Weekly Survival the Markets - · PDF fileImportant legal disclaimer on last page ... Earnings Surprises are a Sentiment ... , an affiliate of Renaissance Macro Securities, LLC

Jeffrey deGraaf, CMT, CFA 212‐537‐8822 [email protected] Meintel, CMT 212‐537‐8820 [email protected] Nipper, CMT, CFA 212‐537‐8825 [email protected] Adzhiashvili 212‐537‐8818 [email protected] Dempter, CMT 212‐537‐8821 [email protected]

[email protected] legal disclaimer on last page

Follow us on Twitter @renmacllc

Weekly

Survival Guide to

the Markets

January 30, 2018

1

Consumer Comfort Bullish, but NOT Too Bullish

2

Earnings Surprises are a Sentiment Measure

Positive – negative surprises are off

their highest levels since 2010, but remain

robust. At worst this suggests

consolidation.

Net Surprises Tend to Have Legs 

Beating expectations in a meaningful

way (10th decile) suggests expectations

need to catch-up with reality

SPX Historical 14‐Week RSI Returns

- - - AverageTypical of many momentum

indicators we’ve studied, returns

tend to exhibit a horseshoe

formation where the best returns

are found in the tails, and are not

asymmetrical.

Credit Conditions Still in Highest Decile

6

Global Yields Have NOT Broken Out

Resistance

Resistance

Resistance

Resistance

BB vs BBB Spreads Still Bullish

8

High Beta is Trending vs. Low Beta (Bullish)

Beta working is a bullish pre-condition

for the market. A 65-day relative low

of high vs low beta is bearish and

generally precedes market peaks.

9

IPOs are Out‐performing SPX: Bullish

IPO performance is firm, but

not overly exuberant.

10

US $ Oversold in a Downtrend

11

A Review on 1987 “Causes”

Reagan signs

1986 Tax Cut

Bill

New tax

rates take

effect

1987 equity

crash

OPEC fails

to reach

production

accord

Rates were expanding aggressively for

most of the year before impacting stocks

12

EM Still Favorable and Currency Supportive

EM currencies are on the verge of

breaking-out and confirming strength in

EM equities.

13

Commodities Attractive vs. Equities in SERM

Relative performance has

not turned higher yet.

14

Valuation is Supported by Credit Conditions

When EBITDA/EV is normalized by

BBB yields, current valuations are

historically in line. Without

normalization, valuation indications

are less effective.

Still Consistent w/ Melt‐up

In our view, melt-ups by definition have to

be rare events. Looking at history we

found markets that have advanced >50%

within 18-months and are at a new high,

appear to fit the bill. Today we’re up 31%

To qualify as a melt-up today, the SPX

would need to reach 3420 in 6-months or

3715 in 12-months

.

We Prefer High Momentum / Low SERM

1) Vertical axis represents momentum (higher better)

2) Horizontal axis represents SERM (left better)

3) Color equates to bullish/bearish proprietary option score (green bullish)

4) Size represents the % > 65‐day moving average for the group.  Big = OS       Small = OB

Bubble legend in order of 

importance

Momentum

Bucket

- Alpha + Alpha

Contrarian

bucket

Energy/H.C./Discretionary

17

Expect Some Reversion

18

Tech’s Relative Performance Has Stalled

19

20

Technology is Vulnerable

Health Care Improving

21

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Health Care Improving

Renaissance Macro Research, LLC Global DisclaimerThis document has been prepared by Renaissance Macro Research, LLC (“RenMac”), an affiliate of Renaissance Macro Securities, LLC.

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