Dead Unicorns and Small Caps

October 6, 2019

Weekly Market Outlook

By Keith Schneider

blankU.S. equities closed mostly down for the week after recovering nicely late Thursday and Friday from a 1300-point 3-day swoon in the Dow Industrials.

A noteworthy development was that the benchmark small-cap (IWM) index had a death cross and entered a confirmed bear phase from which it was unable to recover.

On the lighter side, markets seem to have found support at August lows, and it might have some bounce left in it before it runs into major overhead resistance.

In fact, the IWM had a short-term reversal pattern known as a bullish engulfing pattern.

Disappointing ISM numbers on U.S. manufacturing along with weak manufacturing numbers from Germany (their automotive sector has stalled) had the market in full retreat until Friday’s U.S. unemployment figures were released.

The numbers were strong enough to keep the unemployment rate at 50-year lows.

However, recent job growth was not that strong, so it’s keeping hopes alive that the Fed will cut yet again.

Unicorn IPO's such a LYFT, UBER, and PTON (Peloton) all got hammered, and they did not have nearly the bounce that the key benchmarks had.

The market is awakening from a long period of delusion predicated on negative interest rates on 15 trillion dollars of sovereign debt.

This week’s highlights are:

  • Risk-Off is on
  • Market Internals and Sentiment are bouncing off oversold levels
  • Semis continue to lead and are in a bullish mode
  • Volume patterns are showing distribution
  • Small caps otherwise known as Grandpa Russell (IWM) moved into a bear phase
  • The NASDAQ 100 (QQQ) closed in a bullish phase
  • Gold and Bonds all regained bullish daily market phases
  • Value Stocks retreated giving up recent relative gains verse growth

The current global economic environment does not seem sustainable longer-term as the unintended consequences of negative rates, and shifting global power are playing out.

One way to play in this scenario is to have the proper process and methods.

One core ingredient to effective trading and risk management is measuring momentum since momentum often precedes price.

Our Real Motion indicator has given us some excellent trading signals well ahead of major trend changes (click here for more for a training session on Real Motion)

Best Wishes for your trading!

Keith Schneider

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