Weekly Market Summary

Summary:  The broadest US equity indices made new all-time highs last week. Stocks have risen 6 of the past 7 months and by more than 20%. The summer months can see interim weakness, but this level of momentum has a strong propensity to carry stocks higher into year-end.

The FOMC is likely to lower its guidance rate tomorrow. When the economy is expanding and stocks are near their highs (like now), this has been a net positive for equities.

Sentiment data is inconclusive, but a 3-5% decline wouldn't be unusual at this point, especially as the typically weak August-October period is now here.

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The rally since early June has carried SPX more than 10% higher in just two months. July will likely end with US equities higher for the 6th time in the past 7 months (table from alphatrends.net). Enlarge any chart by clicking on it.

Weekly Market Summary

Summary:  US equities rose four months in a row and ended the month of April at new all-time highs (ATH). They then fell 4 weeks in a row during May, losing more than 6%.

So far, this is not that unusual. Almost every year has a drawdown greater than 5%, and most have at least 3 of these. What was unusual was the calm and steady rise from January through April, not the fall in May.

For the remainder of 2019, the evidence leans bullish. That's not a guarantee or a sure thing. But sentiment and breadth are close to a washout (they could be more so) and the usual set up is a seasonal low in June leading to a rally into July.

Could this time be different? Yes. For one, the US is engaged in a seemingly unending and escalating trade war with two major trading partners. No one knows how this will end and that uncertainty could well cause equities to plunge much further. All the market technicals, sentiment and fundamental data available cannot predict what happens next.

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US equities started May at new ATHs but ended the month more than 6% lower (table from alphatrends.net). Enlarge any chart by clicking on it.

Weekly Market Summary

Summary:  SPX, NDX and COMPQ are now all at new all-time highs (ATH). The Russell 3000 and Wilshire 5000, which represent essentially all of US equities, are also at their prior highs. The trend remains higher. Moreover, strong starts to the year and multi-month gains have a very high propensity to lead to further gains in the months ahead and by year end. There are precedents for the index to top now, but those are the exception.

Sentiment has become more bullish. This can certainly mark a top, but the historical record is inconsistent. It's a warning, not a red light.

In the most important respects, breadth is fine.

On balance, all of this leans bullish, but it would be a mistake to assume the indices will just sail higher in the remainder of the year. That can happen, but most often a drawdown much more than the barely 2% seen so far in 2019 will occur, even after a start like the current year.

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US equities continue to grind higher. SPX, NDX and COMPQ ended the week at new ATHs. They have risen in each of the first 4 months of the year. The leader is NDX, which has risen 18 of the last 19 weeks since Christmas Eve (table from alphatrends.net). Enlarge any chart by clicking on it.

Weekly Market Summary

Summary:  NDX is now at a new all-time high (ATH). Leadership by NDX is a positive for SPX: historically, the risk/reward over the coming weeks and months for SPX has been excellent.

On an equal-weigh basis, both SPX and NDX are also at new ATHs.  Any weakness in breadth is almost exclusively explained by the healthcare sector. The other sectors, aside from utilities, have all reached new YTD highs in the past week.

Volatility has been unusually low so far this year. By one measure, this is one of the least volatile starts to a year in the past 90 years. That's unlikely to last. The largest reaction so far this year has barely been more than 2%. Going back 40 years, no year has seen a lower drawdown and all but two (95%) have seen a drawdown of at least 5%. With SPX now within 1% of its prior ATH, a meatier reaction is odds on in the weeks and months ahead.

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US equities continues to grind higher. With about a week to go in April, SPX, NDX and DJIA are on pace to rise in each of the first 4 months of the year. The leader is NDX, which has risen 6 weeks in a row and 16 of the last 17 weeks since Christmas Eve (table from alphatrends.net). Enlarge any chart by clicking on it.

Weekly Market Summary

Summary:  SPX and NDX are now just 3-4% from their September all-time high (ATH). On an equal-weigh basis, NDX has already made a new ATH.

This has been one of the 10 best ever starts to a year; over the past 60 years, similar fast starts have consistently led to continued gains in the months ahead.  That doesn't mean stocks will not have an interim setback. But if past is prologue, SPX is likely to gain enough to make a new ATH in 2019.

Macro data weakened in the past half year. A conservative investor with a shorter time horizon wouldn't be wrong to reduce their equity holdings into strength. But the panic over weakening macro is likely to abate and, with fund managers' risk exposure falling to a 2-1/2 year low this month, sentiment supports a continued rise in equities.

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Since Christmas Eve, SPX is up 21%, NDX 24% and RUT 23%. Europe and emerging markets are each up 14% (table from alphatrends.net). Enlarge any chart by clicking on it.

Weekly Market Summary

Summary:  NDX, RUT and DJIA have all risen 9 weeks in a row. Long win streaks like these have a very strong propensity to continue higher over the next several months, although an interim period of consolidation and retracement is frequent. That SPX is now back at the top of its trading range from October to early December perhaps makes that outcome likely now as well. But years that start as strongly as 2019 have almost always (more than 90% of the time) added sizable gains the rest of the year.

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Since Christmas Eve, SPX is up 19%, NDX 20% and RUT 25%. NDX, RUT and DJIA have each risen the past 9 weeks in a row (table from alphatrends.net). Enlarge any chart by clicking on it.

Weekly Market Summary

Summary:  SPX has now gained 19% since Christmas Eve, while the Nasdaq is up 20% and RUT is up 23%. NDX, RUT and DJIA have all risen 8 weeks in a row.

SPX is now back to within 1% of the top of its trading range from October to early December. It would be very surprising if SPX did not encounter some resistance as it nears 2790-2810. That is made more likely by the fact that consecutive weeks of gains, while bullish longer term, have most often been followed by a period of consolidation and retracement.

The longer term outlook continues improve. Equal weighted indices, which remove the influence of a few, large companies, are outperforming their traditional market capitalization weighted peers. The Nasdaq index, normalized to reduce the influence of FAANG, is just 1.5% from a new all time high (ATH). If those big companies kick into gear, the traditional indices will likewise move back to their ATHs.

The primary characteristic of this rally has been broad participation. This week, the cumulative advance/decline line for the very broad NYSE made a new ATH . This did not happen during any bear market rally over the past 40 years.

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Since Christmas Eve, SPX is up 19%, NDX 20% and RUT 23%. NDX, RUT and DJIA have each risen the past 8 weeks in a row (table from alphatrends.net). Enlarge any chart by clicking on it.

Weekly Market Summary

Summary:  SPX has now gained 16% since Christmas Eve, while the Nasdaq is up 19%. NDX, RUT and DJIA have all risen 7 weeks in a row. Large, uncorrected gains like these are typically near the outer limit before a period of consolidation/retracement. That period may have started this week.

The persistence of trend like this is typically followed by higher highs ahead. Breadth reached another milestone this week, a condition which in the past 20 years has not occurred during a bear market and has not occurred until after the correction low was already in. This adds further evidence that Christmas probably marked the low for the recent swoon.

The pullback this week started from a backtest of the 200-day MA, the  4th attempt to regain the 200-d since early October. Importantly, the slope of the 200-d is flat, a condition which is unlike those during bear markets; this is typically when SPX is best able to break higher.

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From Christmas Eve to its high this week, SPX gained more than 16% while NDX is up 19%. They have since given back about 2%. NDX, RUT and DJIA have each risen the past 7 weeks in a row. Enlarge any chart by clicking on it.

Weekly Market Summary

Summary:  SPX has now gained 13% since Christmas Eve, while the Nasdaq is up 16%. After the recent plunge, it would be normal for the indices to give up most of their gains and retest the lows again. That's been a consistent pattern over the past 40 years. But when a plunge is followed by exceptional breadth like we have witnessed in the past month, a low retest has been unlikely.

Rapid plunges when the economy is still expanding - like now - are typically followed by strong forward returns. Moreover, it is encouraging that emerging markets, which have been the hardest hit by the threat of a trade war, reached a 4 month high this week. Those markets originally bottomed in October and retested those lows in December (a possible basing pattern).

It's certainly possible that some of the rapid gains since Christmas will be given back before SPX moves materially higher. A period of consolidation and retrenchment in the weeks ahead would not be surprising. The trade war isn't the only thing driving the market, but it has clearly been important and further deescalation will likely drive SPX to the top of its October-December range, just as reescalation could plunge it back towards its Christmas low.

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The bounce that started on Christmas Eve took a small pause this week. Still, SPX has gained 13% since the low while the Nasdaq is up 16%. According the Ryan Detrick, this is the market's best January in at least 30 years (table from alphatrends.net).  Enlarge any chart by clicking on it.

Weekly Market Summary

Summary:  Since the 20% fall in equities into Christmas Eve, equities have rallied 3 weeks in a row, gaining over 10%. So is the correction over?

Sharp falls of at least 15% have a strong tendency to have their original low retested in the weeks/months ahead. That is true even, as now, a sharp 10% bounce occurs. But what is notable this time is the persistence of the gains each week, and the exceptional breadth (participation) that has driven the indices higher.

This is important because, in the past 70 years, this has never taken place within the context of a bear market. In fact, breadth momentum like this is often associated with the start of new bull markets. Net: the Christmas low may still get retested, but it seems likely to hold and new highs are probably ahead. Nothing in the stock market is ever guaranteed, but this has been the consistent, historical pattern.

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The bounce that started on Christmas Eve continued this week. SPX gained for a third week in a row, adding 2.6%. NDX was up 3% and small caps were up nearly 5%. Volatility fell 10% (table from alphatrends.net).  Enlarge any chart by clicking on it.

Weekly Market Summary

Summary:  Equities fell 20% from their September high into Christmas Eve. Since then, they have rallied almost 8%. While this is encouraging, there were two similar rallies, at the start of November and December, that both fizzled out. What is different this time?

For one, there have been two massive accumulation days in the past week. Second, outflows from risk-seeking equity and credit funds and into safe assets has become the most extreme, by far, in the past 10 years. Third, the volatility index spike on Christmas Eve matches those near the lows in SPX following every major sell off since 2010. Fourth, the valuation de-rating is now the largest outside of a recession since 1994.

Nonetheless, when SPX drops 15-20% or more, it has a strong tendency to retest those lows in the weeks/months ahead.

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2018 ended with a thump. NDX lost 1%, SPX lost 6%, small caps lost 12% and financials (the consensus favorite a year ago) lost 15%.  Treasury bonds also dropped for the year, as did commodities. The only winner in 2018 was volatility (table from alphatrends.net).  Enlarge any chart by clicking on it.

Weekly Market Summary

Summary:  Emerging markets are in a bear market. Europe and the Nasdaq are getting close. After falling 10% in October, SPX has been unable to sustain a rally. Even bearish sentiment, washed out breadth and the prospect of Santa Claus can't seem to rally stocks.

In real time, corrections always feel like they are the end of the bull market: the price pattern is bearish and the news emphasizes stories about a likely recession, poor forward earnings and geopolitical risks. Yet corrections usually happen every 18 months, and the current one has so far not been especially long or deep.

That is not to suggest that investors be complacent or dismissive of mounting risk. SPX had formed a topping pattern in August, and events since then have only strengthened this pattern. But there is little evidence of the underlying stress that is normally associated with big problems. For all the recent volatility, it is worth noting that the low in SPX was in October, 6 weeks ago. Everything since then has been a hot mess.

This is not a market trying to efficiently discount next year's growth; it's a market mostly driven by fear and emotion.

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The correction from the September all-time high (ATH) is now in its 11th week. Aside from the NDX, all the US indices are now negative for the year. So are treasuries (TLT). What's worked well so far in 2018? Volatility, which is up more than 40% (table from alphatrends.net).  Enlarge any chart by clicking on it.

Weekly Market Summary

Summary:  US equities rallied more than 6% from the October 29 closing low, but have since fallen back 3%. This is likely part of the "low retest" that accompanies most market corrections; "V-bounces" are not the norm.

The trend is bearish, but it is at odds with the solid economic environment. That conflict almost always ultimately resolves in favor of the bulls. By some measures, investor sentiment is among the most bearish since March 2009; even in a bear market, equities will experience a strong rally before rolling over. Seasonality is a substantial tailwind through year-end. Risk-reward over that period is again skewed higher.

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After falling 10% during October, US equities have rallied the past two weeks, with SPX gaining more than 2% each week. NDX fell 3% today but it is up the most - about 7% - so far in 2018 (table from alphatrends.net).  Enlarge any chart by clicking on it.

Weekly Market Summary

Summary:  US equities are down 10% from their all-time highs just 5 weeks ago. The trend in equities has turned bearish, and that is not something that should be taken lightly. The evidence pointing to a major top being formed has further increased. But the set up for higher prices, at least before a significantly lower low, appears to be very strong. This is not a certainty, but it is a high probability.

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After falling 4% two weeks ago, and then closing a bit higher last week, US equities this week again fell 4%. They are down about 10% for the month of October. The nearly 10% gain in 2018 at the end of September for SPX is now all gone. Small caps have been hit the hardest and are now down 3% for the year (table from alphatrends.net).  Enlarge any chart by clicking on it.

Weekly Market Summary

Summary:  Equities fell 4-5% last week and have given up most of their 2018 gains so far in October. This might feel like the start of a bear market, but that is the least likely outcome.

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US equities fell 4-5% last week. The nearly 10% gain in 2018 at the end of September for SPX has been reduced to just 3%. Small caps have been hit the hardest and are now barely above their level at the start of the year (table from alphatrends.net).  Enlarge any chart by clicking on it.

Weekly Market Summary

Summary:  Mid-way through September, US equities are flat to lower for the month. The longer term trend is positive but the near-term outlook is unfavorable. It seems unlikely that any equity weakness will be substantial or long lived, but investors should remain on alert to heightened risk over the next several weeks. We believe that will be a good set up for gains into year end.

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Mid-way through September, US equities are flat to lower for the month (table from alphatrends.net).  Enlarge any chart by clicking on it.

Weekly Market Summary

Summary:  SPX, NDX, small caps as well as broad measures like the Russell 3000 - which equals 98% of total US market capitalization - made new all-time highs (ATHs) last week. Even when indices are adjusted for the dominant FAAMNG companies, the remaining 99% of stocks also at new ATHs. The trend is clearly higher, and several new momentum studies suggest that equities are likely to gain more before year-end.

If there is a reason for caution, the risk is mostly short-term (within the next month) and probably not very significant, as explained in this post.

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US equities rose for a 5th month in a row in August, gaining 4-6%. Through the first 8 months of the year, SPX is up 9% while the Nasdaq-100 is up 20% (table from alphatrends.net).  Enlarge any chart by clicking on it.

Weekly Market Summary

Summary:  US equities have returned to, and in some cases exceeded, their January all-time highs. The trend is clearly higher and several new momentum studies suggest that equities are likely to gain more into year-end.  Recent macro and corporate results data also support the ongoing equity bull market. Despite the gains over the past 5 months, investor sentiment is not frothy.

What's new is that US equities now have a topping pattern in place: the momentum high in January has been followed a price high in August. This is how every major top in the past 40 years has started. On it's own, this doesn't suggest a major top is near. But in January, not even a topping pattern was visible in US stocks. That's no longer true.

Trade war rhetoric continues to provide sharp, interim market volatility. This week, the US and China resume trade talks for the first time in two months.

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Halfway through August, US equities are on pace for a monthly gain of 2-4% (table from alphatrends.net).  Enlarge any chart by clicking on it.

Weekly Market Summary

Summary:  US equities have gained every month since April, and are up over 3% so far in July. Our long term view remains that SPX will make a new all-time high in the months ahead. That is now just 2.5% away.

The short term is less clear. SPX has gained 3 weeks in a row; most often, these streaks are followed by a higher high without too much interim give back. Sentiment and volatility data mostly supports further gains.

But, while July is typically a strong month, that strength has often been realized by the end of last week. The rest of the month is usually flat, at best, and seasonality is typically a headwind in August and September. Right now, that tendency is further supported by weakening breadth momentum.

Earning data pushes to the forefront this week: 35% of the companies in the S&P will report their 2Q earnings in the next 5 days. The advanced estimate of 2Q GDP will be released Friday.

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US equities rose for a third week in a row this week, although the gains were minor (from alphatrends.net)  Enlarge any chart by clicking on it.

Weekly Market Summary

Summary:  US equities are up three months in a row and positive for the year. Historically, equities have a very strong propensity to end the year higher under these circumstances. That remains our long term view.

Shorter-term, the S&P remains in a 5 month consolidation/trading range. These periods can last 6-12 months. July is a seasonal tailwind, and several sentiment indicators suggest a bias higher (to the top of the range) is warranted. On strength this month, beware; it is followed by the two worst months of the year.

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US equities rose for a third month in a row in June. SPX and small caps gained 0.5% and NDX gained 1.1%. The laggard in the US is the Dow, which lost 0.5% in June.

The picture is not much different on YTD basis. At the year's mid-point, SPX is up 2.5%, NDX is up 10% and small caps are up 7%. The Dow is down almost 2%. Part of these results are explained by the upward bias in the dollar, which favors domestic-focused small caps relative to internationally-weighted large caps.  Enlarge any chart by clicking on it.