The Destabilizing Lynchpins of the Market

November 18, 2018

Weekly Market Outlook

By Keith Schneider


From the Arnold Lieberman Collection

US equites retreated this week, ranging from down over -2% for both the Dow and NASDQ 100 to down -1.3% for the Russell 2000 and the S&P 500. FANG stocks have completely unraveled, down 20 - 40%   from respective highs, with Facebook reeling on multiple fronts.  Latest medical research shows that people who are big users of Facebook, are more depressed than even their stockholders.

The global political stage seems to be unravelling like a Shakespearean tragedy, led this week by well… an actual one with the failure of the current British government to come up with a viable Brexit Plan.

This caused both the British Pound and Britain’s stock market to drop. Without an exit plan agreed upon with the EU, chaos lurks, including a possible downfall of the current administration and a major recession. The EU in general is in turmoil and rudderless, which is not good for the global economy.

Add to the mix, the CIA confirmed that the Crown Prince of Saudi Arabia ordered the murder of Khashoggi. Furthermore, The Israeli government, led by Netanyahu, is on the brink of failing for not dealing more harshly with Hamas.  Hence, these two lynchpins of Trump’s foreign policy initiatives could be on the verge of unwinding, thereby further destabilizing the Middle East.

In another piece of weirdness, 2 months ago Venezuela asked the Bank of England to return 14 tons of gold reserves. It is common policy for a country to store their gold reserves in different central banks to protect their assets and facilitate trade. But the Bank of England has refused to return Venezuela’s gold because of new economic sanctions placed on it by the Trump administration.

If a country can’t get its gold reserves that are being held for it in foreign banks for political reasons, the fallout could mean a run on physical gold. It could wind up that other countries and even goldbugs might seek actual possession before an emergency occurs. Stay tuned as this unfolds.

This week’s takeaways are:

  • Risk Gauges continue to deteriorate as volume patterns improved and market internals worked off overbought conditions
  • The Dow Industrials remain the holdout and regained both it’s 50 WMA and 200 DMA
  • Value Stocks (VTV) have been holding their recent gains and closed above it 200 DMA while growth stocks (VUG) remain under pressure and in a distribution phase
  • Global equites remain under heavy pressure with only Brazil and Russia showing meaningful returns over the past three months. Israel is the only country in a bullish phase.
  • Gold had a decent pop off recent lows and confirmed a strong recovery phase with our Real Motion Indicators showing excellent weekly support (more on Real Motion) )

Check out this week videos for some specifics.

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