The relief bounce in MSCI US and MSCI Europe was driven by a rally in defensive sectors, a bearish omen for risk sentiment according to Sejul Gokal, Chief Technical Strategist at GO-TechniKAL Insight.

Gokal points to several tables and charts that illustrate his point:

Table 1
Despite the relief rally in US equities last week, Gokal points out that defensive sectors led the gains (data to mid-Friday 19 October).

Table 2
There was a similar pattern in Europe where cyclical sectors were unable to lead the pack, with Financials and Energy still under pressure (data to mid-Friday 19 October).

Chart 1
U.S. healthcare stocks continue to rally higher relative to the S&P and are set to take out the relative tops of 2017, showing that, according to Gokal, “defensives are in vogue”.

Chart 2
Similarly, the Europe Healthcare sector has retraced almost 50% of the relative bear market from 2016.

Chart 3
Gokal points out that a major top has completed in the MSCI Cyclical/Defensive ratio index, with timing of the ‘peak’ of the distributive pattern coinciding with Trumps escalation of trade tensions with China.