It’s true, the Yinzer Analyst loves the Super Bowl and for the simple reason that there isn’t any other event as “American” as the Super Bowl. You all know the Yinzer Analyst loves his Buffalo Bills, but the Super Bowl isn’t just a showcase for a sport only played in America (and our close cousins to the north), but announcers who are way too busy talking and not listening, commercials where the combined cost for air time could feed a small country for a year and a half-time show that features a typically “has been” celebrity lip syncing to their favorite hits while wearing a skimpy outfit. And here in America, the roads are empty as we all stay home to enjoy the spectacle and hope for another wardrobe malfunction.
All I have to say is “Merica”
Speaking of America, with January closed and in the books, let’s take some time to look at the charts and see what February might have in store for us.
Swan Song for Domestic Equities:
Starting with the S&P 500, Friday’s close at the low pushed the market out of the consolidation pattern while the heavy volume and declining PPO score confirm the broad weakness we’ve talked about for a while now. Barring any major surprises with earnings this week; it’s likely that the market will bounce back into the consolidation pattern although how far it goes is debatable.
Now check out the weekly chart; the market broke the first support line but only barely and given the prior resistance in 2014, it’s likely that the break lower will be “sticky” with a lot of volatility around this level.
Finally, check out the monthly chart where the January close was the closest we’ve come to a 2/10 simple moving average crossover since last 2012. I’m a firm believer in respecting when the 2 month simple moving average crosses the 10 as a signal for market weakness even though the last two instances only indicated a brief pullback. Those crossovers happened on uncertainty and strong two month pullbacks in the early part of the bull cycle while if it happens in the next month or two, it’ll be much more like the crossovers in 2000 and 2007; several years into a bull cycle and after a period of relatively stable prices. We’ll have a special posting on this later this week, but for now keep your eyes on the long-term charts.
Playing in the Alt Box:
Sticking with the broader themes, take a look at these charts of the ten and thirty year Treasury yield to show you how nuts January has been. Last week’s 7.82% drop for the ten year was only the icing on the cake for a month that saw it drop 22.81%! Seriously, not a typo. How nut’s is that? Even a move back to 1.9% would only put the yield right back into the downtrend channel.
Check out the thirty year yield, which tells a similar but slightly more horrifying story as the yield is now below the lows of the 2008 financial crisis. The global hunt for yield in a world worried about deflation has the 30 year yield only slightly above what was historically considered to be the rate of long-term inflation.
How much lower can it go? Maybe a better question is how willing are you to go long on TLT at these levels? While I’m not a Equity Bull/Treasury Bear, you have to wonder about how extreme the situation has become.
Finally, a daily chart of the MarketVectors Gold Miners’ ETF (GDX). After a strong Friday that put GDX up 2.5% for the week, the fund would now seem to be decisively above the $21.90 level but I’d like to see a push back to $23 before giving my heart back to GDX. There’s a lot of heartache there for me.
Foreign Stocks Finally Finding some Love:
Staying with broad strokes, the Yinzer Analyst’s much loved EU equity position (using EZU) had a relatively good week compared to the S&P, but still hasn’t broken out of its descending wedge pattern although momentum, using the PPO, does look to be improving and has turned slightly positive. On a relative momentum basis, EZU had a HUGE week; after all it was up .36% versus a 2.77% loss for the S&P. That was a big enough gap to shot EZU clear out of the relative momentum downtrend channel.
The action wasn’t just confined to EU equities as broader MSCI EAFE (here using EFA) also blew out of a sharp downtrend channel that began last summer. The question to ask is whether this breakout is going to be short lived like that in late 2012. EFA has a long way to go to challenge the relative momentum downtrend line that formed all the way back in 2009!
Nothing But Love for REIT’s?
Getting back to the good ole US of A, where on the surface things aren’t looking so solid but diving under the hood shows some interesting changes happening. First, let’s start with the healthcare sector, one of the strongest performers of this bull cycle and now nearly 15% of the S&P 500. After Friday’s close, XLV has cracked its 50 day moving average twice in January with a clear weakening of momentum.
On a relative basis, XLV still had a better week than the broader market but not by much and looking at the relative momentum chart you can see that while XLV is still in its dirty uptrend channel versus SPY, it has been hugging the lower boundary for some time now.
What’s worse is #2 sector financials have had a disastrous month, down nearly 7% compared to the broader markets 3.1% pullback. Check out the relative momentum chart where you can see that major beating the sector has taken this month; after a strong second half of 2014, XLF has utterly given up and is about to fall out of its momentum channel. But with XLF about to hit itss 200 day moving average, can it find the spark it needs here to stay in the game?
Finally, let’s wrap it up with the number on sector in January, real estate investment trusts which KILLED it with a 5.71% gain for the month but Friday’s close has the Yinzer Analyst wondering if the worm is about to turn. The weak showing led IYR to cracking it’s uptrend channel and while the relative momentum channel versus the S&P 500 is intact for now; when you’re sitting on 5+ years of strong gains (200 bps of annualized outperformance over the last five years) you start to wonder if you’re going to be the only one left at the party when the music stops.
And with that, it’s half way through the 4th and the Patriots are finally starting to show signs of life so it’s time for the Yinzer Analyst to get back to the game. Happy hunting out there tomorrow.