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Market Update - November 18, 2016

Economic Comment

The political season is finally over and we had some winners and losers. Our job is not to comment, but to try to help sort out what this means for the investment markets. You will see by our comments below that there were some huge bets placed on the election outcome. Investors were long bonds and either short stocks or underinvested in stocks. Last week that trade was taken off in a big way. Now the question is what will happen going forward. We will humbly attempt to sort it out.

Bullish Percent’s

10 Week Bullish Percent (Short-term) After a rough October that saw this short-term indicator go from 54% to 26%, Last week saw a big bounce in this indicator from oversold levels. Now at 50% this indicator is right in the middle of the playing field.

Optionable Stock Bullish Percent (Intermediate term) On Friday, November 11th this indicator flipped to OFFENSE as 6% of stocks with options traded on them gave enough buy signals to turn this indicator around. This was one of the shortest time periods for a bullish percent indicator to go on defense and then flip back to offense..

NYSE Bullish Percent (NYSEBP) (Longer-term) this indicator is still on DEFENSE at 54%. It would need to get over 56% percent to reverse back up. It is not unusual to see short, intermediate and long-term indicators move out of sync, especially with the volatility we saw last week. (Source: Dorsey Wright)

Point and Figure Charts (Source: Dorsey Wright)

S&P 500 the S&P 500 “line in the sand” at 2120 was pierced with a quick move down to 2090. Major support is at an uptrend line at 2040. Last week the S&P 500 did get back to the 2150-2175 level to keep the intermediate positive trend intact. However, the question is, if the highs at 2190 will be breached like the Dow Jones Industrial Average did, or will this be a short-term failed rally. (Source: Dorsey Wright Website)

S&P 500

SP500 11.18.2016

Crude Oil Crude oil has experienced a sell off after negative news from the Middle East about price supports hit the markets at the same time a huge inventory build was reported. Crude Oil has come down to an important support which if it holds, could surprise on the upside. This pullback is not unusual after the large move to the upside that crude has experienced this year.( Source: Dorsey Wright Website)

Continuous Crude Oil

ContinuousCrudeOil 11.18.16

US 10-Treasury Note: many investors purchased bonds ahead of the election for safety. Now talk of more economic stimulus and the unwinding of the fear trade, has seen the 10-year rocket to 2.25%. What is really interesting is this is the same level that the 10 year finished 2015 at! This rally is very over done on the upside. Support is now 2%. (Source: Dorsey Wright Website)

10-year Treasury

10YearTreasury 11.18.16

Relative Strength No change over the last several weeks here. The current standing relative strength standings have Domestic Equities #1, Commodities #2, Fixed Income #3, International Equities #4, Cash #5 and Currencies at #6. (Source: Dorsey Wright Website)

Conclusion

It looks like investors had long bond, and short stock or no stock positions going into the election. Last week, that trade was unwound in a big way with bond yields going up as bonds were sold and stock going up as investors rushed to alleviate under invested equity portfolios. Many of the issues affecting the investment markets, with regards to the economy, are the same as they were before the elections. Some of our indicators did improve slightly, but overall risk is still high in the equity markets. The rise in bond yields is unprecedented and has not received the same news as the rise in the stock markets. We are finding more value in bonds at this time and they fit with our defensive theme. The 10-year treasury is currently at the same level as when it started 2015. The 10-year then saw a huge drop in yields and then a huge short-term rise in yields. Except for several select equity indices, most of the major indices are still up slightly for the year and treading water. There are only 31 trading days left in 2016 and they look to be shaping up to possibly being frustrating ones for investors.

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