Handoff to Emerging Markets

December 15, 2019

Weekly Market Outlook

By Keith Schneider

Equity markets blasted higher this week with virtually all global equities joining the party.  Markets loved the good employment report in the US (unemployment levels at 3.5%) and of course a truce in the trade war with China. The excellent reception of the IPO of ARAMCO did not hurt either. The $2 trillion dollar valuation seems lofty considering the longer-term outlook for oil. The recent attack on Saudi refineries is another concern, although secret talks between Iran and Saudi Arabia seem to have calmed investor’s nerves. Considering 97% of the investors in the IPO live in Saudi Arabia, this ratcheting down of tensions was critical.


This week’s highlights are:

  • Risk Gauges are in 100% risk on mode
  • NASDQ 100, the S&P 500, and the Dow Industrials all hit new all- time highs
  • Both Emerging and Established foreign Markets outperformed and look poised to add to last three months of gains versus US
  • Market Internals are positive without being overbought
  • Biotech is very strong, leading all sectors over the past three months +15.7 %
  • Semis continue annual leadership +60%, with gains of over 4% for the week
  • Strangely, the Retail sector continues to lag
  • Short Term Volatility closed at bullish extremes

Finally, considering the frothy short-term sentiment and the fact that Junk and High yield debt are in weak longer-term positions, a quick reversal to this very long term Bull Market is possible. Our Alpha Rotation quant model, which is based on multiple, key intermarket relationships, will let you know when the party is over. At that point, it will move to either cash or bonds. We just introduced an options version of the model and here is the link.

Best wishes for your trading

Keith Schneider


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