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The EW-Navigator - November 2019 - Downside risks in equities - defensive sectors set to outperform – Consumer Staples/Discretionary – Utilities – Health Care - Biotechnology bullish

The U.S./China trade war continues to hold investors/asset/fund managers back. Some positive news filtered through last week following the latest meetings in Washington but the outlook remains fragile. In its latest monthly Fund Manager Survey, Bank of America/Merrill Lynch said that over the past six months, money market funds attracted $322 billion of inflows, the largest flight to safe assets since the second half of 2008. In similar fashion to 2007 and 2008, investors raised their cash holdings despite falling interest rates. This of course, reflects the hesitancy of investors to fully leverage into the equity markets at a time of trade negotiation uncertainty.

There’s also increasing anxiety of the inverted yield curve and prospects of a U.S. recession – from an Elliott Wave perspective, stock markets look pretty solid, bullish over the next 2-3 year period. December’s sharp advance in the major indices brought gains of +26% per cent into the May highs – this ended the 1^st wave of a new intermediate degree, five wave uptrend – in Europe, this was fully corrected by a 2^nd wave retracement into August’s lows – but it’s still questionable whether U.S. benchmark indices did the same, or whether they’re preparing to extend equivalent corrections lower into year-end. This month’s report examines these shorter-term probabilities. This edition of the EW-Navigator updates several U.S. sectors and also benchmark European indices alongside several Emerging Markets.

In the Currency/FX section of this month’s report, we update the current positon of the benchmark US$ dollar index together with its daily composite cycle. The cycle projection has changed direction over the last month, giving clues to the timing of this next development. The Euro/US$ has reached optimised downside targets against the backdrop of a lengthy period of declines that goes back to the high reached in early ’18 at 1.2556. Did October’s low at 1.0879 ended this multi-year zig zag correction? We examine its pattern whilst making comparisons with Stlg/US$, US$/Yen, AUD/US$, NZD/US$ and US$/CAD.

This month’s interest rate section updates the monthly wave count of the US30yr yield – it’s always good to get some perspective of the longer-term trend! We also add a newly updated daily time-series, monitoring its five wave downtrend development from the late-2018 peak to current levels. More downside is expected! The US10yr yield cycle highlights an important date for Q1/2-2020 whilst the US10yr Inflation TIPS is reaching downside targets made earlier this year. The US10yr-DE10yr (10/10) spread expects further narrowing whilst the outright European benchmark yield trends lower. Italy’s ITY10yr yield is also engaged in a downtrend and we update its pattern progress that began from the Oct.’18 high.