Daily Watchlist · Macro Market · Newsletter · On Our Radar

Daily Newsletter – The Sinking Ship

I vividly remember the moment when I was going to resign from my former employer Deutsche Bank, a senior coworker and mentor told me “Good for you that you are jumping off a sinking ship”. That was almost 2 years ago, and frankly I never imagined this would play out the way it is now, where everyone is calling it the new Titanic, and today blamed for dragging the markets down with it. A quick recap:

“Deutsche Bank came under intensified market fire Thursday, the latest salvo being a Bloomberg report that a small number of hedge funds are trimming their sails at the German bank.”



Technically, DB is in a well defined down trend with 11 the next support after the drubbing this week. If there is any positive it is the positive technical divergence in MACD and RSI, but sentiment clearly trumps at this point.



Broader markets soured in sympathy with SPX down 20pts, Dow down nearly 200pts. The DIA plunged right back to the bullish trend line. With the wedge getting ever tighter, it will have to break one way or another, and it is advised to stay neutral until the direction is clear.



Even though the headline’s focus is on financials, the worst performer actually was elsewhere in biotechs, with IBB down a whopping 3%. That said, the weekly chart shows a cluster of support between here (50WMA) to 278 (20WMA), but for technical picture to remain positive, IBB needs to defend 50WMA on a weekly basis.


Meanwhile, on the heels of OPEC announcement, oil continues its leg up while energy equities were mixed. The XLE closed the day unchanged with a doji candle while OIH spiked right up to descending downtrend and failed. It appears both are running of steam at least in the short-term.


Tomorrow is quarter-end so would expect more window dressing activity which means more dispersion in the markets. But focus will continue squarely on DB now that the media is all over it, any further weakness would lead to selling in US markets. DB is certainly too big to fail, but is it the new Lehman?  If it is, we ought to expect financials to underperform substantially, but so far still holding horizontal support:




Day Ahead – Events and Economic Data


Time Event / Data
8:30am Core PCE, Personal Income & Spending
10am Michigan Consumer Expectations






Quantitative Strategy – Automated Portfolio Update


Equities Short-Term Long Only      
-1.38% 0.30% 45.64%
    Short Only      
      0.94% 2.46% 34.50%
      -0.31% 1.27% 41.43%
  Medium-Term Long Only      
      -1.06% 0.41% 20.07%
ETF Short-Term Long Only      
      -0.98% 3.77% 29.96%
    Short Only      
      0% 3.59% 8.32%
      -0.98% 3.34% 28.74%
  Medium-Term Long Only      
      -0.96% 2.52% 24.80%
Futures Short-Term Long/Short      
      0% 2.78% 6.14%
FX Short-Term Long/Short      
      0% 3.18% 15.11%
SPX Benchmark Index        
      -0.93% -0.91% 5.24%

Portfolio Commentary

Rough day today as on broader market weakness in light of contagion fear from DB. But these wild moves present opportunities for entries into high probability opportunities. Our signal picked up DVA and WY that could outperform heading into Q4, and on the other hand, a few select tech names which are good short tactical candidates. Meanwhile in our ETF portfolio, our signal recommended a long-short combo of IBB vs OIH.




Chart in Focus

DVA – Short-Term Long

Target: 68.64

Entry Point(s): 64.89, 65.46

Comments: After a vicious waterfall drop in August, DVA is stabilizing and closed back above key pivot 20DMA early Sept. A retest provides a good long entry point.



HP – Short-Term Short

Target: 57

Entry Point(s): 65.26, 66.44

Comments: Spiked 200WMA and failed and is forming a bearish H&S pattern in weekly chart. Target drop to neckline at 50WMA near 57 area



Due to lack of time, I have to skip  today’s day trading parameters section, except want to emphasize on S&P 500 futures that on a 4 hour basis we close back above 2150 then it’s a bullish development and we should go ahead test the 2170 area.




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