Week four saw global equities marginally higher (+21bps), with strong gains from China (+1.98%), EM (1.56%) and Europe (+1.18). In Asia, South Korea and Thailand were both notable standouts (+3%), while the America’s lagged (SPX -26bps).
Technology was again a strong performer on the back of semi and hardware strength, while defensives and energy lagged.
The dollar was lower on the week (-56bps), with significant weakness against the pound and ruble. Rates were lower across the board, while China’s 10yr ticked up marginally.
Crude and copper were roughly flat on the week, while lumber rose 7.5%. Base metals were all higher along with coffee in the agg space (+7.5%).
Global equities are up roughly 6.6% YTD, nearly identical to 2018’s first 4 week move. We should note that the following two weeks were not so attractive, as equities fell 9%, and there is some evidence that we may get a pull back, or at least a pause.
From the low, the SPX is up roughly 13.3%, which puts it in its 99% percentile for returns over 30-70 days. Historically, this type of move has led to a short term pause or material pull back.
Markets are also trading into overhead resistance, which increases the probabilities of a move lower given the current downtrend. To be more constructive on further upside, we would need to see a breakout of the current downtrend and a retest of the channel for another leg higher; however, given the current move those probabilities are slim.
The recent move in breadth is also increasing the probabilities of a short term pause or pull back, as the % of stocks above the 20 days cross above 75% and has rolled lower, similar to the red lines marked below.
Nothing like price to change sentiment, as CNN’s Fear and Greed index rises above 75 from below 25. As you can see below the forward returns are not great. (Via SentimentTrader)
There are a few positive developments however, as the buyback bid should be coming back on this week.
But on the not so great side is the economic data, which continues to deteriorate. Over the past week, the US saw existing homes sales fall 10% YoY. Credit Suisse also noted this week that home buyer traffic fell by 14% through December.
We’re also seeing weakness in the Baltic dry index, which recently hit the lowest level since July 2017.