"Risk Off Is Back On"

Keith Schneider | August 4, 2019

U.S. Stock indexes gave up all the gains made in July in just a few days, led by the NASDAQ 100 which dropped -4.07% for the week.

There are several factors contributing to the sell-off that include an escalating trade war with China (new tariffs starting in September) and a rate cut by the Fed that either was not enough or unwelcome.

Robert Schiller (the Nobel prize winner in economics) noted that we have the lowest unemployment levels in decades and a stock market that recently hit new all-time highs (of course it was a lot closer to ATH when he spoke) which is not the typical environment for rate cuts. He thinks we should be raising rates not lowering them.

The Fed did not heed Schiller's advice, and it will not have much wiggle room to lower rates should a recession occur. Regardless, U.S. long bonds rallied hard and ended up almost 4% for the week.

Weekly charts that show poor momentum is finally exerting influence on the shorter-term timeframes. All global stock markets ended in the red with emerging markets breaking hard. Also noteworthy is that Value stocks (VTV) held up better than growth (VUG).

This week’s highlights are:

  • Risk Gauge retreated to 100% negative
  • Semiconductors, Retail and Consumer Discretionary sectors led the decline
  • Utilities, a safety play, held firm
  • All the key indexes have retreated to key moving averages
  • Market Internals rolled over
  • IWM which looked poised to move up and out of its recent compression zone failed yet again
  • Gold and Gold Miners continue to lead the markets with Gold bullion hitting highest levels in 6 years
  • Interest Rates continue to drop and looks like more to come

This nasty sell-off might be running a bit rich, so it’s possible we find support and bounce from current levels or touch a trend line a few percent below current levels before a rally.

If equities markets fail to find support as noted above, we could see another 5% tacked on to current losses.

If you'd like to learn more about the Real Motion indicators mentioned in the video click here.

Best Wishes for your trading!

Keith Schneider
CEO, MarketGauge.com