Overall, the market grinded higher this week on trade optimism, though there appears to be a little disappointment once Phase 1 of the trade deal with China details were released Friday, 12.13.2019. On the news, there was a 100 basis-point dip that was quickly bought-up into Friday’s close. Keep it simple! For now, dips are quickly getting bought-up!
WEEKLY SECTOR PERFORMANCE
In general, risk-on assets in Technology $XLK, Consumer Discretionary $XLY, Financials $XLF, and Industrials $XLI led the way this week. This is encouraging price action at all-time highs. Risk-off names in Real-Estate $XLRE, Utilities $XLU, and Consumer Staples $XLP lagged. After strong weeks like we posted this week, be open-minded toward the laggards playing a little catch-up. A bid in Real Estate & Communications would not surprise me in the coming week. It was a bit odd to see Communications, a risk-on asset, not follow suit this week. Let’s see if the Communications sector gets a bid this week.
S&P 500 $SPX KEY LEVELS:
On trade optimism, Thursday, 12.12.2019, pushed strongly higher breaking-out of the $3134-$3154 range. It was encouraging to see the gains hold fairly well despite some disappointment in Phase 1 of the trade deal. The new range that we are watching is $3156-$3182. This consolidation after a boost higher is healthy and can lead toward further advancement. While we believe price targets are a joke, our $3200 price target on the S&P 500 could prove to be accurate. Short-term, sideways to slightly downward movement could happen though a test toward the upper range of $3185 to $3200 could happen first. From a technical standpoint, this price action has been quite impressive; advancements quickly test gap-ups and hold their levels. When this occurs, this tends to keep the Relative Strength Index out of overbought levels short-term, which could lead toward a little higher movement.
FEAR LEVELS $VIX OVERVIEW
As stated several times when the $VIX hits the $11’s level, stupid stuff tends to happen at these levels. At this point, Friday saw a decline of (9.40)% in one day to $12.63. That is a significant move lower on a flat tape for the indexes. Personally, I believe there is a little complacency at this time though there are large amounts of assets sitting on the sidelines for both institutions and individuals alike. In short, the $VIX could certainly go a little lower and the indexes could move a little higher short-term. From a long-term to mid-term perspective, none of this really matters. We are simply gauging the pace of the recent move.
PUT/CALL RATIO
Thursday, 12.12.2019, after President Trump’s optimistic tweet, we hit some very complacent levels in the put/call ratio. Currently, we are in an “okay” range, but this will be something we pay attention to through year-end should there be a “Santa Clause Rally”.
A LOOK INTO THE DIVERGENCE BETWEEN GROWTH & VALUE-NAMES
The market rally could continue to rally if growth-names push higher.
POTENTIAL OPPORTUNITIES
Emerging Markets $EEM and the Russell 2000 (Small-caps) $IWM, are two areas that could play a little catch-up in 2020. Obviously, a bid in these areas would prove the market has a risk-on appetite. In time, we expect a little catch-up in these two areas. Short-term, we likely need a breather, though mid-term we like what we are seeing!
FINAL REMARKS
The end of year grind will be intriguing. Don’t let your emotions get the best of you short-term, as we expect 2020 to be another solid year. On dips we will add more! We are currently 70% invested with 30% ready to add on dips. We feel that this positioning is a healthy balance between reaping the benefits of any gains while have dry powder should a little dip occur.
Enjoy your weekend! We are here for you. Ask questions.
