Scott Martindaleby Scott Martindale
President, Sabrient Systems LLC

After an “investor’s paradise” year in 2017 – buoyed by ultra-low levels of volatility, inflation, and interest rates, and fueled even more by the promise of fiscal stimulus (which came to fruition by year end) – 2018 was quite different. First, it endured a long overdue correction in February that reminded investors that volatility is not dead, and the market wasn’t quite the same thereafter, as investors’ attention focused on escalating trade wars and central bank monetary tightening, leading to a defensive risk-off rotation mid-year and ultimately to new lows, a “technical bear market” (in the Nasdaq and Russell 2000), and the worst year for stocks since the 2008 financial crisis. Then, it was confronted with the Brexit negotiations falling apart, Italy on the verge of public debt default, violent “yellow vest” protests in France, key economies like China and Germany reporting contractionary economic data, and bellwether companies like FedEx (FDX) and Apple (AAPL) giving gloomy sales forecasts that reflect poorly on the state of the global economy. The list of obstacles seems endless.

Moreover, US stocks weren’t the only asset class to take a beating last year. International equities fared even worse. Bonds, oil and commodities, most systematic strategies, and even cryptocurrencies all took a hit. A perfect scenario for gold to flourish, right? Wrong, gold did poorly, too. There was simply nowhere to hide. Deutsche Bank noted that 93% of global financial markets had negative returns in 2018, the worst such performance in the 117-year history of its data set. It was a bad year for market beta, as diversification didn’t offer any help.

Not surprisingly, all of this has weighed heavily upon investor sentiment, even though the US economy, corporate earnings, and consumer sentiment have remained quite strong, with no recession in sight and given low inflation and interest rates. So, despite the generally positive fundamental outlook, investors in aggregate chose to take a defensive risk-off posture, ultimately leading to a massive selloff – accentuated by the rise of passive investing and the dominance of algorithmic trading – that did huge technical damage to the chart and crushed investor sentiment.

But fear not. There may be a silver lining to all of this, as it has created a superb buying opportunity, and it may finally spell a return to a more selective stock-picker’s market, with lower correlations and higher performance dispersion. Moreover, my expectation for 2019 is for a de-escalation in the trade war with China, a more accommodative Fed, and for higher stock prices ahead. Forward valuations overall have become exceedingly attractive, especially in the cyclical sectors that typically flourish in a growing economy.

In this periodic update, I provide a market commentary, offer my technical analysis of the S&P 500, review Sabrient’s latest fundamentals-based SectorCast rankings of the ten US business sectors, and serve up some actionable ETF trading ideas. In summary, our sector rankings remain bullish, while the sector rotation model remains in a defensive posture. Read on…

Stocks got a vote of confidence last week, plus some short-covering support (and perhaps some panic buying (for fear of missing out), and now the S&P 500 as of Friday is down only -2.2% YTD, and up +8% since its close on February 12. The Russell 2000 small caps are up +12% over the same timeframe. At the same time, when priced in constant US dollar, we see that Chinese stocks are down -19% YTD, Italy -14%, Germany -8%, Japan -5% (and -10% in yen), while Brazil is up +20%, Colombia +13%, Russia +9%, and Canada +5%.

Headlines continue to dominate the trading landscape, perpetuating a news-driven trader’s market rather than allowing a healthier valuation-driven investor’s market to return to favor. After all, that’s what stock market investing is supposed to be about. Narrow market breadth and daily stock price gyrations have been driven primarily by three headline generators -- oil price, the Fed’s monetary policy, and China growth. Sure, there were many other important news items, notably the sinister course of Islamic terrorism.

Of course, all eyes have been on Greece in an ongoing saga that, although critical to the Greeks, is mostly just an annoying distraction for global investors -- partly because it has been going on for so many years, with the proverbial can of inevitability continually being kicked down the road, and partly because there can be no winners in this intractable situation.

After posting record highs the previous week, stocks closed last week slightly down overall. But the major indexes held their psychological levels, including Dow at 18,000, S&P 500 at 2100, NASDAQ at 5,000, and Russell 2000 at 1200. Although the bulls continue to find reliable support levels nearby, strong overhead technical resistance and neutral-to-defensive rankings in our SectorCast fundamentals-based quant model continue to suggest that a major upside breakout is not quite imminent, although a selloff doesn’t seem to be in the cards, either.

Scott MartindaleAfter a requisite knee-jerk selloff, stock market bulls shook off Russia’s military action in Ukraine and Crimea as just another buying opportunity. Even adding the Russian Bear to their arsenal couldn’t give bears the upper hand for long. The S&P 500 large cap index set yet another all-time intraday high and closed at a new record high on Friday.

smartindale / Tag: iShares, ETF, sectors, SPY, VIX, iyw, IDU, IYF, IYK, IYH, IYE, IYM, IYJ, IYZ, IYC, XLU, XPH, KBWI, IXN ZCOR SHPG, NTCT, MANH, KEY, OFG, EDN, TRGP / 0 Comments

david trainerHigh dividend yields are not enough to warrant investing in the utilities sector.

Too many investors put their hard-earned money in utility stocks with the assumption that relatively high-yielding dividends from stable business make a good investment.

The real question that investors in any equity security must ask is: does my expected return from a stock justify the risk of investing in it?

dtrainer / Tag: DPL, FUI, FXU, IDU, PEG, PSCU, PUI, RYU, UPW, VPU, XLU / 0 Comments

ETF Periscope: Oil Speculators Get Spanked. Or Did They?

by Daniel Sckolnik of ETF Persicope

“It is better to travel well than to arrive.” -- Buddha

Watching crude oil take a serious plunge this week gave motorists a reason to cheer, but left oil traders with a strong, queasy feeling.

Well, at least some of them.

daniel / Tag: Crude Oil, DJIA, ETF, FXU, IAT, IEA, IYM, IYZ, NYMEX, RGI, RTL, S&P 500 Index, SPX, Strategic Petroleum Reserve, XLK, XLU / 0 Comments

Contrarian Alert: Sentimental Consumers and a Two-Year High

by Daniel Sckolnik of ETF Periscope

“A good decision is based on knowledge and not on numbers.”  ~ Plato

Calling all Contrarians. This might be your moment.

daniel / Tag: DJIA, Dow Jones Industrial Average, IYG, RKH, S&P 500 Index, SPX, TTH, XLU / 0 Comments

by Scott Martindale, Senior Managing Director

Scott Martindale

Last week's Sector Detector post debuted a new ranking system by Sabrient Systems that is calculated using fundamentals research on exchange-traded funds rather than the usual price momentum that most other indexes are based on.

smartindale / Tag: CBB, DOW, IYZ, MWW, NIHD, quantitative-model, RAI, sector-analysis, stock-trading, SWY, TXT, VMC, XLB, XLP, XLU / 0 Comments

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