Amid Volatile Headlines and Broad Weakness, Stocks Try To Rally Support
Big daily moves are usually a sign of broad weakness, not evidence of sustainable strength
Portfolio Applications update: Our latest update to the Systematic Asset Allocation portfolios is now available. Key takeaways: Our Blue Heron models reflect the shift in leadership from equities to commodities. Within our equity model, exposure to the US continues to wane. Our sector rotation model shows a bifurcation between the five sectors with falling trends and the sectors for which long-term trends are still rising.
Stocks come into the new week in challenging position. While global stocks remain stronger than their US counterparts (more on this below), global breadth is challenging. The percentage of global markets above their 50-day averages is off its recent low but still firmly in the red zone that is inconsistent with sustained strength in US or global aggregates (sustained rallies tend to emerge after this indicator clears the 40% threshold).
Within the US, more stocks are making new lows than new highs. That on its own is a reason to frown.
In the context of our Fear or Strength model, more stocks making new lows than new highs is strong evidence that investors are being rewarded for being cautious (think preservation of capital rather than return on capital).
Two modest silver linings managed to emerge last week:
The Value Line Geometric Average continues to hold the line in the sand at 600.
Four days in a row of more stocks up than down on the S&P 500 matches the longest such stretch this year. Advancers versus decliners is less important than new highs versus new lows, but this resilience beneath the surface is encouraging even as the news back drop remains challenging.
Two themes jump out from the update of our monthly asset allocation models:
