January followed the rule book and acted pretty much in line with what historical trends had predicted. Importantly, the first five days of trading were bullish, as with the entire month for the US equity markets. This is generally a bullish sign for the year.
US large cap stocks, represented in the graph below of the S&P 500 ETF SPY, were flat after an initial push higher in the first days of the month. There was an attempt at a breakout to new highs, but the failed at month's end. The market witnessed a small gain for the month.
The mid-cap stocks were flatter throughout January. They also tried to breakout of the previous flat range they have been in since early December. This turned out to fail and now the charts have an ominous island reversal pattern highlighted with a blue circle below.
Small caps never broke above their resistance from early December. They also never really broke down, but instead traded in a flat pattern for most of the month. They were the weakest of the three US stock indexes and actually posted losses in the month of January.
Non-US stocks were actually much more bullish than Us stocks in January. They were in a good uptrend throughout the month, with a slight pullback to previous highs at the end of the month. The bounced sharply off their 50-day moving average as we discussed in last month's article. The new uptrend is underway!
Emerging Markets also broke above their 50-day moving average, which is now finally turned around and headed up. It never collided with the 200-day moving average and confirms a newly bullish trend. A pattern of higher highs, and higher lows as developed on VWO - thus defining an uptrend.
Real Estate (RWO) continued its breakout out above the 50-day moving average in the beginning of the month, but found stome resistance at the 200-day moving average. The short term moving average has started trending up. A move above the 200-day moving average would be auspicious.
Natural Resources firms remain in a bullish trend as HAP trades above both its 50 and 200-day upward sloping moving averages. Many analysts feel 2017 could be a great year for commodity companies. A pullback at the end of the month needs to release more power to make a new high.
Initially, commodities rebounded from their heavy losses in December. Importantly, the 50-day moving average on USCI is now firmly trending lower, and acted as strong resistance during the middle of the month. As we stated last month, commodity prices could go much lower here.
World bonds (AGG) rebounded in January, and actually broke and maintained trading above the 50-day moving average. That moving average is starting to slow its pace to the downside, and maybe forming a bottom. Interest rate talk has stalled in the US, with 3 new FED members acting much more dovish than their predecessors.
Inflation indexed bonds (TIP) are pressing hard at the bottom side of their 200-day moving average, and holding above their 50-day moving average, which has rounded up! If this this ETF can move above this resistance, bigger gains are in store.
In a big reversal from last month, International bonds (BNDX) suffered more than US bonds. As stocks weakened BNDX rallied above its downwardly sloping 50-day moving average, it was met with selling. International bonds are definitely in a strong downtrend.
The USD has now de-correlated with US equities, suffering the whole month of January. This could portend problems in the equity markets. The 50-day moving average is showing a reverse of the bullish uptrend is possible underway.
In summary, non-US stocks outperformed a rather flat US market in January. Natural Resource companies outperformed and Real Estate looks strong, while commodities, non-US bonds and the US dollar look weak. Non-US stocks have turned higher here, and look to be starting a new uptrend.
