foxex: Business as Usual

Friday, December 20, 2019

Business as Usual

Chart Advisor | Focus on the Price

By Gordon Scott, CMT

Friday, December 20, 2019

1. Emerging markets begin a tepid rally

2. Commercial real estate sector surges

3. American Tower shares break recent pattern

Market Moves

The U.S. stock market averages closed higher today, with large-cap stocks outpacing most other asset classes including small cap stocks. This kind of move has become so common over the past few months investors appear to be considering it the new normal. The Volatility Index (VIX) inched lower, though still maintaining its subtly divergent action mentioned yesterday. Meanwhile a wide variety of sectors and assets have begun to participate in the overall rally.

The chart below displays one asset class that has not frequented headlines in recent years, that of emerging markets equities. This weekly chart compares iShares' Emerging Markets ETF (EEM) with the S&P 500 index (SPX) over the past three years. The price action appears to have discontinued its downward trend and may soon achieve a new high, thus establishing an upward trend. Even so it appears to have quite a ways to go to catch up to the U.S. stock index.

Commercial Real Estate Sector Surges

Among the sectors that began to show relative strength this week, the commercial real estate sector stands out. This sector had begun to lag behind the market since early November, but its moves over the past three days suggest that it may not remain that way for much longer.

The chart below shows how State Street's SPDR S&P Real Estate ETF (XLRE) has more than doubled the S&P 500 performance over the past few trading sessions. With interest rates expected to remain firm for 2020, investors and landlords can plan on enjoying historically low rates on their rental inventory for another year.

The importance of this price action is less about the real estate sector and more the need for astute chart watchers to recognize just how broad the current asset-based rally is. It is almost as if the market is marching to a mantra of "no sector left behind." Investors keep finding new ways to display their preference for seeking investment opportunity and telegraph their bullish bias.

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American Tower Shares Break Recent Pattern

The largest single holding within State Street's Real Estate sector fund is American Tower Corporation (AMT). The company recently redeemed all of its senior notes and increased its quarterly dividend from 94 cents per share to $1.01. Investors noticed the moves and sent the stock 10 percent higher over the past three trading sessions. The chart below shows how this move created a dramatic breakout in the counter-trend flag pattern that had been building over the last three months, suggesting new buying enthusiasm for the shares.

The Bottom Line

Stocks moved to historic highs, yet again, and this time large caps outpaced small cap and tech stocks. The Volatility Index (VIX) doggedly resists making new lows, however. Emerging markets and the commercial real estate sector both showed recent strength suggesting the current market rally is gaining in breadth.