When is She Coming Back?

November 4, 2018

Weekly Market Outlook

By Keith Schneider

Now that the bad witch that takes flight occasionally during October has done her thing and scared everyone, what does that bode for the market? Considering last week’s rally, is she back in her lair?  Is she not merely dead, but really most sincerely dead?

In advance of this week’s midterm election, the market has given a huge rise in long term rates, movement to safety plays such as Big Cap Value stocks, and defensive sectors (utilities and consumer staples). Our momentum indicators, that measure the velocity of the trend, are eroding.  This erosion points to our bad witch taking flight earlier than normal and staying a lot longer.

Did I forget to mention that housing stocks have already been hit very hard and gold has been holding up well?

However, that does not rule out a bounce or even more from current levels. Keeping it real, since 1946, every mid-term election (18 to be exact) has ended with Equites up a lot a year later… every time in fact, 14.5% on average.

A bet against stocks looking out 1 year from now is not exactly a quant’s walk in the park. The market demands pure tape reading more than ever as animal spirits are driving the markets with the country on the emotional edge.

This week’s highlights

  • The Dow Industrials regained both its 50 Weekly Moving Average its 200 Daily Moving Average and is trading above it 6-month calendar range high, leaving the other 3 benchmark indexes IWM, S &P 500 and the QQQ in a much weaker position.
  • Market Internals and Sentiment improved a lot, but volume remains very weak and not confirming this week bounce
  • Sector rotation only slightly improved as Grandma retail ( XRT ) moved up its market phase to a strong warning  …..more on this (https://www.benzinga.com/analyst-ratings/analyst-color/18/10/12507639/one-market-watchers-custom-index-and-why-it-matters)
  • Risk Indicators improved significantly this week although no buy signal yet in our Alpha Rotation quant model ( check our sizzling hot Alpha Rotation model which use the all  the risk indicators in Big View  https://marketgauge.com/alpha/ )
  • Soft Commodities and Gold continue their strong relative performance versus equities
  • Long bond yields hit their highest levels since 2014 confirming 4 years in the making head and shoulders topping pattern

Check out this week videos for some specifics.

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