Weekly Market Summary

Summary:  US equities are up two months in a row and positive for the year. They are outperforming the rest of the world, despite ongoing Quantitative Tightening here and QE abroad. In the past few days, the Nasdaq has joined the small cap indices at new all-time highs. With expanding breadth momentum and a solid macro backdrop, the outlook for (still rangebound) large caps is positive.

The upcoming weeks could test investors' resolve. Options expiration, an FOMC rate decision, the DPRK Summit and weak mid-June seasonality are all on deck for next week. The early June gap ups in SPX are very likely to fill.

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US equities rose for a second month in a row in May. SPX gained 2.5%, NDX gained 5.7% and small caps gained 6.1%.

Increased volatility has given 2018 has the feel of disappointment, but YTD, SPX is up 2.5% and NDX is up over 11%. Enlarge any chart by clicking on it.

Weekly Market Summary

Summary:  Equities are 2-5% higher so far in May, trying to add to their small gains from April and put behind a rough winter. This week, small caps closed at a new all-time high (ATH) and NDX broke to a 7 week high near its March ATH. This is constructive for the broader market. But new uptrends are defined by persistent strength; it's time for large caps to reveal the true character of this market.

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US equities fell slightly last week. SPX and DJIA lost about 0.5%. But May, so far, is tracking positive. Large caps are up 2.5%, tech stocks are up 4% and small caps are up more than 5%. The volatility index, Vix, has been crushed. Enlarge any chart by clicking on it.

Weekly Market Summary

Summary:  US equities have been in a consolidation phase for most of 2018.  In the past, these consolidation periods have lasted a half year or longer - so this might continue into summer - although some measures of sentiment are already near a washout.  New highs are very likely to still lie ahead in 2018.

US corporates continue to do well. In 1Q18, they are likely to post sales growth of 9% and a new high in margins. Those profits are being reinvested for future growth.

Investors are worried about rising interest rates. They shouldn't be. Especially from current (low) levels, rising rates have coincided with rising equity prices. That has been the case as far back as the 1940s. The FOMC is very likely to raise rates again in June; since 1980, equities have peaked after the final rate hike.

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After rising two weeks in a row, US equities fell gain this week. April ends on Monday and barring a massive drop, the month will close higher for the first time since January (from Alphatrends.net). Enlarge any chart by clicking on it.

Weekly Market Summary

Summary:  Trade war rhetoric is driving US equities. This week, for the third time in the past month, the start of a sustained rally was clobbered by administration threats. Conversely, every interim recovery has come on the heels of conciliatory language. Long story short, what happens next in the equity market is very much a function of which trade posture the administration adopts next. Longer term, it's unlikely much of the current rhetoric will make into actual policy as it suits no one's economic interests.

Volatility has shot up in the past two months. Remarkably, investors now view volatility as the "new safe haven" and a "dependable bet." To that end, speculators are now positioned net long Vix futures to a near record extent; in the past decade, that has reliably coincided with at least a near term top in volatility.

This past week, SPX closed below it's 200-dma for the first time in over 400 days. The end of prior long streaks have not coincided with the start of bear market since 1962. Returns after the end of these long streaks have been exceptionally strong.

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US equities gained three days in a row last week for the first time in a month but a massive gap down on Friday and further follow through selling turned the markets negative for the week and (mostly) for the year (from Alphatrends). Enlarge any chart by clicking on it.

Weekly Market Summary

Summary:  The Nasdaq closed at a new all-time high (ATH) on Friday. It has risen 6 days in a row. A number of studies suggest that it should continue to rise further, and that SPX should follow it, probably also to a new ATH. That is the near term set up as equities enter March options expiration week.

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Last Friday's 2% intraday turnaround continued this past week. US equities gained 4% (from Alphatrends). Enlarge any chart by clicking on it.

Weekly Market Summary

Summary:  The long term trend in US equities remains firmly higher. Expectations should be for equities to rise in the months ahead. The near term directional edge is more muted. Worldwide, equities are in the process of retesting their February lows. The US is being held up mostly by technology and financial stocks. Whether the US follows the rest of the world lower is largely dependent on politics: specifically, whether trade war rhetoric evolves from saber rattling to reality. March and the upcoming OpX week are a strong seasonal tailwind.

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After falling 12% from their January high, and then bouncing 10% from their February low, equities fell 5% during the past week. A 2% turnaround on Friday eased some of the losses, with SPX closing down 2% for the week (from Alphatrends). Enlarge any chart by clicking on it.

Weekly Market Summary

Summary:  After falling into their first correction in two years, US equities regained half of their loses in just 6 days. The rebound has been strong enough and persistent enough to suggest that it has further to run. Sentiment and volatility backwardation support that view. However, a low retest over the coming weeks is still a viable risk.

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In just one week, US indices regained about half of their losses during the prior two weeks. SPX gained more than 4% and NDX more than 5% (from Alphatrends). Enlarge any chart by clicking on it.

Weekly Market Summary

Summary:  After gaining more than 7% by late January, US stocks have fallen into a 10% correction. It's the quickest decline of that magnitude from an all-time high in 90 years. While a fall in stocks was not a surprise, the speed and severity certainly were.

So what happens next? Prior falls like this have led to quick recoveries. That likelihood is further supported by a washout in breadth, volatility and several measures of sentiment. Moreover, the fundamental backdrop remains excellent. Risk/reward is heavily biased towards upside in the near term.

That said, strong down momentum normally reverberates into the weeks ahead. Equities sometimes "V bounce" but more often form a double bottom. A low retest in the not too distant future remains a greater than 50% probability. The longer term outlook for US equities is unchanged and favorable.

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Two weeks ago, all of the US indices made new all time highs (ATHs). SPX and DJIA were up 7% and NDX was up 10% YTD. VXX, the ETF based on the VIX, was down for the year (the next two charts from Alphatrends). Enlarge any chart by clicking on it.

Weekly Market Summary

Summary:  US equities have already gained more in the first few weeks of January than they do in many full years. The recent trend is being termed unprecedented, but these types of gains have happened before. The current trend is also being called unsustainable, but in most prior cases, equities have continued higher. The equity market is undeniably hot, and that can often lead to a period of retracement and decline, but trends weaken before they reverse, and this one has not shown any sign of weakness. The longer term outlook remains favorable.

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All of the US indices made new all time highs (ATHs) again this week.  This includes the very broad NYSE (composed of 2800 stocks) as well as the small cap index, RUT. The dominant trend remains higher.

US markets have started the year like a rocket. SPX and DJIA are up 7.5% and NDX is up 9.7% YTD (from Alphatrends). Enlarge any chart by clicking on it.

Weekly Market Summary

Summary:  All of the US indices made new all-time highs this week. Equities outside the US are performing even better. The dominant trend remains higher, underpinned by strong economic data, earnings that are being revised higher and equity breadth that is expanding.

After just two weeks, the SPX is already within 2% of Wall Street's year-end target. By at least one measure, momentum is at a more than 20 year high: in prior instances, short-term risk/reward has been poor but longer term returns positive. Sentiment, which is exceedingly bullish, has also most often led to positive returns 3-6 months later. Net, the longer-term outlook for equities remains favorable.

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All of the US indices made new all time highs (ATHs) this week.  This includes the very broad NYSE as well as the small cap index, RUT. For Dow Theorists, both the industrial sector and the transport sector made new ATHs this week. The dominant trend remains higher.

US markets are off to a fast start in 2018. SPX and DJIA are up 4% and NDX is up 5.5% (from Alphatrends). Enlarge any chart by clicking on it.

What To Expect From Equities In 2018

Summary:  US stocks will likely rise in 2018. By how much is anybody's guess: the standard deviation of annual returns is too wide to get even close to a correct estimate on a consistent basis. Earnings growth implies 6% price appreciation, but tax cuts could boost that to 13%.  Investor psychology could push returns much higher (or lower).

While it's true that investors are already bullish and valuations are already high, neither of these implies a likelihood of negative returns in 2018. That the stock market rose strongly this year also has no adverse impact on next year's probable return.

A bear market is always possible, but is also unlikely. That said, the S&P typically experiences a drawdown every year of about 10%; even a 14% fall would be within the normal, annual range.  It will feel like the end of the bull market when it happens.

The Fed will likely continue to raise rates next year, which normally leads to higher stock prices. While political risks seem high, the stock market usually ignores these. The "Year 2" presidential cycle provides no investment edge.

This article highlights 11 key ideas to explain what to expect in 2018.

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Heading into the end of the year, investment pundits are beginning to share their expectations for how stocks will fare next year. All ten strategists polled by Barron's expect the S&P to rise in 2018, by a mean/median of 6-7% (full article is here; the next three charts from Barron's). Enlarge any image by clicking on it.

Weekly Market Summary

Summary:  SPX, NYSE and DJIA made new all-time highs this week. This augurs well for the months ahead.

The leader, NDX, has fallen into a trading zone; a return to this week's low likely triggers a small correction to price levels from late October.  SPX would follow.

The big event this week is the FOMC meeting on Wednesday, during which a decision to raise the Fed Fund Rate is expected. This would be just the 4th rate increase this economic cycle. Each of the previous events was followed by a pullback in SPX and also a multi-week period where the index did not hold any gains.

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SPX, NYSE and DJIA made new all time highs (ATHs) this week.  All made an inter-day ATH on Monday and closed at an ATH on Friday. For Dow Theorists, both the industrial sector and the transport sector also made new ATHs this week. The dominant trend remains higher.

SPX remains above all its moving averages, all of which are rising. This is the definition of an uptrend. It would take a break of 2620 (blue line) to trigger a head and shoulders pattern whose measured move targets the trading zone created over 6 weeks in October-November (yellow shading). Enlarge any chart by clicking on it.

Weekly Market Summary

Summary:  All of the US equity indices made new all-time highs this week, for the first time since mid-October.  SPX and DJIA have risen 8 months in a row. By some measures, investor sentiment is more bullish now than at any other time in more than a year, driven, apparently, by enthusiasm for tax reform legislation. The current uptrend is extended, and may be getting ready to take a short break, but further gains are likely during the first several months of 2018.

This is the set up as markets enter December, typically the strongest month of the year for equities. As bullish as December tends to be, an intra-month drawdown of 2% has been common, even in recent years.

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For the first time in a month, all US indices - SPX, NYSE, DJIA, COMPQ, NDX and RUT - made new all time highs (ATHs) this week.  The dominant trend remains higher. Enlarge any image by clicking on it.

Weekly Market Summary

Summary:  US equities continue to make new all-time highs (ATHs) and the outlook into year-end is favorable. This week's interim fall of nearly 1% followed by a strong rise into the close demonstrates the market's continued resiliency. It might also indicate waning upward momentum. There remain a number of reasons to suspect that more weakness is ahead, although this is likely to be only temporary.

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SPX, COMPQ, NDX and DJIA all made new ATHs again this week (on Wednesday).  The dominant trend remains higher. Enlarge any image by clicking on it.

Weekly Market Summary

Summary:  The major US indices closed at new all-time highs (ATH) again this week, led by the surging technology-heavy Nasdaq. SPX is now higher 7 months in a row; that level of momentum has not marked a bull market high.

Several short-term studies - using trend, sentiment, volatility and breadth - suggest a lower close than today may be ahead in the next few weeks. Any weakness is likely to be temporary.

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SPX, COMPQ, NDX and DJIA all closed at new all-time highs (ATH) again on Friday.  The dominant trend remains higher. Enlarge any image by clicking on it.

Weekly Market Summary

Summary:  The major US indices traded at new all-time highs (ATH) again this week, led by surging small cap stocks. SPX is now higher 6 months in a row and 10 of the past 11 months; that level of momentum has never marked a bull market high.

Short-term optimism has reached an extreme that has resulted in a lower weekly close within the next 6 weeks every time over the past 5 years.

The fundamental narrative for the current rally is that the Trump administration's tax plan will boost earnings by an estimated 6%. If investors expect the tax plan to also cause economic growth to accelerate, then they are very likely to be disappointed.

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SPX, COMPQ, RUT and NYSE made new all-time highs (ATH) again this week.  SPX has been up 5 of the last 6 weeks. The dominant trend remains higher. Enlarge any image by clicking on it.

Weekly Market Summary

Summary:  The major US indices all traded at new all-time highs (ATH) this week. Even the lagging small caps index closed at a new ATH on Friday, and transports are very near a new ATH. Persistent strength like that seen throughout 2017 has almost always continued into year-end. However, like last week, a few studies suggest short-term upside will likely be limited. The third quarter ends on Friday.

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US equities are now in the second longest and second strongest bull market of the post-war era. Enlarge any image by clicking on it.

Weekly Market Summary

Summary:  The major US indices all recorded new all-time highs (ATH) this week. The very broad NYSE, covering 2800 stocks, also made a new ATH, suggesting the rally is supported by adequate breadth. Longer-term studies and the fundamental macro data continue to indicate that further upside into year-end is odds-on. Remarkably, a new survey shows that fund managers are the most underweight US equities in 10 years, despite the SPX rising 9 of the last 10 months by an impressive 17%.

On a short-term basis, there are several reasons to be on alert for weakness over the next week or two.    An important FOMC meeting is on deck for Wednesday.

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US equities remain in a long term uptrend. SPX, DJIA, NYSE, COMPQ and NDX all made new all-time highs (ATH) this week.

Long-term uptrends typically weaken before they reverse strongly. Note the bottom panel: the 20-wma will flatten in advance of a significant correction to price (yellow shading). This process has not started yet. That doesn't mean that an intermediate-term fall of 5-8% is unlikely; in fact, a correction by that amount is common in most years. But any such fall is likely to followed by a rebound to the prior highs before a more siginificant correction ensues.

Weekly Market Summary

Summary:  US equities reached a new one-month low late last week before rebounding on Friday. In particular, NDX found support right on its mid-May low. This is now an important line in the sand, with implications for SPY as well; so long as the Thursday low holds, look for higher prices.

Despite general weakness in equites over the past several weeks, there have been no notable extremes in breadth, the volatility term structure or put/call ratios that often mark durable lows. On balance, this suggests any short-term gains are unlikely to be sustained longer-term. Moreover, in the past 2 weeks, equities have posted strong gains overnight that have been entirely given up during cash hours, a pattern that has the whiff of distribution.

Earnings reports for 2Q begin this week.

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US equities remain in a long term uptrend. The 20-weekly ma (blue line) is often an approximate level of support during uptrends. Enlarge any image by clicking on it.

Weekly Market Summary

Summary:  SPX has gained every month in the first half of the year, and it is up 8 months in a row for just the fifth time in 26 years. Long streaks like these have consistently led to further gains in the following months. Likewise, strong gains to start the year - SPX gained 8% in the first half and NDX gained 16% - have most often led to further gains in the second half of the year. The bullish trend in equities is supported by continued advances in the macro economic data.

The crack that opened in NDX two weeks ago has widened further. The index has now fallen 5% and has broken below its 50-dma. The consistent historical pattern is for SPX to follow, lower. That hypothesis is further supported by bullish sentiment - at a 3-1/2 year high by at least one measure - and the exceedingly tight trading range in SPX over the past month which most often precedes an expansion in volatility.

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For the week, large cap stocks lost 0.5% while the Nasdaq-100 (NDX) lost nearly 3%. The volatility index, VIX, gained 11%.

Equities have finished a very strong first half of the year. US large caps gained +8% while NDX gained twice that (+16%). Both of these outperformed the consensus long, Europe (+5%). But the best performing region to start the year was emerging markets, which gained an astounding +18%. Enlarge any chart by clicking on it.