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Strategies & Market Trends : John Pitera's Market Laboratory

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To: ggersh who wrote (18841)	3/22/2017 2:38:46 AM
From: John Pitera	3 Recommendations Recommended By 3bar ggersh roguedolphin of 33421

Equity Markets1. The US equity markets finally ended the longest “tranquility” streak in recent history with a greater than a 1% decline. Source: @charliebilello 2. The so-called “Trump trades” are being unwound as investors accept the fact that implementing major legislation (including fiscal stimulus and deregulation) *is a lengthy, arduous process and there are no assurances.* Financials, which led the rally, were hit the hardest. The chart below shows the relative performance of the banking sector. Regional banks were pummelled. the KRE index was really beaten up... as was the $BKS index, the $XBD broker index.... the IBB biotechs had a rough day.... US small caps represent another component of the “Trump trade.” Small caps were the best performing asset class over a 10-year period last year. Given the frothy valuations, it’s hard to imagine that this track record will carry into 2017. Source: Ben Carlson; h/t Todd; Read full article 3. An additional bearish sign was the transportation sector *widening its underperformance.* 4. The front end of the VIX curve inverted slightly, but implied volatility metrics remain *quite low relative to historical levels.* 5. Related to the above, here is the Credit Suisse Fear Barometer, an indication of how expensive puts are relative to calls. 6. One sector that did relatively well was Consumer Staples as we see some sector rotation. Furthermore, the latest troubles that Brazil’s meat exporters are facing (see EM section) should be a boon to US food companies. Note that this was one of the sectors left out of the “Trump bump” (because of exposure to Mexico, etc.). speaking of Mexico.... the Mexican Peso has been on a tremendous bull rampage since Trump's election the Peso bottomed in early January and it has been a one way ride on the up escalator we have a double momentum divergence and if we are seeing a flight to safety it will not be to the Mexican Peso... The Peso is exactly the kind of "risk on" asset that fund managers will be looking to prune back on.. if not actively short. The daily chart has technical damage with a double momentum sell divergence on the daily chart and the technicians are eyeing the return to the first .236 retracement level on the weeky chart The Peso has become a pretty deep liquid market. when we look at the the Weekly Mexican Peso chart it has come up to exactly the .236 retracement of the entire bear market from April 2013 down to the early 2017 low.... this is the continuous contract. 7. Finally, we have three helpful charts from Credit Suisse on different aspects of the equity markets. • This chart shows the level of international exposure broken out by company size segment. Source: Credit Suisse • Next, we have historical returns by presidential term. Source: Credit Suisse • The last chart shows the CS valuation model compared to the returns over the next twelve months. *This measurement doesn’t bode well for the stock market over the coming year.* Source: Credit Suisse

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