Value Earns its Keep

December 2, 2018

Weekly Market Outlook

By Keith Schneider


US equites regained its footing this week led by the NASDQ 100 up +6.22%, recovering after last week’s indigestion. All key US stock indexes are once again up YTD.

Looking at the bigger picture, stocks have been overeating for quite some time, feasting on low rates and tax cuts while ignoring a volatile geo-political environment.  Brexit, Trade Wars, riots in France, and Russian aggression top the list, but there is a lot more brewing.

Last week, we pointed out the selloff was a bit overdone short term and we expected a bounce. This bounce could continue in alignment with strong seasonals into the end of the year.

We still believe that this rally should be sold into once it stalls or gets too frothy, as longer-term momentum readings are poor. Other key metrics like High Grade Corporate and Junk Bonds are very weak relative to US Treasuries.

Additionally, both housing and oil remain under immense pressure. Defensive sectors such as Utilities, Health Care and Consumer staples still have the strongest 3 month returns despite this week’s huge rally. This is not positive for the longer-term picture.

This week’s takeaways are:

  • Risk Gauges improved to neutral this week along with volume patterns
  • The Dow Industrials regained both it’s 50 WMA and 200 DMA
  • Value Stocks (VTV) have been holding their recent gains and closed above the 200 DMA and moved into a bullish phase.
  • Growth stocks (VUG) remain under pressure and had a death cross even with this week’s monster rally
  • The Transportation index (IYT) is looking decent and improved to an accumulation phase
  • Emerging markets (EEM) seem to be improving versus developed markets and the US

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