Is Value Back?

US equity markets were pressured this week by news of impeachment proceedings against President Trump. The ratcheting up of the trade war with China was the final straw for the markets on Friday with the IWM (Small Caps) leading the decline, down over -3% for the week.

Trump announced the he’s considering limiting China’s access to our equity markets and end IPO’s of Chinese domiciled companies on US Exchanges. Markets did not like that at all and sold off hard immediately.

Speaking of IPO’s, We Work decided that an IPO won’t work, terminated it and fired its CEO. The trickle-down effect impacted the IPO of Peloton, whose stock backpedaled and closed down- 15% from its IPO offering price.

Along that vein, Uber’s stock could use a lyft as it’s down almost 30% from first day of trading on May 10. LYFT’s IPO has done even worse, down over 50% from its first day of trading on March 29.

All this points to a tenuous situation for private equity and it has significant implications on several fronts. The most significant impact could be that value stocks that have had a positive ROI, may finally look attractive.

This week’s highlights are:

  • Risk Gauges are in risk off mode
  • Market Internals and Sentiment are both in bearish modes
  • Volume patterns are showing distribution
  • Solar Stocks (TAN) gave up last week’s monster gains, losing almost -9%, but is still this year’s leading industry group
  • Biotech (IBB) dropped into a bear phase and to its lowest levels since mid-January
  • Small caps otherwise known as Grandpa Russell (IWM) dropped to its 200 DMA and is hanging on for dear life
  • The NASDQ100(QQQ) closed under its 50 DMA and its 6-month calendar range low.
  • Value stocks are outperforming growth stocks and above a key reference point
  • Gold, Gold Miners and Bonds all paused digesting recent gains

The possibility that a major long-term top to this ancient bull market largely predicated on negative rates could already be in. Of course, we could also be a just tweet away from a major blow off to the upside. Considering all the compression and sideways action, whichever way this market heads is going to set off some fireworks.

As we head into October, we need to be extremely vigilant on risk control as when its bad, it’s very bad (think October 1929, 1987, 2008,) and when its good, it’s pretty darn good.