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US equities got hit hard, down -2.5%  on average, as the tariff war with China escalated. It sent stocks into a nasty retreat on a global basis. China got hit the hardest down -6.55%. In fact, there was not a single Global Equity (Country funds) index that had a positive return this week. Trade wars are just not good the the global economy.

Grandpa Russell (IWM) managed to hold onto its 200 day moving average with help from a monster rally off the low’s on Friday. It still closed under its 50 week moving average, so the jury is out on direction but it’s bound to be large either way.

Markets continue to be buffeted by geo-political stress on multiple fronts that include the trade war with China, missile launches by North Korea, andtensions with Iran with a possible closure of shipping lanes.

Last week our Alpha Rotation model moved out of long equities on Friday morning, well ahead of the nasty selloff (for more info on this quant based model click here). We remain extra cautious,fluid and ready to adjust our our outlook based on fresh data.

 This week’s highlights are:

  • Risk Gauges went 100% negative
  • High Yield Debt versus Us Bonds (TLT) continues to show the most stress across our inter-market indicators
  • Volume patterns are showing distribution across two key US Equity indexes
  • Safety plays performed well (XLU) such as utilities and consumer staples (XLP) while spec sectors (SMHIBB) got hit hard
  • Market Internals resumed it defensive posture with the High/low ratio rolling over along with the McClellan Oscillator
  • If Value Stocks trade up relative to Growth from current levels that will be another indicator that this monster rally is over
  • Emerging Markets are trading weaker than Established Markets and if this condition persistsit will be another sign that markets are ready to take a breather
  • Market Sentiment hit oversold levels on a short-term basis  
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Disclosure: On another note we would like to thanks all those that bought Mish’s book, Plant Your Money Tree: A Guide to Growing Your ...

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