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Monthly Investment Compass
Charting The Course Of The Markets
January 12th, 2017
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Monthly Investment CompassExecutive Summary: January 12th 2017
• U.S. Stock Market: A number of near term metrics warn of a 1st Quarter corrective decline. However, unmet upside targets in both US and positively‐correlated overseas markets suggest that, corrections aside, there is at least an additional 9% to 10% rise in store for the major US indexes later in 2017.
• Size: Large Cap stocks, and particularly Large Cap Technology, are amid favorable conditions to outperform during the 1st Quarter and potentially into 2nd Quarter 2017.
• Style: Growth stocks are amid favorable conditions to outperform the S&P 500 over the next 1‐2 quarters.
• US Market Sectors: Our sector rotation model is currently overweight Health Care, Real Estate andUtilities.
• US Interest Rates: We expect the yield of the 10‐Year Treasury Note to decline from 2.63% during the 1stQuarter, perhaps to the 2.30% to 2.00% area, before moving back to – and potentially above – 3.00% later in 2017.
• Gold: We are expecting a 1st Quarter rebound that leads into a deeper decline later in 2017.
• The US Dollar: We are expecting a 1st Quarter corrective decline in the greenback that leads into the resumption and continuation of its 2016 advance.
US Stock MarketPrice & Trend (1): Dow Industrials, Transports Target Additional 2% to 9% Advance
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The April 2016 breakout from investor indecision in the bellwether Dow Jones
Industrial Average targets an additional 2% rise to 20,400.
The July 2016 breakout in the Dow Jones Transportation Average targets an
additional 9% rise to 9800. Currently testing major resistance at 9310.
US Stock MarketPrice & Trend (2): NYSE Targets Additional 10% Advance, COMP Breaking 2000 Highs
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The July 2016 breakout in the NYSE Composite targets an additional 10% rise
to 12,300 but is testing formidable overhead resistance at 11,255.
After testing secular overhead resistance at 5133 for 2 years, the NASDAQ
Composite is finally rising above it. Long term positive for market‐leading tech.
US Stock MarketPrice & Trend (3): Beware Of A Small Cap‐Led 1st Quarter Broad Market Correction
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Should there be a 1st Quarter broad market pullback/correction as expected, underlying supports in SPX are situated between 3% and 7% below the market.
The Russell 2000 met our 1400 upside target in December, based on its May
2016 breakout, to capture a 21% advance. Peaks often emerge once targets are met.
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US Stock MarketIntermarket Analysis (1): Positively Correlated Taiwan Index Targets 9% Rise
The Taiwan Index’s July 2016 breakout continues to target an additional 9% rise to 10,200 that will remain valid
above 8777.
The tight positive correlation between Taiwan and the S&P 500 indirectly suggests more upcoming, overall
strength in the US market.
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US Stock MarketIntermarket Analysis (2): Smart Money Bet On Rising Treasuries Negative For Stocks
Commercial hedgers are holding a big net long extreme in T‐Bond futures that represents an aggressive bet on a 1‐2 quarter decline in long term rates.
The positive correlation between the yield of the 10‐Year Treasury Note and
S&P 500 indirectly suggests an upcoming shift out of stocks and into Treasuries.
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US Stock MarketLong Ideas (1): AET, FB Target Additional 24%, 4% Rise
The November breakout in Aetna targets an additional 24% rise to $152.00 that will remain valid as long as the 200‐day MA at 117.42 loosely holds as major support.
The January 6th bullish reversal in Facebook targets an additional 4% rise to $131.00 that remains valid above the 50‐
day MA at 119.97.
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US Stock MarketLong Ideas (2): MA, HOLX Target Additional 12%, 20% Advance
The December 13th breakout in Hologic, Inc. targets an additional 20% rise to
$49.00 that will remain valid above $38.13.
The September breakout in Mastercard, Inc. targets an additional 12% rise to $120.000
that will remain valid above $102.98.
US Stock MarketMomentum: Positive, But Peaking. Watch Monthly Rate‐Of‐Change.
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However, it would take a negative shift in SPX’s currently positive 1‐month rate of change to confirm that the decline the MACD warns of is actually underway.
The MACD, an intermediate termmetric, is retracting from a positive momentum extreme that has previously coincided with multi‐month stock market peaks.
US Stock MarketETF Asset Flows: At A Near Term Inflection Point. Watch QQQ.
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Expanding total net assets invested in the SPDR S&P 500 ETF have fueled the post‐election rise in the S&P 500, but that expansion has been stalling recently.
Meanwhile, the total net assets invested in QQQ are hovering just above $41.5 to $40.8 billion. A decline below there would be
negative for the market‐leading NASDAQ 100.
US Stock MarketCorporate Bond Spreads: Near Term Positive
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High yield corporate bond spreads have been narrowing since November 21st. This indicates the bond market is pricing in decreasing credit risk, which is historically positive for the US stock market. A rise above 416 basis points would be negative.
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US Stock MarketVolatility: Near Term Negative
The CBOE Volatility Index has been hovering at a complacent extreme of 12.00 since mid November, one which has historically either coincided with or closely led every near term US broad market peak over the past several years. A rise above the VIX’s
50‐day moving average would indicate another market decline is beginning.
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US Stock MarketInvestor Sentiment: Near Term Positive, Intermediate Term Negative
A survey of near to intermediate termoriented futures traders is rising from least bullish extremes on SPX that has historically
coincided with market advances.
However, a survey of intermediate to long term focused newsletter writers has
already reachedmost bullish extremes, characteristic of an intermediate term top.
US Stock MarketMarket Breadth: Near Term, Intermediate Term Negative
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The percentage of NYSE Composite stocks trading above their 40‐day MA is hovering at a frothy extreme of 71% that has previously coincided with near term market peaks.
In addition, the percentage of constituents trading above their 200‐day MA also at a frothy extreme, of 73%, that has led more significant
intermediate term market declines.
US Stock MarketOverbought/Oversold: Near Term, Intermediate Term Negative
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SPX is hovering at monthly overbought extremes that have previously coincided with or led every near term US broad market peak during the past year.
In addition, SPX has also recently reached quarterly overbought extremes that have historically preceded more significant intermediate term market peaks.
US Stock MarketSeasonality: Near Term Negative, Intermediate Term Positive
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January is the 6th seasonally strongest month of the year in the S&P 500, marking a significant decline from
December, the strongest month, and leads into more weakness in February,
which is the 4th weakest month.
This chart shows that the first week of January is the 2nd seasonally strongest of the entire 1st Quarter, after which the S&P 500 weakens into mid January and
again into late February.
US Stock MarketSize & Sector: Large Cap, Large Cap Tech Poised For Q1‐Q2 Relative Outperformance
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Meanwhile, NDX is rebounding from quarterly oversold extremes versus SPX.
Previous instances of this have led periods of relative outperformance by Technology.
IVV is rebounding from quarterly oversold extremes vs. ITOT. Previous instances of this have triggered multi‐months periods of relative outperformance by Large Cap.
US Stock MarketStyle: Growth Stocks Poised For Q1‐Q2 Relative Outperformance
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The S&P 500 Growth ETF (SPYG) is starting to rise out of quarterly oversold extremes versus the S&P 500 (SPY). Previous similar extremes have historically
led multi‐month to multi‐quarter periods of relative outperformance.
US Stock Market SectorsInvestor Assets Moving Into Health Care & Technology, Out Of Industrials & Staples
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Asbury’s sector rotation model is currently overweight Health Care, Real Estate (Jan 9th) and Utilities (Dec 19th), while moving to market perform in
Energy (from outperform on Oct 17th to capture 2% of outperformance).
The biggest ETF‐related sector inflows over the pastmonth went to Technology, and over the past 3 months went to Financials.The biggest outflows over the past month came from Industrials, and over the past 3 months came from Consumer Staples.
US Stock Market SectorsUtilities, Materials Under‐Invested. Consumer Discretionary, Health Care Over‐Invested.
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This chart shows the historic daily average distribution of assets invested in the original 9 Sector SPDR ETFs since the series began in
May 2006.
This chart shows the current distribution of these assets through January 5th. The most
under‐invested sectors are 1) Utilities, 2) Materials and 3) Energy.
The most over‐invested sectors are 1) Consumer Discretionary, 2) Health Care and
3) Industrials.
US Stock MarketAsbury Research’s Correction Protection Model: Be Invested and Protected
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• Purpose & Key Features:•The model is a defensive hedge against market corrections and bear markets that can decimate investor portfolios.•The model utilizes 4 quantitative inputs.•The model uses the S&P 500 as a proxy for the market.•The model is binary: either in the market or out of it. There are no short positions, leveraged longs, or hedging via derivatives.•The model was designed to: 1) be in the market as much as possible, 3) exit on meaningful declines, and 4) quickly re‐enter as soon as a positive trend has been reestablished.•Since 2007, the model has been in the market 74% of the time•Since 2007, the model has averaged 4.6 signals per year or approximately 1 per quarter.
US Interest RatesNet Long Treasury Position By Smart Money Suggests A Back‐Up In Rates
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Meanwhile, the yield of the benchmark 10‐Year Note is declining from 2.63% and appears poised to test at least 2.36% to
2.30%, and potentially 2.00%.
Commercial hedgers are at a multi‐year net long extreme in the T‐Bond contract that represents an aggressive bet by the smart money on declining interest rates.
US Interest RatesRising Treasury Prices, Declining Long Term Rates Is Bullish For Gold
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The inverse correlation between 10‐Year Treasury yields and gold indirectly
suggests that gold prices are headed higher during the 1st Quarter.
It would take a sustained positive shift in the T‐Bond’s 1‐month rate of change to confirm that the commercial hedgers’
bullish bet is working.
GoldBullish Smart Money Bet On Platinum Positive For Gold, Negative For Interest Rates
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Gold and platinum prices have maintained a tight and stable positive correlation to one another since 2000,
most recently 83% since October.
Smart money commercial hedgers are also very bullish on platinum, which
indirectly corroborates both our positive call on gold and negative call on rates.
The US DollarA Gold Rebound Suggests A Q1 Corrective Decline Versus The Euro
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Although this chart shows that the Dollar is making a bullish secular change versus the euro, per the slide at left we should see a 1st Quarter decline as the euro rebounds.
Gold prices have been inversely correlated to the US Dollar since 2011. Therefore, rising gold prices should
coincide with a declining US currency.
Contact Us:Phone: 1‐224‐569‐4112
Email: [email protected]
On The Web: http://asburyresearch.com/
Twitter:@asburyresearch
