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Market Update - January 8, 2016

Friday, January 8, 2016

Economic Comment

Well China sure did a good job wrecking the New Year so far! The concerns of China’s impact on the global economy from last August were brought back up fresh for the New Year. Today’s employment report has been overshadowed by what is going on overseas. After a good report in November, December’s report came in much better than expected at 292,000 jobs created. The consensus number was for 200,000 in monthly job growth. This is a positive for the US Economy and gives the bulls some positive ammunition. The question is whether or not the volatility that China’s equity market is introducing will change the Feds mind. Lots of changes in our indicators this week.

Bullish Percent’s

10 Week Bullish Percent (Short-term) this short-term indicator really got hammered this week going from 40% to 18% which is very oversold. However, it is still above the low of 8% set in August of 2015. Very oversold and an equity market bounce could happen at any time.

Optionable Stock Bullish Percent (Intermediate term) already on DEFENSE this indicator lost 6% this week and is down to 32%. It would need to get back above 40% to turn positive. (Source: Dorsey Wright) 

NYSE Bullish Percent (NYSEBP) (Longer-term) this indicator is now on DEFENSE. This week saw a loss of 4% down to 32% as well. The low in August was 24%. Remember, under 30% is the low risk zone for equities. (Source: Dorsey Wright)

Point and Figure Charts (Source: Dorsey Wright)

S&P 500 the trading range that looked to be forming saw a breakdown this week. The long-term uptrend line at 1990 was broken. It is important for the S&P 500 to start trading back above 1980-1990 to keep the long term uptrend intact. 1880 is very important support. If that is broken then the intermediate trend will be down. (Source: Dorsey Wright Website) 

S&P 500

NASDAQ the NASDAQ peaked in December at 5160. The 4880 level didn’t contain the selling for the NASDAQ and the uptrend line at 4880-4900 was broken as well. The NASDAQ needs to get back over 4800 to keep the uptrend line intact. (Source: Dorsey Wright Website) 

Russell 2000 the Russell 2000 is showing the worst performance this week of all the averages. The low at 1080 in August was broken. This is a real disappointment since many forecasters have been touting that in a slowly rising interest rate environment, Small-mid cap stocks should outperform. Maybe the strong Jobs number today will be the catalyst, but the Russell 2000 needs some serious help. (Source: Dorsey Wright Website) 

US 10-Treasury Note:  So far for January the flight to safety trade has pushed the 10year yield down to 2.175% which is right above an uptrend line. Continued selling in the US and global equity markets could get yields below 2.15% but that seems to be the line in the sand for now. The strong Job’s number today is seeing rates float back up slightly. (Source: Dorsey Wright Website) 

10-year Treasury

Relative Strength Although US Equities are still number 1 and Fixed Income is number 2, we have seen a change this week with International equites dropping from number 4 to number 5 just ahead of commodities. We have also been asked what type of market sell off would it take to bump US Equites from #1 and we did some calculations. It would take another 7-8% sell off in US Equities from current levels, and no change in Fixed Income rates to bump US Equities from the #1 spot. We will obviously let you know if that happens. (Source: Dorsey Wright Website) 

Conclusion

There looks to be a big disconnect this week between how well the US economy is doing and the US Equity markets. The December jobs number came in higher than expected which shows a growing US economy. This should allow the FED to continue to slowly increase short-term interest rates. Last summer’s China story came back to roil the markets in the first week of this year. If you remember last summer, after a poor August and September, the US Equity markets gained over 10% in the month of October. Our indicators are in the low risk zone, however, there has been some technical damage done to the US Equity charts. Although this is not the start we would have liked to have seen for the New Year, we are still positive and optimistic and looking for US Equity opportunities.

Rainy weekend ahead.

Christopher P. Englebert

Managing Director  

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