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Monthly Commentary – It is Crunch Time

US markets sailed north on the last day of the month and quarter with SPX up 17pts on improved sentiment, as Deutsche Bank seemingly may have got a break. Specifically,

 

“Financial stocks led the rally following those reports that Deutsche could receive a fine of just $5.4bn from the DoJ; much less than the opening shot of $14bn.”

https://www.theguardian.com/business/live/2016/sep/30/deutsche-bank-fears-stock-markets-shares-slide-business-live

 

I would not believe for a second DB’s problem is solved with a smaller fine, but it is at least patched up allowing key US indices to bounce off a crucial bullish trendline to keep trading range intact. In addition, technicals are improving with MACD crossing positive in DIA, following the suit in SPY, which is usually sign of fresh leg higher.

20161001-DIA.png

Window dressing from fund flows may have also contributed to the buying activities. On the week, semiconductors (SMH) and energy (XLE) were top performers, both up about 4%. And coincidentally, they were also top performers month over month, +5% and +3% respectively. Sky is the limit for SMH, as it had a massive breakout from ascending wedge and MACD had just crossed positive again pointing to another leg higher.

20161001-SMH.png

 

Energy sector obviously got a boost from OPEC deal, and was propelled right to confluence of crucial horizontal resistance and bullish up trend. Still need a weekly close above 71 for confirmed breakout for further upside to 200WMA and ultimately the next major swing point of 80.

20161001-XLE.png

On the other hand, IBB was the underperformer on the week, down 3% but was able to defend 50WMA ensuring that the current bull trend remains intact. On the month, IBB is up a modest 3% and we will see if it has the momentum to get over the critical 300 hurdle

20161001-IBB.png

Financials (XLF) was slightly red on the week but created bullish hammer candle on the back of positive development in DB, and likely follow-through to upside coming weeks as long as DB situation remains under control. 20 is near-term target.

20161001-XLF.png

It is certainly an understatement to say Q4 will be an important quarter, with earnings season, US Election and prospect of 2nd hike by the Fed to wrap up the year. SPX is up 6% so far on the year, but could easily wipe out or double that gain, or much more, depending on the outcome of those events. It is crunch time, indeed.

 

Monthly Market Snapshot

Sector ETFs by Monthly Return %

SYMBOL NAME CLOSE WTD % MTD % YTD %
SMH HOLDRS Merrill Lynch Semiconductor 69.47 3.70% 4.92% 30.39%
XLE SPDR Select Sector Fund – Energy Select Sector 70.61 4.39% 3.07% 17.06%
IBB iShares Nasdaq Biotechnology 289.46 -2.92% 3.05% -14.44%
QQQ PowerShares QQQ Trust 118.72 0.33% 1.96% 6.13%
XLK SPDR Select Sector Fund – Technology 47.78 0.61% 1.68% 11.56%
IWM iShares Russell 2000 124.21 -0.48% 0.80% 10.29%
XLI SPDR Select Sector Fund – Industrial 58.38 1.14% -0.36% 10.13%
XLG Rydex Russell Top 50 ETF 152.77 -0.12% -0.41% 5.66%
XLU SPDR Select Sector Fund – Utilities 48.99 -3.83% -0.49% 13.19%
SPY SPDR S&P 500 216.3 0.14% -0.50% 6.10%
DIA Dow Jones Industrial Average ETF 182.78 0.20% -0.63% 5.11%
XLY SPDR Select Sector Fund – Consumer Discretionary 80.04 0.46% -0.65% 2.41%
XLV SPDR Select Sector Fund – Health Care 72.11 -1.37% -0.89% 0.11%
PFF iShares S&P US Preferred Stock Fund 39.5 -0.83% -1.50% 1.67%
XLB Materials Select Sector SPDR 47.75 0.93% -1.67% 9.97%
KRE SPDR KBW Regional Banking ETF 42.27 0.09% -1.74% 0.83%
XRT SPDR S&P Retail ETF 43.55 -0.53% -2.07% 0.72%
XLP SPDR Select Sector Fund – Consumer Staples 53.21 -0.24% -2.15% 5.39%
IYR iShares Dow Jones U.S. Real Estate Index Fund 80.64 -2.49% -2.30% 7.41%
XLF SPDR Select Sector Fund – Financial 19.3 -0.41% -2.80% 1.26%
XLFS S&P SmallCap Financials Portfolio 30.45 -0.33% -3.07% -1.39%

 

Commodity & Bond ETFs

SYMBOL NAME CLOSE WTD % MTD % YTD %
USO United States Oil Fund 10.93 7.26% 5.50% -0.64%
GDX Market Vectors TR Gold Miners 26.43 -2.18% 3.69% 92.64%
SLV iShares Silver Trust 18.2 -2.57% 2.71% 37.98%
GLD SPDR Gold Trust 125.64 -1.57% 0.69% 23.83%
HYG iShares iBoxx $ HY Corp Bond Fund 87.26 0.58% 0.65% 8.29%
AGG iShares Barclays Aggregate Bond Fund 112.42 0.17% -0.13% 4.08%
LQD iBoxx $ Investment Grade Corporate Bond Fund 123.18 0.24% -0.57% 8.04%
DBA PowerShares DB Agriculture Fund 19.98 -2.39% -1.24% -3.06%
TLT iShares Barclays 20 Year Treasury Bond Fund 137.51 0.50% -1.69% 14.04%

 

Country ETFs

SYMBOL NAME CLOSE WTD % MTD % YTD %
EWH iShares MSCI Hong Kong Index Fund 22.01 -0.05% 4.66% 11.05%
EWO iShares MSCI Austria Index Fund 16.32 0.31% 4.55% 4.28%
EWT iShares MSCI Taiwan Index Fund 15.7 0.26% 4.46% 22.94%
EWK iShares MSCI Belgium Index Fund 18.86 -0.63% 3.80% 4.43%
EWA iShares MSCI Australia Index Fund 20.9 1.75% 3.36% 10.23%
EWY iShares MSCI South Korea Index Fund 58.13 0.83% 3.16% 17.03%
FXI iShares FTSE/Xinhua China 25 Index Fund 38.01 -0.78% 2.59% 7.71%
EWS iShares MSCI Singapore Index Fund 10.86 1.12% 2.55% 5.64%
EEM iShares MSCI Emerging Index Fund 37.45 -0.48% 2.52% 16.34%
EWX SPDR S&P Emerging Markets Small Cap ETF 43.16 -0.21% 2.25% 14.45%
EWJ iShares MSCI Japan Index Fund 12.54 -0.79% 2.12% 3.47%
EWD iShares MSCI Sweden Index Fund 29.07 0.14% 1.79% -0.38%
EWC iShares MSCI Canada Index Fund 25.69 1.02% 1.50% 19.49%
EWL iShares MSCI Switzerland Index Fund 30.55 -0.88% 1.23% -1.58%
EWQ iShares MSCI France Index Fund 24.16 -0.25% 1.21% -0.21%
EWP iShares MSCI Spain Index Fund 26.82 -0.19% 1.21% -5.13%
EWN iShares MSCI Netherlands Index Fund 25.06 0.48% 0.89% 5.12%
EWZ iShares MSCI Brazil Index Fund 33.73 -0.41% 0.63% 63.10%
EWU iShares MSCI United Kingdom Index Fund 15.84 0.25% 0.44% -1.86%
EWG iShares MSCI Germany Index Fund 26.27 -0.64% 0.23% 0.31%
DXJ WisdomTree Japan Total Dividend Fund 42.91 -0.23% -0.67% -14.32%
EWM iShares MSCI Malaysia Index Fund 8.11 -0.73% -0.86% 4.78%
EWI iShares MSCI Italy Index Fund 11.02 0% -2.39% -19.80%
EWW iShares MSCI Mexico Index Fund 48.48 1.21% -3.94% -2.71%

 

Week Ahead – Events and Economic Data

 

10/3 Monday

Time Event / Data
9:45am Markit Manufacturing
10am ISM Manufacturing

10/5 Wednesday

Time Event / Data
8:15am ADP Nonfarm Employment Change
10am ISM Non Manufacturing
10:30am Crude Oil Inventories

10/6 Thursday

Time Event / Data
8:30am Initial Jobless Claims

10/7 Friday

Time Event / Data
8:30am Nonfarm Payroll (NFP)

 

 

 

 

Quantitative Strategy – Automated Portfolio Update

Performance

ASSET CLASS TYPE LONG or SHORT DAILY % MTD % QTD % YTD%
Equities Short-Term Long Only        
0.66% 0.96% 5.05% 46.30%
    Short Only        
      -0.18% 2.28% 0.67% 34.32%
    Long/Short        
      0.26% 1.52% 3.10% 41.69%
  Medium-Term Long Only        
      0.67% 1.08% 9.52% 20.75%
ETF Short-Term Long Only        
      1.01% 4.77% 5.31% 30.97%
    Short Only        
      -1.53% 2.06% -5.23% 6.80%
    Long/Short        
      -0.26% 3.08% -1.22% 28.48%
  Medium-Term Long Only        
      0.74% 3.25% 5.24% 25.54%
Futures Short-Term Long/Short        
      0.41% 3.19% -1.15% 6.55%
FX Short-Term Long/Short        
      0% 3.18% 3.62% 15.11%
SPX Benchmark Index          
      0.80% -0.12% 3.31% 6.08%
             

Portfolio Commentary

For the month of September, although broader markets were mixed, our strategies edged out a gain as both our long and short portfolios in all asset classes were able to capitalize on the volatility and generated profitable trading signals. As we enter the final quarter of the year, more uncertainty is to be expected with major events looming as mentioned above.  We are confident our strategies will navigate through the rough seas by continuing to identify outperforming stocks and sectors. For instance, we are watching closely whether energy and biotech can breakout of critical resistance levels. Also we expect higher interest rates and that would be positive for financials and negative for utilities.

 

Chart in Focus

TLT –  Medium-Term Short

Target: 129

Entry Point(s): 137.51, 139

Comments: The chart pattern now closely resembles 2014-2015 which ultimately led to a drop under 50WMA. With rate hike looming and inflation likely to pick up as the oil drop effect wanes, rates ought to go higher leading to lower prices in bonds (TLT).

 20161001-TLT.png

 

CAT – Short-Term & Medium-Term Long

Target: 94

Entry Point(s): 88.77, 86, 85

Comments: An explosive breakout about 3 technical resistance in 1 single week points to further gains. ST overbought but dips should be bought towards 86 and 85 for a target towards broken ascending trendline.

20161001-CAT.png

 


 

EXPE – Short-Term Short

Target: 112.73

Entry Point(s): 116.72, 119

Comments: Spiked above inverse H&S neckline last week but failed and closed back underneath. ST overbought conditions warrant pullback towards 50WMA.

20161001-EXPE.png

 

 

 

 

 

 

Day Trading Charts & Parameters

Futures

 

Dow 30

Support: 18030

Resistance:18236 ,18400, 18480

20161001-YM.png

S&P 500

Support: 2151, 2140, 2129

Resistance: 2166, 2172, 2185

20161001-ES.png

 

NDX 100

Support: 4813, 4844

Resistance: 4876, 4888

20161001-NDX.png

Crude Oil

Support: 47

Resistance: 49

20161001-CL.png


 

 

Gold

Support: 1305, 1314

Resistance: 1343

20161001-GC.png

10-Yr Treasury Note

Support: 131, 130.86                                                                                                          Resistance: 131.79

20161001-TY.png


 

US Dollar Index

Support: 95.26                                                                                                                    Resistance: 96

 

 

Nikkei 225

Support: 16135, 16350

Resistance: 16650, 16900

20161001-NIKK.png

 

 

 

Currency Pairs

USD/JPY

Support: 99, 100.35

Resistance: 101.66, 102

20161001-usdjpy

EUR/USD

Support: 1.1155

Resistance: 1.1252

20161001-eurusd

 

 

GBP/CHF

Support: 1.2520, 1.2465

Resistance: 1.2617, 1.2700

20161001-GBPCHF.png

 

AUD/USD

Support: 0.76    , 0.7525

Resistance: 0.7695, 0.7666

20161001-AUDUSD.png

 

 


 

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