August 11, 2019
Weekly Market Outlook
By Geoff Bysshe
Will the bulls thank China for last week’s opportunity to buy stocks lower?
Last week began with a punch back from China in the trade war that escalated the concerns of the trade war to concerns of a potential currency war. The result was the biggest one-day percentage decline in the SPY for 2019.
It also resulted in pushing the SPY, QQQ, and DIA well under their 50-day moving averages. Additionally, the IWM closed well below its 200-day moving average.
This set the stage of a weak market that would then get hit with a second shock on Wednesday when central banks in New Zealand, India and Thailand all announced larger-than-expected cuts to interest rates.
The rate cuts sent the U.S. bonds soaring and stocks plunging on escalating fears of global economic weakness.
Next, consider the increasingly violent protestors in Hong Kong and with lower rates, and currency concerns you have a recipe for a run into gold (GLD) which rallied 4% for the week.
There have only been 2 weeks in which gold (GLD) rallied 4% since 2016. The last one was GLD’s 6/21/19 close over the 2016 high.
Likewise, had TLT not pulled back from its Wednesday high, it would have had the largest weekly move since to 2015. This may have been a function of the charts as this week’s high of 143.06 was just shy of the 2016 all-time highs of 143.62.
The volatility was extreme, but it was also very much in synch. Global economic weakness and escalating geo-political tensions drive rates lower (bonds up), GLD higher and stocks lower.
However, stocks did not go lower after the second shock. The initial reaction was down, but had SPY closed the week on Thursday they would have been up for the week.
Instead, stocks consolidated on Friday, and the SPY and QQQ ended the week modestly lower and right under their 50-day averages.
So the question I cover in this week’s video is…
Did stocks just put in a significant bottom?
As you’ll see in the video and highlights below, there is a case to be made that stock got oversold, the trend is intact, and lower rates will win over the bulls?
Our Alpha Rotation trading system uses all the relationships I’ve discussed here and more, and it’s been dead right on the major trends in the market even throughout the crazy environment of the last 12 months.
In fact, over the last 12 months, the SPY has squeaked out a gain of only 3% and has been down as much as 15% during that period. Alpha Rotation portfolios have returned 20% - 60% depending on the model, and they were never down more than 5% for the period.
Alpha Rotation has a longer time frame than pinpointing the low of a 2-week sell-off, but for what it's worth, it still prefers bonds over stocks.
Highlights & Considerations