The large capitalization stocks held up better than the medium and small cap stocks in December. The SPY was flat up until the last days of the month, whereas the MDY and IWM sold off and consolidated more heavily right after making their month highs in the first week.
Non-US stocks followed the US markets, with big gains in the first week. After that they sold off hard and tried to stay above their 50-day moving average, which is negatively sloping still. Non-US have to stay above this important level if they are going to start a new uptrend.
Emerging Markets cannot break above the 50-day moving average, which is now declining at a more significant rate. It could collide with the 200-day moving average as soon a late January. The 50-day moving average in acting as a level of resistance for emerging market ETF VWO.
Real Estate markets cleanly broke out above the 50-day moving average on decent home sales news from the US in the beginning of the month. Technically, RWO then retested the 50-day moving average twice now in a 'W' formation and looks to go higher. The short term moving average looks also to be rounding and could start trending up.
Natural Resources firms remain in a bullish trend (above both their 50 and 200 day upward sloping moving averages. Many analysts feel 2017 could be a great year for commodity companies. However, if this ETF creates a lower high and continues to fall, this could be a trend changing event.
Commodities themselves suffered heavy losses in December. Importantly, the 50-day moving average on USCI broke below the 200-day average last month, and is now firmly trending lower. Commodity prices could go much lower here.
For all the talk of increased rates and lower bond prices, the market did not follow through lower from their November move. Again, the 50-day moving average crossed below the 200-day moving average, showing the trend is lower for bonds, but a retest of the 50-day level seems imminent. That is another $1 to the upside.
Inflation indexed bonds suffered more than other bonds, but still recovered late in the month.
International bonds held up better than US bonds, as they remained flat as US stock markets rose in the first weeks of the Dec. As stocks weakened BNDX rallied above its downwardly sloping 50-day moving average. This may signal the end of that rally, unless equities continue to falter.
Dollar strength continued in early December, echoing the performance of US stocks. With the USD correlated so high to US equities, any de-correlation could mark an end to the stock rally.
In summary, US stocks, the US dollar and Real Estate look strong, while bonds and commodities look weak. Non-US stocks are at potential turning point here and need to move higher in January to stop there downtrend. The effect of the Trump presidency will also become clearer in January. With that, natural resource producers will be in focus for support from the new president needed to keep their rally going.
