September Monthly Market Review

The S&P 500 finished the third quarter by registering yet another new high Friday to mark its 50th occurrence this year as the bull market continues in US stocks. The main US index appreciated by more than 4% over the past three month - its 8th straight quarter of gains. Recently, moves have been tiny fluctuating just 0.3% daily. As such, the CBOE Volatility Index (VIX) is again below 10. The Dow Industrials ($DJI) captured a 5.2% improvement during the same time-span. The NASDAQ grew 5.7% even with Apple’s (AAPL) recent struggles to see its fifth straight quarterly improvement.

Globally, the STOXX Europe 600 captured a more modest 2.3% gain over the last quarter with better numbers coming out of Europe. The Japanese Nikkei had its best month of the year with a 3.6% surge in September. Australia has not fared nearly as well after falling for a fifth straight month with the weakness in commodities (especially iron-ore). Emerging markets were also weaker recently.

Gold Futures recorded a disappointing 2.8% loss for the month of September, which is the largest single month drop in nearly two years after the U.S. dollar finally appreciated as the long awaited US tax reform pressuring the 10 year Treasuries back above 2.3%. Crude oil witnessed a 12% improvement over the third quarter with most of those gains coming in September alone as all 4 weeks of the month were positive and pushed Oil Futures back up above $50 a barrel.

The S&P 500 was strong in the second and fourth weeks of the month. It is extended nicely above its 50 day moving average while moving bullishly higher.

September's greatest moves came from the Energy and Financial Sectors, followed closely by the Materials. Utilities and Consumer Staples fell. This sector breakdown is bullish for the market going forward.

The US medium and small companies did extremely well during the second and fourth weeks of the month, also. They have been leading the market higher which is bullish for US equities. After recent weakness in August, the 50 day moving averages are now curling higher as they maintain higher than the 200 day moving averages.

Non-US developed market traded choppy but higher during September. 

Emerging markets did not perform as well in September. They sold off during the third and fourth weeks, and spent two days below the 50 day moving average before bouncing back on the last day of the month. This makes emerging markets only tentatively bullish for October. 

Real Estate was choppy until it broke down in the third week of the month also. It now trades below its 50 day moving after bouncing off the low prices of August. While this is not outright bearish, Real Estate looks like it may see some sideways action in October. 

As noted in the S&P 500 sector graph above, commodity producers (energy and building materials companies) outperformed in September. Most of the gains were made in the first two weeks of the month as a continuation from the end of August. 

Commodity prices did not support the move seen in the graph above. USCI could test its 50 day moving average in October. 

US government bonds pulled back in the last three weeks of the month. After an initial test of the 50 day moving average, AGG has now traded three days below it. This could be a set up for a stronger bearish move in bonds, which would support the continuation of a bullish move in equities. 

Inflation indexed bonds also suffered in last three weeks and are now trading below support after a failed bounce off the 50 day moving average.

Non -US bonds look weak. BNDX has made a break of its 50 day moving average and now traded three consecutive days below that level. All the bonds have upward sloping 50 day moving average that are above their 200 day moving averages, so bearishness is not overwhelming at this point.

Much of the bond's bearishness can be explained by USD bullishness, as witnessed in UUP's action in the last two weeks of the month. UUP has now traded above its downward sloping 50 day moving average for 4 days. The strength of USD bearishness is weakening.

February Monthly Market Review

February was extremely bullish for the US equity markets, Real Estate, and even bonds. Commodities and Natural Resource companies were weak. Some new bullish trends are developing in bonds.

The S&P 500 really was strong during the middle of the month. It saw a bit of consolidation towards month end.

The US mid-caps showed more of a pullback at month's end, but still had pronounced gains for February. 

The US small-caps had a false start to the month. As with the larger cap stocks in the US, mid month was bullish. About half of the month's gains were given back in the last five trading days of February, however. 

The non-US markets also did well, similar to the smaller caps in the US, after a flat start and some decent gains, the last three days sold off. 

Emerging Markets saw strength up until the last three days of the month also. 

Real Estate had a big bullish move in February. RWO broke above its 200-day moving average and is dragging its 50-day moving average up behind it. This looks like a new bullish trend is developing. 

Natural Resource companies led the sell off at the end of the month. The HAP ETF below is sitting right on its 50-day moving average. It must hold this to remain a bullish momentum. 

Commodities are still in a downtrend, with USCIs staying below its 50-day moving average after a mid-month test of that level. 

Bonds are starting a new bullish trend, it appears. The world bond ETF - AGG - has tested its 50-day moving average twice now, and both times has bounced very bullishly. The 50-day moving average is rounding up.

Non-US bonds also performed well in February. The strength came in the latter part of the month. BNDX broke above its 50-day moving average which is also now moving higher.

US inflation indexed bonds may also be starting an uptrend. The TIP ETF has traded above its 200-day moving average. The 50-day moving average is trending higher and could cross above the 200-day average. This would signify a new bullish trend. 

The USD is struggling to trade higher. UUP has witnessed resistance to any further gains above its now flattening 50-day moving average.

January Monthly Market Review

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.

December Monthly Market Review

This December the US markets did exactly the opposite of a usual December. Usually the first day of December is bullish. It was negative this year. Then usually the next two weeks show only moderate gains. This year the first week was extremely strong. The third week is options expiration week, and that is usually one of the strongest weeks of the year. This year it was relatively flat. Finally, the last few days of trading are usually extremely bullish in a period known as the 'Santa Claus Rally'. This year the markets suffered the month's worst losses on those days. This is not a good sign for January!



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.