Mixed Signals

January 18, 2021

Weekly Market Outlook

By Keith Schneider


blankI have been reviewing lots of graphs and charts that I come across and many others that people e-mail to me.  I am always intrigued by all the statistics that people put together showing what might occur in January and how it foretells the remainder of the year.

I also enjoy seeing the graphs and tables showing what should occur if we come off two good quarters, like the 3rd and 4th of 2020, and what should happen the following 6 and 12 months after.

Yet, my long tenure in this business tells me stock performance and the market is about earnings, inflation, and interest rates. Even more important to us is the technical picture of stocks, which determines risk control and trade management.

We look at many variables, including volume, advance-decline lines, buying or selling pressure (accumulation and distribution days), moving averages, and many more. To sum it up, we incorporate the skills of a macro economist with the timing of a floor trader.

Our company was founded and continues being managed by three traders who all traded for themselves on the Floor of NY Exchanges.  We developed our models and technical strategies with risk management as one of our highest priorities.  Over the past 15 years, we built powerful investment models that are constructed to deliver alpha over benchmarks that have superior risk-adjusted returns.

Our Big View chartbook is one of the most powerful tools we’ve created for you to be able to quickly review what is going on in the markets.  This all-inclusive look at the technical side of the market was constructed to answer many of the questions that help us, and YOU, to determine what the health of the market is, which direction do we take and risk levels.

Additionally, you can see where money is moving - is growth or value being rewarded?  Is the US or foreign markets doing better? And, where the risks are today, and where there might be hidden problems for the markets moving forward? We urge you to get used to using the BIG VIEW and become someone who understands where we currently are and where we may be going.

One last point, if you are a diversified user of our investment models, then you are aware that spreading investment dollars among different and disparate models helps to diversify risk and exploit the different edges we have found.

This year, so far, we have had this exact scenario play out as both our IWM Alpha Rotation as well as our Small Cap All-Stars are leading the way.  Up over 8%, Small Caps are hitting their stride while Large Caps are barely breaking even, and tech stocks are down thus far.

Additionally, within the ETF Complete model, we have a situation where the sector part of the model on its own is up over 9% thus far.  It pays to spread your investment dollars across several (if not all) of our models.  It is far easier to manage risk and excel even when we have mixed signals.

The highlights of this week’s market action are as follows:

  • Risk gauges are still bullish.
  • Large-cap stocks and technology stocks (QQQ) have lost steam and are sitting on the fringe of turning cautious.
  • Utilities (XLU) were strong versus stocks, another sign of preliminary weakness.
  • The number of Distribution days are picking up with IWM and QQQ having four over past two weeks, another sign of weakness.
  • Three out of 4 key US equity indexes (SPY, DIA, QQQ) retreated to under their respective 10 day moving average and have negative Real Motion divergences.
  • These 3 indices, large-cap weighted, had negative performance for 5 days while small-cap stocks were positive.
  • The McClellan Oscillator flipped once again to a slightly negative reading
  • Volatility holding above 20 and indicating that fear is still simmering below the surface of the markets.
  • Value gaining verses growth and growth diverging from leadership over SPY.
  • Positive movement in Banks (finance) and Energy (rising crude prices and Oil Services) are propelling value’s resurgence.
  • Emerging market (EEM) is one of few country ETFs that is above the 10 DMA.
  • Soft commodities (DBA) were very strong and are breaking out on our triple play indicator versus SPY on both weekly and daily charts.
  • Gold (GLD) and precious metals have issues as Gold (GLD) broke down yet again under the 200 DMA.
  • Long bonds (TLT) are bouncing off oversold levels.
  • Clean Energy (PBW) and Solar (TAN) ETFs having kept extreme leadership position the past six months, but lost steam or is mean reverting and went negative for the past 5 days.
  • Mixed Signals in sectors performance this past week as there was a positive week in retail (XRT), energy (XLE), and semiconductor stocks (SMH) while consumer discretionary (XLY) and technology (XLT) were down for the week.

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