It’s the Elementary Clue

April 5, 2020

Weekly Market Outlook

By Keith Schneider

blankUS stock indexes retreated this week, down -1% to -7% depending on the poison you picked. The most glaring divergence in the data is that small cap domestic stocks (IWM or Grandpa Russell) are down 38% for the year while the NASDAQ 100 is down a mere 13.75%. It’s the worst first quarter performance for stocks on record.

It is also worth mentioning that value stocks continue to lag (for the last 15 years) growth. High PE/Growth (price/earnings) stocks ultimately get hit the hardest during recessions and when Value stocks finally start to outperform the bottom is in or soon coming.  Since Warren Buffet is sitting on $128 billion of cash, it will be interesting to see his next big move which could be an early sign that the selloff is close to over and lend a boost to value plays.

Stress in investment grade corporate debt was alleviated by massive buying by the Federal Reserve, forcing shorts to cover. However, without that backstop the markets would already be much, much lower.  This leaves the issue of massive stocks buybacks using cheap borrowed money to prop up stock prices and executive suite bonuses, leaving little reserves for unexpected downturns.

The devastating move lower in energy was reversed on news that Russia and Saudi Arabia (with some prodding by Trump) will try limit production to stabilize prices as demand has plummeted along with worldwide GDP. As I am writing this, a squabble has broken out between Russia and Saudi Arabia so it remains to be seen if  the rally this week can hold.


This week’s highlights are:

  • Risk Gauges continue to show risk off
  • Value stocks continues to underperform
  • Credit Markets continue to show high levels of distress (Investment Grade Debt getting a bailout)
  • Market Internals and Market Sentiment relieved its short-term overbought readings and now are back to neutral
  • Volatility (VXX) was down this week despite continued weakness in equities
  • Biotech showed remarkable strength
  • Gold firmed compared to equities, but it’s stuck in a wide trading range

Finally, all four major stock indexes closed under their 10 day moving averages, a clear red flag which means a test of the recent lows are next.

Our Alpha Rotation quant model has been navigating this massive volatility brilliantly so click here to find out more about how it can help grow your portfolio regardless of market conditions.

Stay Safe and Best Wishes for your trading

Keith Schneider


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