Macro Market · Market Commentary · Newsletter

Daily Commentary – The Nasdaq Divergence

If you look at just the S&P 500 and Dow, it would be easy to conclude it was just another day of retesting key resistance but could not hold highs. Indeed, this is a 5th attempt rally in the Dow in the past 7 sessions where gains were given up as a doji/shooting star candle would get formed. However one key difference is that the Dow did close above 20DMA, the first time since the plunge after Columbus Day.

20161025-INDU.png

Today’s market mover was not earnings nor economic data nor central bank announcements, but headlines were suggesting it was merger & acquisition activity, most notably AT&T-Time Warner merger, which sparked the buying in stocks.

http://www.businessinsider.com/us-stock-market-update-october-24-2016-10

Though, if we dissect the performance within the sectors, it is clear it was not the telecoms driving the gains, but rather the semiconductors (SMH) and technology (XLK) sector which were up an impressive 1.3% and 1% respectively. Consequently, the Nasdaq (QQQ) spiraled to new ATH close with a 1.2% gain and likely grind up to 120 with little resistance.

So how do we interpret the striking difference in performance between the indices? Based on chart patterns, we noticed the divergence between Nasdaq and the rest of the flagship indices bears striking resemblance to the 2015 July blowoff top, during which the QQQ exploded through all resistance while the SPY remained capped under its then-ATHs. What followed soon after is cascading plunge where all YTD gains were wiped out by end of August. We are not proclaiming the same scenario would occur, but we ought to be cognizant these sudden outperformances in Nasdaq are not necessarily bullish.

20161025-SPYQQQ.png

This week we will have a slew of major earnings from technology sector which could give additional boost to Nasdaq. Should the July 2015 pattern continue to play out, the recent strength in QQQ likely continues until channel resistance (blue line) near 120.5 area.

20161025-QQQ.png

Other asset classes were mostly flattish. Bonds edged down with 30y yield up 2.5bps back above 200DMA at 2.5% in the face of risk-on environment. TLT dropped a modest -0.4% but did held 200DMA. Gold swung back and forth before closing down slightly by 0.2%, though it was the gold miners (GDX) which took a much harder hit of -2% and back under 20DMA. But no major changes in technical pictures highlighted last week.

Across in Euro land, again the focus is on Spain (EWP) this week. On the heels of positive political news over the weekend, EWP gapped up 1.2% and basically hanged around there during the trading session. Per WSJ:

“Mariano Rajoy, a prominent target of the antiestablishment fervor rising across Europe, was assured of re-election as prime minister when his Socialist rivals conceded defeat Sunday, ending Spain’s 10-month leadership impasse. “

http://www.wsj.com/articles/spains-socialist-party-set-to-vote-on-ending-long-running-political-impasse-1477208060

We will find out by end of this week whether a LT buy signal would be triggered by closing back above LT downtrend on the weekly chart:

20161025-EWP.png

In light of yesterday’s strong move in QQQ, the ST game plan is to be bullish the other indices (Dow, S&P 500 and Russell 2000) as the strength likely spills over. Retest of the highs should not be ruled out for Dow and SPX if they can finally clear the descending trendline. In the SPY, technicals are on the mend with bullish breakout in RSI downtrend and MACD crossover, which may provide the fuel to get over the hump. Earnings will play a big role, starting from AAPL tomorrow.

20161025-SPY.png

 

 

 

Daily Market Snapshot

Sector ETFs by Daily Return %

SYMBOL NAME CLOSE DAILY (%) WTD % MTD %
SMH HOLDRS Merrill Lynch Semiconductor 68.77  

0.87

1.27%

1.28% -1.01%
QQQ PowerShares QQQ Trust 119.57  

1.42

1.19%

1.20% 0.72%
XLK SPDR Select Sector Fund – Technology 47.99  

0.46

0.96%

0.97% 0.44%
KRE SPDR KBW Regional Banking ETF 43.54  

0.35

0.81%

0.81% 3%
XLY SPDR Select Sector Fund – Consumer Discretionary 80.16  

0.57

0.71%

0.72% 0.15%
XRT SPDR S&P Retail ETF 43.25  

0.3

0.70%

0.70% -0.69%
XLP SPDR Select Sector Fund – Consumer Staples 52.57  

0.34

0.65%

0.65% -1.20%
IWM iShares Russell 2000 121.84  

0.77

0.63%

0.64% -1.91%
XLG Rydex Russell Top 50 ETF 151.96  

0.82

0.54%

0.54% -0.53%
SPY SPDR S&P 500 214.89  

0.91

0.42%

0.43% -0.65%
DIA Dow Jones Industrial Average ETF 181.96  

0.74

0.41%

0.41% -0.45%
XLFS S&P SmallCap Financials Portfolio 31.13  

0.12

0.39%

0.39% 2.23%
XLU SPDR Select Sector Fund – Utilities 48.18  

0.18

0.37%

0.37% -1.65%
XLF SPDR Select Sector Fund – Financial 19.71  

0.06

0.30%

0.31% 2.12%
IYR iShares Dow Jones U.S. Real Estate Index Fund 78.2  

0.21

0.27%

0.27% -3.03%
XLB Materials Select Sector SPDR 47.17  

0.11

0.23%

0.23% -1.21%
XLI SPDR Select Sector Fund – Industrial 57.1  

0.11

0.19%

0.19% -2.19%
PFF iShares S&P US Preferred Stock Fund 39.39  

0.03

0.08%

0.08% -0.28%
XLV SPDR Select Sector Fund – Health Care 69.58  

-0.13

-0.19%

-0.19% -3.51%
XLE SPDR Select Sector Fund – Energy Select Sector 69.98  

-0.21

-0.30%

-0.30% -0.89%
IBB iShares Nasdaq Biotechnology 266.41  

-1.36

-0.51%

-0.51% -7.96%

 

Commodity & Bond ETFs

SYMBOL NAME CLOSE DAILY  (%) WTD % MTD %
DBA PowerShares DB Agriculture Fund 20.45  

0.17

0.83%

0.84% 2.35%
SLV iShares Silver Trust 16.7  

0.05

0.30%

0.30% -8.24%
HYG iShares iBoxx $ HY Corp Bond Fund 87.42  

0.05

0.06%

0.06% 0.18%
AGG iShares Barclays Aggregate Bond Fund 111.66  

-0.17

-0.15%

-0.15% -0.68%
GLD SPDR Gold Trust 120.56  

-0.27

-0.22%

-0.22% -4.04%
LQD iBoxx $ Investment Grade Corporate Bond Fund 122.16  

-0.35

-0.29%

-0.29% -0.83%
TLT iShares Barclays 20 Year Treasury Bond Fund 132.73  

-0.58

-0.44%

-0.44% -3.30%
USO United States Oil Fund 11.43  

-0.05

-0.44%

-0.44% 4.57%
GDX Market Vectors TR Gold Miners 24.09  

-0.53

-2.18%

-2.15% -8.85%

Country ETFs

SYMBOL NAME CLOSE DAILY (%) WTD % MTD %
EWO iShares MSCI Austria Index Fund 16.49  

0.2

1.22%

1.23% 1.04%
EWP iShares MSCI Spain Index Fund 27.39  

0.33

1.21%

1.22% 2.13%
EWH iShares MSCI Hong Kong Index Fund 22.06  

0.23

1.05%

1.05% 0.23%
EWS iShares MSCI Singapore Index Fund 10.51  

0.09

0.86%

0.86% -3.22%
EWZ iShares MSCI Brazil Index Fund 38.08  

0.31

0.82%

0.82% 12.90%
FXI iShares FTSE/Xinhua China 25 Index Fund 38.11  

0.28

0.74%

0.74% 0.26%
EWT iShares MSCI Taiwan Index Fund 15.84  

0.1

0.63%

0.64% 0.89%
EWI iShares MSCI Italy Index Fund 11.28  

0.07

0.62%

0.62% 2.36%
EWM iShares MSCI Malaysia Index Fund 8.1  

0.05

0.62%

0.62% -0.12%
EWN iShares MSCI Netherlands Index Fund 24.64  

0.13

0.53%

0.53% -1.68%
EWY iShares MSCI South Korea Index Fund 56.47  

0.28

0.50%

0.50% -2.86%
DXJ WisdomTree Japan Total Dividend Fund 44.74  

0.21

0.47%

0.47% 4.26%
EEM iShares MSCI Emerging Index Fund 37.76  

0.16

0.42%

0.43% 0.83%
EWW iShares MSCI Mexico Index Fund 52.13  

0.18

0.35%

0.35% 7.53%
EWQ iShares MSCI France Index Fund 24.01  

0.08

0.33%

0.33% -0.62%
EWG iShares MSCI Germany Index Fund 25.92  

0.08

0.31%

0.31% -1.33%
EWX SPDR S&P Emerging Markets Small Cap ETF 43.63  

0.12

0.28%

0.28% 1.09%
EWJ iShares MSCI Japan Index Fund 12.59  

0.02

0.16%

0.16% 0.40%
EWA iShares MSCI Australia Index Fund 20.69  

-0.04

-0.19%

-0.19% -1%
EWK iShares MSCI Belgium Index Fund 18.3  

-0.05

-0.27%

-0.27% -2.97%
EWC iShares MSCI Canada Index Fund 25.58  

-0.12

-0.47%

-0.47% -0.43%
EWU iShares MSCI United Kingdom Index Fund 15.13  

-0.08

-0.53%

-0.53% -4.48%
EWD iShares MSCI Sweden Index Fund 28.21  

-0.15

-0.53%

-0.53% -2.96%
EWL iShares MSCI Switzerland Index Fund 29.37  

-0.22

-0.75%

-0.74% -3.86%

 

 

Week Ahead – Events and Economic Data

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

Earning Schedule

20161022-Earnings.png

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