US equities rallied this week, with the S&P 500 up +0.9% and the Russel 2000 (IWM) up +2.6%, regaining a bullish market phase. The Nasdaq 100 closed at all-time highs.

Several sectors gained ground including semiconductors which reasserted itself as the leading sector and regained its bullish phase. Some safe havens such as Utilities and Gold paused this week, which is a positive for equities. This occurred despite increased geopolitical tensions that included chest thumping by both the US and Russia regarding who’s got the bigger bomb. Russian bombers twice approached US airspace before being escorted away.

US equities also survived the potential threat of a looming government shutdown or decided it could be a good thing. Maybe Mr. Market decided that we can’t have a war if government employees are on unpaid leave. Nobody would be around to arm the bombs or push buttons.

Global markets also took the upcoming elections in France in stride even though many pundits are predicting an upset with right wing National Front leader, Marine Le-Pen as winner. If that happens, the fate of the Euro would be in jeopardy as Le Pen has vowed to Frexit.

The big Trump rally post-election here in the US is not likely to repeat in France should Le Pen win as there is no major economic plans to boost the economy. If anything, if France leaves the Euro, it will have a negative ripple effect on the global economy and hit France quite hard.

The positives this week are that both market internals and the sector outlooks improved overall. Individual Investor (AAII) sentiment is bearish, which is general a good contrarian indicator.

Many of our key risk on/off market indicators which include Gold versus stocks, high yield debt versus US bonds, and stocks versus utilities are all indicating risk off. Price momentum of US equities based on our proprietary momentum indicators are weak, with the exception being Nasdaq 100.

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Big global macro players such as Paul Tudor Jones are terrified with current valuations but not quite ready to get short.To sum it up, there are ominous signs all around. But massive trends that are self-reinforcing take time to shift and unwind.

The major political upheavals here and in Europe have yet to play out and that could be the catalyst for a selloff. On the other hand, if just some of the promises by President Trump made play out it will keep things spinning onward. For now, we are in a small correction mode that could still reverse before the significant unwinding. In markets like these, make sure you know where the exit door is located.

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