10 Straight Weeks and Counting

Market Commentary: You may think your mind is playing tricks on you because it seems like the market is changing directions nearly every week. Don’t worry, there is nothing wrong with your mind. The market has changed direction every single week for the past 10 weeks (measured from Tuesday to Tuesday). The last time it put in back-to-back weekly performances in the same direction was in April, when it turned in two positive weeks in a row. If this pattern continues, then we should see an upward movement during the coming days. While 10 out of 10 may appear to be highly reliable, we wouldn’t base an investment strategy on something that is highly likely to be a coincidental random sequence.

The bond market has been on a short-term upward movement since the 10-year Treasury yield spiked to nearly +5.3% in mid-month. Opinions vary widely over whether the past two weeks have been the start of a new bullish trend or just a correction of the bearish trend. Meanwhile, the previously impervious high-yield market is showing signs of vulnerability and will require close monitoring in the days and weeks ahead. While no change is expected from Thursday’s FOMC meeting, Fed watchers will be standing by to parse the new statement when it is released.

Sectors: The choppy week to week action is taking its toll on our sector rankings with 50% of the major sectors now sporting intermediate-term downtrends. None of the negative trends are truly drastic, and the direction can easily flip during periods when the market is flattening out, yet the situation requires watching.

Styles: A market that reverses direction every week for 10 weeks is often a market that is having trouble exhibiting a strong trend. Our style rankings confirm this suspicion with all styles slipping toward a “trendless” environment that lacks momentum in any direction.

International: Global markets have experienced 10-week see-saw action similar to domestic equities, yet for the most part, they have been able to keep their upward trends alive. That is not to say the action has been smooth and without interruption, but they are still upward trends nonetheless. China has held up the best this past month and remains firmly atop our rankings.