The Tape Remains Split, Commodities May Bounce and Overseas Markets Continue to be a Risk.

By January 5, 2015November 19th, 2015Weekly Market Observations (Archives)

By James Dondero | January 5, 2015

  • Deflation remains the dominant theme for 2015 with the agricultural sector now joining crude, copper and precious metals in breaking support. That being said, commodities are quite oversold and may well see a short term bounce in January.
  • Long-term yields remain in downtrends and now appear to be breaking the panic lows which were set in October of 2014. The HYG/TLT ratio also resumed its downtrend last week, which suggests a bearish environment for risk assets.
  • The tape remains split in the US, with the bulls still unable to generate an overwhelming number of stocks making new highs. This has led to six occurrences of the Hindenburg Omen over the past several months; a potential cause for concern. The Hindenburg Omen measures simultaneous new highs/lows in a single market, when this occurs there is no consensus on market direction and a higher dispersion of returns between securities. If this persists it will result in a lower correlation between stocks and represents an environment in which good active management should outperform.
  • The overseas markets are nearing key support levels, such as 60 on the EFA. Overseas stocks have been weaker than those in the US, and potential contagion into the US remains the primary risk to domestic markets.

The views and opinions expressed are for informational purposes only and are subject to change at any time. This material is not a recommendation, offer or solicitation to buy or sell any securities or engage in any particular investment strategy and should not be considered specific legal, investment or tax advice. There is no guarantee that any of the forecasts will come to pass. Past performance is no guarantee of future results.