The Wall of Worry - Monthly Market Update 8-30-19
There is so much to discuss today with our "Wall of Worry”! We will go through the big charts, talk about the treasuries with my current signals. What keeps me up at night, what's on my radar, and our game plan as we head into the fall.
First up, S&P Daily chart, what do we see here, has anything changed? Let's focus on August for a second. Here we continue to hold a 200-day moving average, although we are below the 50-day moving average currently. Another thing to take a look at is, you have a box that is formed very similar on the up and down movement. I’m Not saying it's going there, but we definitely will continue to watch this, as we remain stuck in the box.
Now we are range bound, down, up, down, up. Every move, 3 1/2 - 4%. What lurks below? Well, the big thing is when you see these down days, look at all of the volume produced on that particular down day. Big volume, Down day, big volume when the market goes up. that's a sign that I've been continuing to look at. We're still at 18, almost 19 on the VIX.
Here is something else that is concerning from last month, we have ROC, rate of change I like to use 1% as a factor. In the month of August, we had 11 up and down days of 1%. That shows a ton of volatility. Looking at where we are now, futures are down. That's probably the next move, the Short-term signal continues to be negative.
Now Let's take a look at our weekly chart, this is going to give us our mid-term signal which hasn't changed. We will still continue to be below that wedge. Momentum has crossed over to negative. The midterm continues to be negative, and our long-term view is neutral.
The big question is, are we going to see a change by the end of the month? We have continued to stay flat. That's the only reason I am neutral right now. If you look down a little farther, this is called PMO, price momentum oscillator. That is showing negative, so now we have conflicting signals. With all of that, I still think there are a couple of things that are going to make me stay neutral at this point. Right here you see that dotted line that is your 12-month moving average, currently we're ahead of it. We went below it back in December, but we still have this negative divergence. This is where Relative Strength is sloping down Now you can see it going lower, which is relative strength. With all of that being said, we are neutral.
Now let's take a look at some things that are important behind the scenes. The companies that are above or below your 50-day moving average.
I have mentioned the sectors several times in many of our videos. We've been in what I call late cycle sectors. Interest rate sensitive sectors that have performed pretty well.
Friday on CNBC, Josh Brown, who I am not a huge fan of, Made the comment that you could just do an index and a bond index and walk away. I don't agree with that at all. If you look at this chart, you have all sectors listed from our highs on July the 26, this was our peak. Now you can see over on this side is your S& P and large value, down 3.95 and 4.8. Sure Josh, now that is what you would have done? Time to think outside of the box!
Why don’t we go a little bit deeper here, Take a look at gold, it's up 7%! These are the index... the actual ETF's were even higher. Utilities were up, reits were up. In August I sold communication services. Consumer staples flat, home construction is up big this month. So why do you look to do more diversification and sector specific, especially in these types of environments? To bring Alpha. Alpha is what gives return, right?
While the market from high to lows was down about 5%, we have fared pretty well here over the last month. To recap, we have talked about something different from Wall Street and big TV. This is what we offer to our clients, not that buy and hold mantra you hear all the time, be a little bit different, dig a little bit deeper and do the research if you're looking for that type of service rather than go through it, let us help you with the process.
Now let's shift gears and talk about Bonds, this has been the big story here. As of this morning we are Inverting. Another thing to look at is the 10 year treasury minus your 3 month treasury which is negative .49%. Why is this important you ask? Because we now have had 3 months of a negative yield, if you look back at history it will tell you that each time this has happened, we have in fact gone into a recession.
In case you were wondering what keeps me up at night, here it is... everything that is happening out side of the US . China seems to be waiting it out, knowing the election is coming up, seems like they are sitting and waiting... China is definitely a problem for us.
As well as South Korea, their trends don't look any better.
Now let's take a look at Germany, The European sector still continues to drag, the question is, can all of these factors bring us into a recession? It is possible. With another hike on the US dollar, definitely not the best situation for goods outside of the US. With 40% of all goods coming from outside of the US that is not good for us in the long run.
Sometimes you have to look behind the scenes, and ask yourself, what does this mean to me as an investor? Let's look at Copper. That is a rough looking chart, it just continues to go down. Why is Copper important, because it is key to growth. Look at blue quote below.
Moving on to more things that keep me up at night, Interest Rates in the Developed World. If you look at this chart, it will show you how many negative interest rates we have right now. Yikes!
We can't forget about Powell! Good grief all you hear is POWELL! What an ugly fight that has become. I don't think anyone wants to see continue.
Oh yes, you guessed it... there is more that keeps me up at night continued .... Pending Home Sales. Even though we have had very low interest rates, we still are showing a down trend on sales, very interesting to see.
Looking at Consumer Sentiment, we had the biggest drop in one month in over five years! This is another behind the scenes fundamental fact that keeps me up at night.
This internal chart is something we like to do, this shows you everything we track behind the scenes. Look at earnings, not pretty.
Next up, what is on my radar?? We have spoken about health care in the past, here is another chart to support that.
It has been a very tough sector year to date, but we are finally seeing some light at the end of the tunnel.
Switching gears again, now on to Gold! This is something I like to talk about a lot. Why Gold you ask? You are either IN or you are OUT! Gold has shown a great place to be year to date.