November 6, 2017
Weekly Market Outlook
By Keith Schneider
The NASDAQ 100 (QQQ) continued its melt up this week, +1.34%, outpacing all the key US indexes by a wide margin. IWM (Russell 2000) closed -.80%. Semi-conductors and the energy sector (we highlighted both last week) led the pack.
Once again, market breadth as viewed by sector participation was wonky. Seven of the fourteen market sectors we track were down for the week. This time the negative action was led by homebuilders who took the brunt of proposed tax changes.
On the bright side, Economic and corporate earnings still show a growing economy with little threat of a recession, so the likely hood of a nasty bear market is not on the horizon. A correction is certainly overdue as Sentiment is frothy but more on that a little later.
Globally, the most interesting development was that Saudi billionaire Prince Alwaleed known as the “Warren Buffet “of the Middle East had his Twitter account blocked (like president Trump). However, unlike President Trump, his financial accounts were blocked as well when he (and many other Saudi royals) fell under house arrest in Saudi Arabia for alleged corruption.
It seems more like a purge and a pure power grab by his younger cousin who is next in line to be King. How this impacts Prince Alwaleed’s specific stock holdings such as TWTR, AAPL, and CITI (will there be some forced liquidation?) or the energy markets are at best unclear. The Saudi's plan to take its privately held (Saudi Aramco) oil holdings public and that could be affected as well. This is all occurring while oil is on the rebound.
Market sentiment, as measured by VIX, has now reached frothy levels, a distinct change from last week. Market Internals also weakened as our New High/Low indicator shows more narrowing of the rally amid the QQQ melt up.
Strangely enough, the leading index (QQQ) has the weakest volume pattern among the four key US stock indexes, with only 1 accumulation day over the past few weeks and just 3 over the past two months.
The big trends for stocks remain bullish, but short-term as outlined above it bears close attention.
For more details and inflection points click here for this week’s video.