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The NAVIGATOR - JUNE 2018 - U.S. Indices set for Marginal Break above January Peaks - Buy Signal for XLP - EM's begin Counter-Trend Upswing - US$ Approaching Interim Upside Targets - Inflation TIPS near Interim

In This Edition:        

This year’s stock market performance is set to be a difficult year for active funds tracking the major benchmark indices. Whereas the S&P 500’s 2017 trend was directionally upwards with nor more than -3.0% per cent corrections but overall gains of +18.2% per cent, 2018 has ended the first 4-month period with a performance of minus -1.74% per cent. And yet, within the four active price-swings, added together, produce an incredible net swing of 38.0% per cent! Our analysis has captured at least 70% per cent of these movements, about 26% per cent which beats the total gain of a passive strategy for the entirety of last year’s 2017 gains.

A report by asset management advisory firm Prometeia, states that only 18% per cent of European funds outperformed their benchmark over a three-year period. In actual fact, that’s a lot better than comparable surveys we saw last year which might come down to the fact that 2017 was a straight-line uptrend. In this month’s report, we’re examining how the stock market’s trends can be expected to develop over the next several months – it’s going to be hit or miss for benchmark active tracker funds because we foresee several more ‘traps’ lying in wait.   

Just recently, sentiment has swung from an extreme ‘negative’ reading when U.S. indices traded down into their April lows, but have since adjusted to more ‘neutral’ readings now that prices have resumed higher. And as this transition of expectations unfolds, so have analyst forecasts changed too. We’ve noticed an overwhelming consensus that this year’s price-swings are unfolding into a triangle pattern with net expectations for a sustained advance to higher-highs. For example, Citibank analysts are forecasting the S&P 500 up to 3050.00+/- with similar forecasts across an array of other research firms. We discuss why this is far too optimistic and why the current upswing is set to fade below those consensus price expectations.

We’ll also be taking an updated look at our U.S. sector analysis and answering why the Materials (XLB) / Consumer Staples (XLP) spread is offering insights to the current Wall Street theme of rising inflationary expectations. The Emerging Markets are also updated with an interesting take on global EM concerns over debt levels.

This month’s analysis on currencies, particularly the US$ dollar shows how this year’s 2018 forecast for a massive dollar recovery is progressing. So far, its push higher is shown developing into an initial Elliott Wave impulse pattern, a five wave sequence. This confirms upside continuity for another several months. The US$ dollar’s advance is closely tied into rising inflationary expectations. But whereas consensus remains firmly rooted into higher interest rates and the rising trend of the US10yr yield, our analysis takes an in-depth look at some other indicators which otherwise suggest an interim upside exhaustion lies ahead with a downturn in those inflationary expectations beginning sometime within the next couple of months. This month’s report includes an updated look across other currency pairs, particularly those of Emerging Markets together with an update of the US10yr Inflation –TIPS.