Equities Meet Mother Nature

January 26, 2020

Weekly Market Outlook

By Keith Schneider


blankThe outbreak of a nasty virus that started in China has spread from animals to humans and now the financial markets. Equities actually sold off, hitting Mainland China, Hong Kong and Taiwan the hardest. Not surprising, since those markets have been most impacted by the spreading virus. The divergence of our Risk Gauges action as equities  continued to new highs was  major concern and sets up the scenario where the virus could be the catalyst for a much more significant selloff.

One glaring exception to the global selloff has been Switzerland, which was up on the week, bolstered by rising gold prices.  Although the Swiss Franc is now a fiat currency, it still holds more gold in reserves than any other country. During global stress it’s the preferred risk off play. So, considering the nice run-up this week in the yellow relic, it’s not surprising that the Swiss stock market found some love and noshed on Lindt chocolate while the rest of world worried. The drop-in rates were not a shock either, as many players were singing Gimme Shelter and headed for cover.

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This week’s highlights are:

  • Risk Gauges turned 100% negative from neutral readings
  • US Equities made new all-time highs and closed down about- 1% for the week with another bearish engulfing patten
  • Volatility (VXX) jumped sharply on Friday after flat-lining at low levels
  • Market Internals and Sentiment flipped negative despite being just 1% from all time highs in most indexes (IWM still has not been able to take out 2018 highs)
  • Gold followed thru on its recent breakout and was a leading weekly performer
  • Market Sectors confirmed the risk off scenario with Utilities and Consumer Staples holding firm while spec sectors like Biotech sold off
  • Copper and Energy got hit hard with the possibility of a global slowdown
  • Bonds shrugged off the news that the US Treasury will begin issuing 20-year bonds and rallied sharply and on is the verge of a major channel breakout

One big takeaway this week is the critical importance at looking at inter-market relationships (Risk Gauges) which use our Triple Play Indicator to get a handle on the big macro picture. It is also very effective for understanding the relative performance of specific equities verses key US benchmarks. For more on this key analytical tool click here.


Best Wishes for your trading

Keith Schneider

CEO -Marketgauge.com

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