This Year's January Trend Trade Even More Critical

December 29, 2019

Weekly Market Outlook

By Keith Schneider


The Dow, the SPY, and the QQQ all hit new all-time highs up another +.75% on average and look frothy.

Emerging markets and precious metals broke out of classic chart patterns to the upside and look poised for more.

The big question confronting the markets is whether the Federal Reserve and the Central Banks of the world are losing control and the next phase is an inflationary spiral.

This, of course, would at some point put intense pressure on the Central Banks to increase rates and tank the equities markets globally.

This week’s highlights are:

  • Risk Gauges backed off yet again to a neutral reading
  • US Equities made new all-time highs
  • Volatility (VXX) refused to follow the froth and closed higher
  • Growth continues to lead Value stocks with the relative performance of value stocks at decade-plus lows
  • Gold, Silver and Gold miners all broke out of a multi-month trading patterns
  • Emerging markets broke out of a major base

As we hit new all-time highs this week in three benchmark indexes (DIA, SPY and QQQ) we are also trading at extremes of momentum as we enter the new year and decade.

The market narratives that have been in place for the past 9 years often reverse as we enter a new decade, and new macro themes appear. The keyword is “often” so one must be prepared for any outcome, use solid methods based on the stats with a risk overlay. That means, let the market action determine the game plan with complete flexibility.

It has never been more critical as the market could be construed to be at an extreme. Looking at the big picture, one could point to Warren Buffet, who is sitting on a 128 billion cash hoard (as of November 4, 2019) as a sign of just how much the market is overvalued. Buffet’s key metric which looks at the ratio of the GDP versus the stock market’s value is more inflated than in 2000, just before the meltdown.

In fact, based on this metric, US stocks are projected to yield -2.9% a year from this valuation after dividends.

On the other hand, one could look at the current picture and certainly see US equities at all-time highs with market phases intact on all time frames, poised for more upside and a melt-up.

So instead of my usual Market Outlook weekly video, I am going to point you to this critical training video.

Six minutes into the video you’ll discover why 2020 may prove to be a challenging year for trend traders who are expecting the market’s bull market to continue in the same way that it has traded over the last 10 years.

Also, if you watch the video or fast forward to the 1 hour and 23-minute mark you’ll see how January can be used to keep you on the right side of the major market trend for the whole year without any personal bias.

Click here to watch the training replay.