Analytics.
Unfortunately, rather than being a good contrarian signal this negative sentiment is likely to hang around like a bad smell for at least the next 3 months.
The sell-off occurred despite the news that the trade war with China was put on hold. The truce was initiated by China as a temporary fix while it tries to figure out how to ameliorate sharply declining retail sales and industrial production.
Two weeks ago, our Alpha Rotation model shifted from cash into Long Bonds (TLT) and is currently sitting on a +2.73% gain versus a 5.51% monthly loss for the S&P 500.
The Alpha Rotation trading model uses five key intermarket relationships that gauge the appetite for risk. Currently, all risk metrics are showing risk off and getting worse.
Until this model improves, we remain negative on equities although a short-term technical bounce is always possible (For more info about the Alpha Rotation system http://www.marketgauge.com/ar-replay/?utm_source=outlook20181215 )
This week’s takeaways are: