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June 4, 2017

TTG Macro & Micro Newsletter 6-4-17

 

ETF Index performance (5d): SPY +1.0%, DIA +0.6%, IWM +1.6%, QQQ +1.8%, EEM +0.4%, EFA +1.5%, TLT +1.9%, GLD +1.8%

TTG Market View

On a shortened holiday week in the US, Equities, Bonds, and Gold all rallied.  In US Equities, the rally broadened out with 14 out of the 25 sector / subsector ETFs that I track closing over 1% for the week.  Does this mean every single group is rallying?  Absolutely not, Energy stocks got crushed last week, XOP -4.5%.  Banks and Steel names also fell last week.  Translation: this remains a stock pickers market and I would rather own individual names than owning the entire market.  Spotting these groups that have major strength and then owning individual stocks that see repeat call buying has been a strategy than continues to work.  To name a few, the Semis, Travel & Lodging, Internet (both US and China), and Payment processing names have been on fire this year.  And that is mainly US related names.

The big story continues to be the global rally which gets very little headline attention.  Besides the major markets in Europe and Asia rallying this year – some of the smaller areas like Poland PLND +35%, Turkey TUR +29%, South Korea EWY +29%, and Greece +25% are crushing it YTD.  These are not one-offs.  Of the 39 International Countries / Regions on my ETF watchlist 31 of them are up over 10% ytd.  Keep in mind the SPY +9.7% ytd.  So, next time you hear someone on CNBC talk about the “Trump rally” is in danger – know that they are absolutely clueless, due to the fact that the US has actually trailed global performance ytd. Clearly, many commentators and market participants have not only missed the global rally but they are also still not even identifying it.

Does this mean that the markets are not do for some short term volatility?  Of course they are, the VIX is at 9.75, which is extremely low.  I would not say that equities are priced to perfection because there are still a lot of doubters on the sidelines, but we are pretty close.  There is always headline risk – but with the U.S. President being investigated for ties to Russia, I think we can expect bumps in the road on the horizon.  Not to mention U.S. economics, which Friday’s jobs report failed to meet expectations with +138k vs +182k expected. So, while the VIX is close to a 52 week low, there are signs of angst in the Gold and Bond markets which both are rallying and are above the 200d MA (GLD & TLT).   To me, having on a GLD / TLT long vs support of the 200d MA makes sense and is good diversification against an equity portfolio.

My strategy going forward:  have cash available to buy the “headline” or “noise” pull backs.  The last few weeks have seen outsized returns in stock picking but I am mindful of taking profits (in option positions) as groups / names have gotten overbought.  Keep in mind we have two “headline” events next week which include Comey testifying and the U.K. elections (both scheduled on Thursday) and I would not be surprised if we saw volatility increase into Thursday.

 

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About Christian Fromhertz
Christian Fromhertz is the founder & CEO of The Tribeca Trade Group.

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