January 19, 2021
Portfolio Earnings Alert for the week.
Tuesday (January 19th)
NFLX – After Close
Wednesday (January 20th)
KMI – After Close
UNH – Before Open
Thursday (January 21st)
UNP – Before Open
The market perspective didn’t change much last week as all major markets remain overbought, extended, deviated, and extremely bullish. That is good news for traders in the short-term as prices will try to extend higher. However, we are getting very close to the point of getting a reasonable correction of 5-10% within the next 4-weeks.
As shown, the S&P 500 struggled a bit this past week as the overbought condition was reduced very slightly. The TRIX indicator is close to turning down, but money flows remain positive at the moment. We will push more into “risk-off” mode if we see both the TRIX and money flow turn negative.
Elsewhere, every other market is pushing much more extreme levels, suggesting that investors’ risk/reward setup is not great. (Short-term traders still have an upward bias) For longer-term investors, now is the time to rebalance risk and reduce exposure.
Emerging and International Markets remain grossly extended and deviated from long-term means. While the price runup has been based on expectations of a global economic recovery, such is unlikely to come to fruition to the scale needed to support current prices. Much of the runup has been due to a weaker dollar, which, as we have been discussing over the last several weeks, is likely close to bottoming, at least in the short-term.
Small and Mid-Cap Markets, very much like International and Emerging markets, Small and Mid-caps are also extremely overpriced, deviated, and extended. As noted above, these markets are more extremely overbought than at any other period in the last decade. Furthermore, even if the economy does recover to some degree in 2021, it has likely already been priced in and then some. The risk of disappointment is high. Continue to rebalance risk and sizing in portfolios for now.
The dollar remains the key to the whole market. The sharp decline in the dollar over the last 9-months has been the tailwind for the equity rally. With the dollar extremely oversold and a massive net short against the dollar currently, any change in sentiment could lead to a sharp counter-trend rally. Continue to watch the dollar, and bonds, for clues to a turn. If such a turn begins, reduce equity holdings and hedge with long-dollar and bond positions.
(Note: We added a position in TLT on Thursday as an early hedge for a reversal.)