Week 5 Major Markets Trending and Performance
January is behind us, and it was a great start for all the stock markets. It was a reasonably good month for me. But now that is over, and I have to plan for the future. So, I will start with what the trending is telling me now.
It is interesting how markets trend in a circle. The S&P 500 and NASDAQ were turning bearish to bullish, but they were both behind the other markets. They are still trending in the right direction. The global markets, in particular China and the Emerging Markets were ahead and now they are demonstrating the loss of some steam.
Here is the trending heat map.
The S&P 500 turned perfectly bullish. This week the 50-day moving average crossed over the 200-day moving average. That’s the golden cross.
No change in the NASDAQ. It is trending bullish but has not had the golden cross yet.
No change in the Russell 2000. It continues to trend perfectly bullish.
China FXI price crossed below the 10-day and the 20-day moving averages. This could be significant as FXI led the major markets to this bullish trending. So, we have to see whether it leads the markets to the downside as well.
The Europe, Australia, Asia and Far East EFA price just fell below its 10-day moving average. Nothing serious now but this was also a leader on the way up.
The Emerging Markets EEM behaving similar to the FXI. The price is below the 10-day and the 20-day moving averages. The EEM was also a leader to the upside.
No trending change in the Dow Jones yet. But the price has been quite flat for several weeks now. The momentum that we saw in early January which made it a leader of the US markets seems to have dissipated.
The trending we see is also reflected in the week-over-week performance of the markets as below:
The NASDAQ is up 6 weeks in a row. All the US markets, except the Dow Jones, had huge weekly gains. China retreated the most and the Emerging Markets also showed losses. These were the leaders on the way up. Are they signaling the move down with their weakness now?
Let’s look at performance over various periods:
The year-to-date returns for all the markets are good with the NASDAQ and Russell 2000 outshining the rest.
Conclusion:
Markets seem overbought and some mean reversion seems more than likely. The China and Emerging Markets have demonstrated that, and I expect the S&P 500 and NASDAQ to follow. So, for me the risk is to the downside, and I will be trading to the downside using puts. Having said that, the markets can behave irrationally for a long time and there is no point in complaining. If that happens, I will just get out with hopefully small losses. Hope is not a strategy either - so there you go.