In this briefing:
- SPX Tactical Reversal Level for Bounce with Asia/EM’s the Perform
- EM Relative Strength Is Bottoming: Overweight
- Global Markets Deteriorating…Except EM
- This Is the Chart that Would Cause a Mini Crash in the US
- Core US Sectors Leading an S&P Major Support Break
1. SPX Tactical Reversal Level for Bounce with Asia/EM’s the Perform
Short press below S&P 2,600 working well but the pace of the decline warns of a bigger macro bear cycle ahead in 2019.
Near term we are moving into oversold territory in core sectors featured in this webcast as the S&P approaches our first key target near 2,350. Given risk of a bounce post Christmas we are placing a tactical reversal target above this level.
Support levels to work into are outlined as well as tactical bounce targets. Given key support breaks that macro picture continues to favor shorting rally attempts as our cycle work suggests we see more pain after the New Year.
EEM outperform versus the S&P is gaining traction and with a USD roll would see additional fuel.
MSCI Asia x Japan perform call over US equities is also taking shape. Buy support targets outlined. If one intends to trade a year-end would licking bounce then Asia/EM’s is the space to participate.
2. EM Relative Strength Is Bottoming: Overweight
Relative strength for MSCI EM is bottoming vs. MSCI EAFE despite continued global equity market weakness. Although the MSCI EM’s price index remains in a downtrend, we are seeing signs of outperformance ona a relative strength basis and would add incremental exposure. In this report we highlight attractive and actionable themes within EM.
3. Global Markets Deteriorating…Except EM
With U.S. markets stumbling, the MSCI ACWI index is breaking down to new lows: defensive Sectors remain attractive. Relative to MSCI ACWI however, emerging markets are the place to be. China, Brazil, Hungary, Qatar, India, Poland, and Indonesia all display positive price and/or RS trends. In this report we recap technical important levels on all major indexes and highlight attractive stocks within Real Estate, Health Care/Pharma, Precious Metals Mining, and Utilities.
4. This Is the Chart that Would Cause a Mini Crash in the US
Our insight Core US Sectors Leading an S&P Major Support Break outlined the lead breaks in small caps, financials and transports that signals a break lower in the S&P.
We now turn to the last bastion of strength that would induce a high momentum decline below SPX 2,550. Defensive sectors in the US now face late cycle selling now that core lead sectors are breaking lower.
US healthcare and consumer staples have been a core outperform pair over being short the S&P and has served us well with ominous peak signals in the making.
US healthcare ETF (XLV) chart is used as the safe haven proxy that would induce a big inflection point for US equities.
5. Core US Sectors Leading an S&P Major Support Break
We see increasing evidence of a failed December risk on phase as core sectors break below supports and early 2018 lows in a lead fashion.
Our underperform/bear call for banks, small caps, tech and transports to lead a bigger market spiral is taking shape. Small caps, banks and transports are now breaking early 2018 lows, signaling a broader S&P break below 2,600 may in fact be unfolding now rather than in January/Q1.
Fed speak will dominate a break/bounce next week but a break down is in the cards, regardless in 2019.
Breadth remains bearish.
USD/JPY teetering on a pattern breakout. Gold is not trading well given it has decoupled from traditional correlations.
Big net outflows recorded in key sectors/markets last week.
