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The Russell 2000 is the most important major index on the cusp of a new BUY signal. Our best guess is that Small Caps will still trend lower for now, creating a buying opportunity in the months ahead.

The manufacturing economy has thrown us a deflationary curve in 2019: The Price Index broke down in advance of New Orders, a reversal of the textbook recession/recovery sequence between these two measures.

We noted that the December 2018 stock market low was the second most expensive in history, second only to that of October 1998. Similarities between 2019 market action and the 1998-99 rebound remain eerie. Something isn’t right, and it’s not bullish.

Momentum has made a furious comeback after a rough start to the year, posting an +11% spread in both May and August. Value continues to get crushed and there has been nowhere to hide: The pain is equally distributed between cheap and expensive, and it’s happening in every sector.

We call the current problem in Hong Kong, Hongkongoma, a complex problem underpinned by an ever-widening wealth gap and aggravated by an anti-mainland sentiment as a result of HK’s lost sense of superiority. The Extradition Bill is just the latest trigger.

We take a look at the group’s constituent transformation, its robust GS Score, political/regulatory tailwinds, and its ability to withstand and hold up well during market downturns and recessions.

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Executive summary (for those leaving early for the holiday weekend): No.

We’ve found no reliable relationship between swings in the U.S. Dollar and subsequent variations in U.S. economic growth.

Read this week's Major Trend. 

There’s an old Wall Street adage: “When the wind blows hard enough, even the turkeys fly.” A sophisticated meteorological instrument known as the “price chart” says the wind died down considerably beginning in January 2018

Read this week's Major Trend.

Market bulls remain mystified by the lack of enthusiasm for stocks given the proximity of U.S. indexes to all-time highs. They view this relative indifference as a contrarian positive—the “wall of worry” argument.

Investor sentiment seems to be unusually conflicted these days. There are worries aplenty, including numerous political skirmishes of consequence around the world, a slowing global economy, and lofty U.S. equity valuations. On the other hand, fiscal stimulus is high for this stage in an economic cycle and the Fed is easing monetary policy, two policy drivers it rarely pays to bet against.

The hits to the Momentum category were broad-based; the Advance/Decline work continues to disguise a very dangerous, underlying bifurcation of the market.

The Core CPI is slightly ahead of consensus. Recent depreciation in the Chinese Yuan is disinflationary. Given the seasonal tendency for better economic numbers in the second half of the year, inflation would likely rise moderately along with the economy once we turn the corner.

Mild-mannered and humdrum on the surface but a superhero underneath—that’s Clark Kent and, in recent months, the Low Volatility factor. Low Vol stocks are unexciting by definition, and the factor’s current holdings focus on utilities, REITs, and insurance companies.

Earnings results for the second quarter have so far "beaten" expectations (as they always seem to), but that hasn’t changed the calculus for Small Cap companies. About one-third of them have negative earnings over the last twelve months.

Rather than stocks disconnecting from the economy, as some equity bears contend, we see the blue chips disconnecting from the rest of the market. The underperformance of leading groups, along with multimonth divergences in momentum, bullish sentiment, and credit spreads are all consistent with the deteriorating prospects for earnings and the economy.

The need to sound contrarian has become a borderline obsession among market pundits. Media opportunities for talking heads have exploded in the last decade, forcing those who hold the safest consensus views to falsely portray themselves as lonely and misunderstood market mavericks.