Macro Market · Market Commentary · Newsletter

Weekly Commentary – Line in the Sand

Guess what type of candle formed on Friday? Yep, another doji candle in the Dow, 7 out of last 8 trading sessions, though this time it was the bulls who showed up to defend the vital horizontal support and ensure the continuation of chopfest into the final week of October.

20161022-INDU.png

Last week’s action, while on a magnitude basis is small as most indices closed nearly flat week over week, helped define the line in the sand between a more severe correction or a mere consolidation from recent highs. For example, for the Dow, it’s the purple line shown above. And as mentioned intraweek, we ought to keep an eye on the small caps – Russell 2000 (IWM). On the weekly chart, it is clear that the 20WMA is the line in the sand – looking in the past 2 major bull trends, as long as IWM does not close under 20WMA during an uptrend, higher highs would ensue in the following weeks.

20161022-IWM.png

Plenty of catalysts next week as we will have a busy earning schedule, as “About a third of S&P 500 companies are scheduled to report next week, including Apple on Tuesday.” Amazon and Google report Thursday, while we also have GDP on Friday.

http://www.cnbc.com/2016/10/21/busiest-day-for-earnings-gdp-and-more-coming-in-the-next-week.html

Banks were the shining star last week on strong earnings, particularly with the regional bank index (KRE) up an impressive 2.8% on the week. That is followed by the Materials sector (XLB), which added 1.6% while the broader Financials (XLF) was higher by 1.2%. The KRE has been in a consolidation in recent weeks after breaking through May swing highs, and looks to retest the 2015 post-crisis highs in the medium-term.

20161022-KRE.png

On the other hand, Industrials (XLI) and Retail (XRT) were the laggards, down a slight -0.4% respectively though both were off lows. XLI resembles a similar chart as the Dow, which has managed+ to hold a critical horizontal breakout level at 56

20161022-XLI.png

Away from the US, the top performing equities markets were Brazil (EWZ) +4.7%, Mexico (EWW) +4% and Spain (EWP) +3.4%. As we have covered the charts for both EWZ and EWW recently, let’s instead have a look at the Spanish market. It has an similar technical picture to the Japan market (DXJ), as they both launched off recent lows, above 50WMA and right into a LT descending trendline though has yet to close above it. A LT buy signal would be triggered in event of confirmed close above the line, so keep it on your radar.

20161022-EWP.png

In other asset classes, the shining star was US Dollar, which made 3 consecutive weeks of strong gains to fresh YTD highs. On a bigger picture, the DXY shot right up to the top of descending price channel which will be headwinds on further gains from here. The contrarian play here is to short USD (or long Euro which is the biggest weighting in the index) on strength and look for a pullback off the channel.

20161022-DXY.png

Treasuries also had a rebound, as the TLT was up 1.3% on the week. That said, technically no change to the big picture as the 2015 sell-off chart pattern remains intact unless we see a close back above the broken swing point around 134 area.

20161022-TLT.png

In commodities space, gold miners (GDX) enjoyed a stellar 7% gain after holding neckline formed from June lows, and now has its sight toward the shoulder line to form an ominous H&S pattern. Dip buyers should look to take profit (and shorts would look to reload) at 26.

20161022-GDX.png

So US markets avoided an onslaught after previous week’s decline by holding key support levels, however as highlighted in multiple occasions, we are by no means out of the woods with major indices piercing through bullish trendlines (except Russell 2000) . With just over 2 weeks left before the election, while betting markets are pricing in 80% chance of Clinton victory, what is perhaps not priced in is the uncertainty even if she is elected. Per Liam Halligan at Telegraph, there is the scenario of “The party’s control of all three Washington power-centres could result in a slew of growth-challenging policies, including higher tax and regulation – which would hit not only American stocks, but also the US currency.”

http://www.telegraph.co.uk/business/2016/10/22/clinton-will-put-freeze-on-rates-and-create-a-new-trump/

Without a doubt, there will be plenty of noise leading into and after the Election. For technical traders, good news is we can filter through the noise by focusing on the charts, as the technical parameters cannot be clearer. To recap, in the Dow, a drop below the “line in the sand” would foreshadow a much more severe decline ahead, and a close back above the triangle wedge would most certainly point to new highs. Until either happens, avoid the chop unless you are a day trader who can continue to trade the range.

 

 

 

 

Weekly Market Snapshot

Sector ETFs by Weekly Return %

SYMBOL NAME CLOSE DAILY (%) WTD % MTD %
KRE SPDR KBW Regional Banking ETF 43.19  

0.12

0.28%

2.83% 2.18%
XLB Materials Select Sector SPDR 47.06  

-0.02

-0.04%

1.60% -1.45%
PFF iShares S&P US Preferred Stock Fund 39.36  

0.09

0.23%

1.26% -0.35%
XLF SPDR Select Sector Fund – Financial 19.65  

-0.01

-0.05%

1.18% 1.81%
XLFS S&P SmallCap Financials Portfolio 31.01  

-0.05

-0.16%

0.91% 1.84%
XLY SPDR Select Sector Fund – Consumer Discretionary 79.59  

0.63

0.79%

0.89% -0.56%
QQQ PowerShares QQQ Trust 118.15  

0.44

0.37%

0.86% -0.48%
IYR iShares Dow Jones U.S. Real Estate Index Fund 77.99  

-0.1

-0.13%

0.72% -3.29%
IBB iShares Nasdaq Biotechnology 267.77  

-2.27

-0.84%

0.64% -7.49%
XLE SPDR Select Sector Fund – Energy Select Sector 70.19  

-0.46

-0.65%

0.56% -0.59%
IWM iShares Russell 2000 121.07  

-0.06

-0.05%

0.53% -2.53%
XLU SPDR Select Sector Fund – Utilities 48  

-0.28

-0.58%

0.52% -2.02%
SMH HOLDRS Merrill Lynch Semiconductor 67.9  

-0.09

-0.13%

0.41% -2.26%
SPY SPDR S&P 500 213.98  

0.1

0.05%

0.40% -1.07%
XLK SPDR Select Sector Fund – Technology 47.53  

0.13

0.27%

0.34% -0.52%
XLV SPDR Select Sector Fund – Health Care 69.71  

-0.58

-0.83%

0.13% -3.33%
DIA Dow Jones Industrial Average ETF 181.22  

-0.32

-0.18%

-0.04% -0.85%
XLG Rydex Russell Top 50 ETF 151.14  

0

0%

-0.14% -1.07%
XLP SPDR Select Sector Fund – Consumer Staples 52.23  

0.28

0.54%

-0.27% -1.84%
XRT SPDR S&P Retail ETF 42.95  

0.04

0.09%

-0.39% -1.38%
XLI SPDR Select Sector Fund – Industrial 56.99  

-0.08

-0.14%

-0.42% -2.38%

 

Commodity & Bond ETFs

SYMBOL NAME CLOSE DAILY  (%) WTD % MTD %
GDX Market Vectors TR Gold Miners 24.62  

-0.19

-0.77%

7.09% -6.85%
TLT iShares Barclays 20 Year Treasury Bond Fund 133.31  

0.2

0.15%

1.31% -2.88%
GLD SPDR Gold Trust 120.83  

0.09

0.07%

1.23% -3.83%
LQD iBoxx $ Investment Grade Corporate Bond Fund 122.51  

0.07

0.06%

0.73% -0.54%
HYG iShares iBoxx $ HY Corp Bond Fund 87.37  

0.02

0.02%

0.59% 0.13%
SLV iShares Silver Trust 16.65  

0.01

0.06%

0.54% -8.52%
DBA PowerShares DB Agriculture Fund 20.28  

0.07

0.35%

0.50% 1.50%
AGG iShares Barclays Aggregate Bond Fund 111.83  

0.07

0.06%

0.41% -0.52%
USO United States Oil Fund 11.48  

0.05

0.44%

0.35% 5.03%

Country ETFs

SYMBOL NAME CLOSE DAILY (%) WTD % MTD %
EWZ iShares MSCI Brazil Index Fund 37.77  

-0.01

-0.03%

4.77% 11.98%
EWW iShares MSCI Mexico Index Fund 51.95  

0.19

0.37%

3.94% 7.16%
EWP iShares MSCI Spain Index Fund 27.06  

0.01

0.04%

3.36% 0.89%
EWI iShares MSCI Italy Index Fund 11.21  

-0.01

-0.09%

3.13% 1.72%
EEM iShares MSCI Emerging Index Fund 37.6  

-0.01

-0.03%

1.95% 0.40%
EWJ iShares MSCI Japan Index Fund 12.57  

0

0%

1.86% 0.24%
EWT iShares MSCI Taiwan Index Fund 15.74  

-0.03

-0.19%

1.81% 0.25%
EWX SPDR S&P Emerging Markets Small Cap ETF 43.51  

0.01

0.02%

1.78% 0.81%
DXJ WisdomTree Japan Total Dividend Fund 44.53  

0.09

0.20%

1.74% 3.78%
EWY iShares MSCI South Korea Index Fund 56.19  

-0.22

-0.39%

1.50% -3.34%
EWO iShares MSCI Austria Index Fund 16.29  

-0.05

-0.31%

1.43% -0.18%
EWM iShares MSCI Malaysia Index Fund 8.05  

0.02

0.25%

1.39% -0.74%
EWC iShares MSCI Canada Index Fund 25.7  

-0.04

-0.16%

1.10% 0.04%
EWH iShares MSCI Hong Kong Index Fund 21.83  

-0.01

-0.05%

0.97% -0.82%
EWN iShares MSCI Netherlands Index Fund 24.51  

-0.07

-0.29%

0.86% -2.19%
EWQ iShares MSCI France Index Fund 23.93  

-0.08

-0.33%

0.84% -0.95%
EWU iShares MSCI United Kingdom Index Fund 15.21  

-0.02

-0.13%

0.73% -3.98%
FXI iShares FTSE/Xinhua China 25 Index Fund 37.83  

-0.02

-0.05%

0.64% -0.47%
EWD iShares MSCI Sweden Index Fund 28.36  

-0.12

-0.42%

0.57% -2.44%
EWS iShares MSCI Singapore Index Fund 10.42  

-0.04

-0.38%

0.39% -4.05%
EWG iShares MSCI Germany Index Fund 25.84  

-0.1

-0.39%

0.27% -1.64%
EWA iShares MSCI Australia Index Fund 20.73  

-0.12

-0.58%

0.14% -0.81%
EWL iShares MSCI Switzerland Index Fund 29.59  

-0.09

-0.30%

-0.44% -3.14%
EWK iShares MSCI Belgium Index Fund 18.35  

-0.10

-0.54%

-0.49% -2.70%

 

 

Week Ahead – Events and Economic Data

10/24 Monday

Time Event / Data
9:00am FOMC Member Bullard Speaks
1:30pm FOMC Member Evans Speaks

 

10/25 Tuesday

Time Event / Data
9:00am Case Shiller Home Price Index
10:00am Consumer Confidence
After the close AAPL Earnings

 

10/26 Wednesday

Time Event / Data
8:30am U.S. Trade Deficit
10:00am New Home Sales

 

10/27 Thursday

Time Event / Data
8:30am Initial Jobless Claims, Durable Goods
10:00am Pending Home Sales
After the close GOOGL, AMZN Earnings

 

10/28 Friday

Time Event / Data
8:30am Q3 GDP (Advance), Employment Cost Index
10:00am Consumer Sentiment

 

Earnings Schedule (Source: EarningsWhispers)

20161022-Earnings.png

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