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A snapshot of Automotive Parts & Equipment, Large Cap Biotechnology, and Reinsurance.

We believe higher quality Corporate bonds should be able to weather the higher volatility expected from a rate hike and oil sell-off. Maintain Favorable.

The Major Trend Index ticked up 0.02 points to a ratio of 0.98 with the latest tally, extending its streak of neutral readings to five weeks. The Momentum, Supply/Demand, and Valuation work all remain on the negative side of the ledger, and we suspect the Economic work is near its peak for this cycle. Overall, the analysis supports a cautious stance on the stock market, and our tactical funds remain positioned with net equity exposure of 41-42%.

Despite a pickup in volatility across its categories, the Major Trend Index was unchanged at 0.96 using data for the week ended November 20th. The failure of the MTI to bounce in response to last week’s 3%+ market gain reinforces what we’ve been saying for more than three months: the backdrop for stocks remains a fragile one, and portfolios with the requisite flexibility should remain significantly underweight equities. 

In the latest week, the Major Trend Index declined 0.01 to a low-neutral reading of 0.96, with little action among the five categories for the second week in a row.  We consider it a “tell” that the best reading the MTI could manage in response to the S&P 500’s recent 13% rally was a score of 0.97 on Nov. 6th.  With the S&P 500 still trading within a few percentage points of its May 21st all-time high, we can’t rule out that it (along with the DJIA and NASDAQ) could poke out to  new nominal highs in the days or weeks ahead.

The Major Trend Index ticked up 0.01 in the latest week to a low-neutral reading of 0.97, with no major swings within the five categories. While the prior week’s initial improvement to neutral zone forced us to cover a few hedges, the weight of the evidence still points to high stock market risks. Our tactical funds are positioned defensively with net equity exposure of 42%.

Our AdvantHedge gross composite lost 9.3% in October, lagging the inverse performance of the S&P 500 (+8.4%) and Russell 2000 (+5.6%), but about on par with the inverse of the NASDAQ (+9.4%).

Select Industries gross composite gained 5.1% in October and is up 2.8% YTD. Global Industries (based on Global Industries, L.P. gross return) gained 5.4% in October, lagging the MSCI ACWI (7.9%).

Up/Down Earnings: Worst Start In Six Years

Equity Exposure Increased To 42% In Early November.

The Major Trend Index rose 0.05 to a neutral reading of 0.96 in the final week of October, following a 2 1/2-month period in the negative zone.

Our interpretation of the current Fed stance is that it has shifted from “hike if the data and the market support” to “hike unless the data and the market perform poorly.”

A reversal in momentum, driven by the oil and commodity stocks’ rebound, caused investors to take gains from Health Care positions. We’re still big fans of Health Care and think recent weakness is more of a correction within a sector bull market than the start of a full-fledged bear.

Small Cap Premium Drops To 4%

The wreckage is beginning to look interesting and—with our cautious stance on the stock market—it would be fun to be bullish about something. Both our GS Scores and intuition suggest it’s still too early.

Based on the four key features of the current macro environment: global disinflation, monetary conditions divergence, an extended bull market, and sub-par economic performance, 1998 ticks all the boxes.

The stock market rally has carried far enough to flip some of our trend-following work bullish, lifting the Major Trend Index to a low-neutral reading. The improvement prompted an increase in asset allocation portfolios’ net equity exposure to 42% (up from 36% previously).

Question: What will you do if the Major Trend Index returns to its bullish zone?

Despite one of its worst five-day performance stretches in early October, the Momentum factor bounced back nicely and performed well the rest of the month.