This past week, three out of the four key US equity indexes posted weekly losses, signaling a pause in the post-election rally. More telling is that market internals which hit frothy levels have been weakening. Volume indicators are showing distribution in the Nasdaq 100 (QQQ). FANG stocks and semi-conductors led the retreat with the exception of Netflix (NFLX). What can be inferred from this market action is that people are suffering post traumatic election stress and are tuning out and turning on (their TV’s) by binge watching their favorite non-reality shows on NFLX.

The technology laden Nasdaq 100 has stalled post - election and is up just a measly +1.4% over the past month when compared to almost +14% (IWM) for Russell 2000 which comprises of mostly domestic based small caps.

Meanwhile, one of the less talked about themes is that value stocks are finally outperforming growth stocks in a significant way. This is unusual as value stocks tend to outperform growth stocks in the early to mid-part of an economic cycle.

So aside from the fact the market looks set for a pause or correction, this dramatic thrust in both value and small caps indicate the markets longer term believe that a new economic growth spurt is in the cards. Transports and the financial sectors are also part of the changing of the guard and the big question remains whether Trump will deliver the growth the markets are anticipating.

Value versus Growth: Ratio Chart

Meanwhile, it hasn’t taken long for geo-political concerns to rear its head regarding president-elect Trumps handling of international relations when he broke decades long protocol or charade (your call on the characterization of this tradition) and pissed off China by actually speaking with the president of Taiwan. The impact on global finance has yet to unfold.

Another potential problem is brewing in Italy where a referendum on government reform will be decided this weekend. If voted down it will most likely throw the government into chaos, have a major impact on Italian banks which are mostly insolvent and in need of a bail-out. This could potentially affect the viability of the whole EU.

One sector worth watching are the Gold Miners (GDX) which has corrected and is hanging on to longer term weekly support according to our momentum indicators. 

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