Weekly Cycle: Market Outlook for 07.23.2018

Weekly Cycle: Market Outlook for 07.23.2018

Each week, we review the stock market using a specific set of information sources in order to cut through the noise generated by media publishing attention grabbing headlines. Weekly updates give e the opportunity to play trends while not overreacting on a daily basis.

 

The key is not playing the game better, but figuring out the right game to be playing.

– Brett Steenbarger – Where Are Edges To Be Found In The Current Stock Market?

 

Market Performance

Performance of a handful of macro indexes, as well as index and ETFs on specific sectors of particular interest.

 Market Performance Update 07.23.2018

Observations:

  • HACK up nearly 30% over last year
  • VWO down over 6% vs 3 months ago
  • MJ down over 12% vs 1 year ago

 

Technical Indicators

Based on data and info from TradingView (Click for 30% off a pro subscription)

Scores based on the cumulative total of positive and negative technical indicators signals over three time horizons on Trading View. Scores are weighted by multiplying total as follows: daily (x 1) weekly (x 2), and monthly (x 3). 

Technical Indicator scores 07.23.2018

Observations:

  • VFH (Vanguard financials ETF) significantly improved technical indicator scores
  • SPY, VTI continue to hold very positive trading scores
  • MJ continues very negative trend
  • XHB continues with very positive score, similar to last week

 

OldProf’s Risk Analysis

Each week, at the Dash of Insight blog, OldProf takes a look at a variety of sources to gauge overall market risk on both a short and long-term basis. He tracks a handful of indexes, economic indicators from respected sources, and volatility indicators. His weekly updates include a discussion of events with potential to effect markets, as well as general insight. Highly recommended reading.

This week, OldProf writes in Weighing the Week Ahead: A Delicate (and Temporary) Balance

Short-term trading conditions continue at highly favorable levels. Actual volatility remains low. The VIX is once again higher than reality.

Bob sees the economy (still) in the expansion phase, although there are signs of moving to a “boom.” This is the period right before a peak, the technical definition of a recession. While many speculate about what inning this is, we cannot really know. We only know that the game is not over and is unlikely to end in the next year.

StockTrader Recap

Mark Hanna publishes a weekly Market Recap full of charts and insight on news and market trends at StockTrader.

This week, Mark writes in Weekly Market Recap Jul 15, 2018

Generally a calm week for the indexes as most of the action was in individual stocks due to earnings

Next week marks the busiest week of S&P 500 corporations reporting quarterly results, with some 174 set to release earnings.

 

Articles of note

— Rusty Guinn has written extensively on the Three Body Market, and here mentions again how it can lead to longer periods of underperformance and outperformance.

“be prepared for the periods of its underperformance and outperformance to be longer than they have been historically”

It Was You, Charley
Rusty Guinn Epsilon Theory

“But from the more important relative perspective (at least for our exercise), its most significant outperformance against growth tends to come in chunks when the direction of returns to value and growth are changing most dramatically, rather than in more ordinary periods.

— Following up on a recent post on Alibaba, Jae Jun gives more insight as to what makes Chinese tech giant a “no-brainer”

“At the peak in 2016, Alibaba was converting $0.50 of every dollar into FCF.

Last year, it was 43%”

Why Alibaba Is A No-Brainer
Jae Jun The Value Investing Blog of Old School Value

“JD is currently taking the path of Amazon of reinvesting as much as they can. Alibaba on the other hand, has already created an internal bank and can afford to make mistakes without harming their business.
Sure JD has the bling and sexiness next to its name, but I find Alibaba to be a safer bet, with just as much upside.

— New home sales are under pressure yet Bill McBride at Calculated Risk sees reason to believe housing has yet to peak. 

“I think new home sales and single family starts will increase further over the next couple of years”

Has Housing Market Activity Peaked?
Bill McBride Calculated Risk

“Although housing is under pressure from policy (negative impact from tax, immigration and trade policies), I do not think housing has peaked, and I think new home sales and single family starts will increase further over the next couple of years.

— Is JNJ’s positive news a sign of good things to come from pharmaceuticals

“These four stocks are rated Buy and may be good purchases for growth accounts looking for safety and total return going forward.

Top Analyst Bullish on Big Pharmaceutical Stocks Before Q2 Earnings
247wallst.com

“John Boris from SunTrust sees the relatively good print from Johnson & Johnson Inc. (NYSE: JNJ), which featured a positive currency tailwind, as a good signal for the group as a whole.

— Urban Carmel at The Fat Pitch remains bullish in the long term (~9-12 months), though is less certain in the short-term (coming weeks)

“The short term is less clear. SPX has gained 3 weeks in a row; most often, these streaks are followed by a higher high”

Weekly Market Summary
Urban Carmel The Fat Pitch

“US equities have gained every month since April, and are up over 3% so far in July. Our long term view remains that SPX will make a new all-time high in the months ahead. That is now just 2.5% away.

— A new tax law allows capital gains to be invested in “opportunity zones” with taxes reduced & deferred. And all new investment grows tax free, similar to a Roth IRA but without any contribution limits. 

An Unlikely Group Of Billionaires And Politicians Has Created The Most Unbelievable Tax Break Ever
Steven Bertoni Forbes

“The heart of this new law: Opportunity Zones, or “O-zones,” low-income areas designated by each state. Investors will soon be able to plow recently realized capital gains into projects or companies based there, slowly erase the tax obligations on a portion of those gains and, more significantly, have those proceeds grow tax-free. There are almost no limits. No limits on how much you can put in, how much tax you can avoid and, for most of the country, the types of taxes you can avoid, whether federal, state or local. No limits on how long those proceeds compound tax-free. And precious few limits on what types of investments you can make.

— Is it time for a turnaround in emerging markets?

“emerging markets equities have lagged…most of the last decade” “region is now “cheap” and it might be ready to outperform”

Emerging Markets Might Be Ready To Outperform
Urban Carmel The Fat Pitch

“Emerging markets equities have lagged in 2018 and throughout most of the last decade. Recent fund outflows have been extreme. Fund managers are underweight the region. Their currencies and commodities are not liked. The region is now “cheap” and it might be ready to outperform.

— Most economic signals remain positive

“Overall, much of the economic and company news seems highly positive.”

Hard To Find Much Bad News
David Templeton, CFA The Blog of HORAN Capital Advisors

“One could surmise this good news might be all priced into equity prices, but the current overall economic and business strength does not seem to be suggestive of an economic downturn any time soon. Certainly the issues around tariffs and trade, and their ‘potential’ negative impact, are worth maintaining a close watch on.