Macro Market · Market Commentary · Newsletter

Weekly Commentary – Pre-Halloween Scare

Heading into the weekend before Halloween, markets got a scary surprise from none other than the scandal-filled US election drama. In a surprise announcement, the FBI decided to reopen the email probe on Clinton, leading to a 20pt smackdown in S&P futures intraday before recovering partially to close flat on the day. To wit:

“Those new emails were discovered during an FBI investigation in which the devices of former Congressman Anthony Weiner and Clinton aide Huma Abedin were seized, NBC News confirmed. The New York Times first reported the news.”

http://www.cnbc.com/2016/10/28/fbi-probing-new-clinton-emails.html

Just before the shocker hit the tape, markets were on solid footing on the back of stronger than expected GDP, as Nasdaq and S&P 500 were able to erase post-AMZN earnings release losses.

http://blogs.barrons.com/incomeinvesting/2016/10/28/third-quarter-gdp-climbs-at-2-9-rate-better-than-expected/

Dow was once again on the cusp of breaking above the perhaps excessively mentioned downtrend resistance but once again was rejected, 5 days in a row now.

20161029-INDU.png

Sweeping aside the choppiness and looking at the bigger picture, in our opinion the weekly close in IWM bears significant implication on the direction of the equity markets going forward. As discussed earlier in the week, the IWM caught our focus when it began underperforming broader markets and its ratio vs. the SPY broke through bullish channel. More importantly, it plunged through key channel support as well as the “line in the sand”, namely the 20WMA, on the weekly chart. As shown below, this is a confirmation of a major trend change with the technicals and chart pattern reminiscent of the 2015 July-August swoon:

20161029-IWM.png

Aside from the small caps, the weakest sectors on the week were the trio of REITs (IYR), Health Care (XLV) and Biotech (IBB). We already covered IYR last couple days, as it followed the Treasury bond rout down in lock steps. The XLV and IBB are trouble in paradise, with the former plunging further beyond the 50WMA. If there is any consolation, the XLV should soon find support from a previously broken LT linear up channel just under 67.

20161029-XKV.png

The Biotech sector (IBB) is at a critical juncture, as it closed below the 200WMA for the first time since June. Can it launch back up like it did back in June? Odds are stacked against them this time around with bearish MACD crossover signaling further sell-off.

20161029-IBB.png

Away from the equity market, the much highlighted chart that is following a similar but separate sell-off pattern from 2015 is the TLT (20+ year Treasury Bond ETF), as it resumed ongoing downtrend to touch the 50WMA and closed at the lows on the week. As discussed before, we expect sideways trading around the 50WMA in coming weeks before a flushout below towards the March lows before stabilizing.

20161029-TLT.png

Talking about significant weekly closes, crude oil is another one which we ought to focus on after plunging south of 49 handle on Friday as a result of the ongoing drama in OPEC. According to WSJ, “A meeting of OPEC national delegates on Friday ended in a deadlock as Iraq and Iran disputed the data being used to allocate production cuts, officials said.”

http://www.wsj.com/articles/opec-deadlocks-over-iran-iraq-oil-production-1477684986

The technical ramification for crude oil is the failure to hold above the crucial neckline and thereby created a false breakout in the process. Now the risk is the further downside until the bullish trendline just above 45 area.

20161029-CL.png

Meanwhile, the US Dollar, which we anticipated a pullback last week after hitting the top of descending price channel, got smacked Friday afternoon on fresh political uncertainty and closed with a bearish shooting star candle on the weekly chart. This is a confirmation of a trend change after rejection off LT descending price channel and signals a correction like in previous occurrences.

20161029-DXY.png

That pretty much wraps up the plenty of significant weekly closes heading into the last day of October. Regarding the game plan for next week, we have a deluge of economic data as well as FOMC statement on Wednesday, which is unlikely to be groundbreaking ahead of the Election. Seasonality still points to a short term rally into the Election as illustrated in previous post. But the larger technical picture, based on the small caps (IWM) being the leading indicator, suggests we are in for a much bigger scare in the stock market regardless of the outcome. Obviously a Brexit-type crash is warranted assuming a Trump victory, but even in a Clinton victory, we ought to beware of a “sell-the-news” event.

 

 

Weekly Market Snapshot

Sector ETFs by Daily Return %

SYMBOL NAME CLOSE DAILY (%) WTD % MTD %
XLU SPDR Select Sector Fund – Utilities 48.46  

0.15

0.31%

0.96% -1.08%
XLP SPDR Select Sector Fund – Consumer Staples 52.67  

0.22

0.42%

0.84% -1.01%
KRE SPDR KBW Regional Banking ETF 43.49  

-0.51

-1.17%

0.69% 2.89%
XLF SPDR Select Sector Fund – Financial 19.77  

-0.09

-0.45%

0.61% 2.44%
XLFS S&P SmallCap Financials Portfolio 31.18  

-0.13

-0.41%

0.55% 2.40%
XLI SPDR Select Sector Fund – Industrial 57.1  

0.34

0.60%

0.19% -2.19%
DIA Dow Jones Industrial Average ETF 181.36  

-0.17

-0.09%

0.08% -0.78%
SMH HOLDRS Merrill Lynch Semiconductor 67.79  

-0.39

-0.57%

-0.16% -2.42%
XLK SPDR Select Sector Fund – Technology 47.44  

-0.05

-0.11%

-0.19% -0.71%
XLG Rydex Russell Top 50 ETF 150.33  

-0.89

-0.59%

-0.54% -1.60%
SPY SPDR S&P 500 212.54  

-0.63

-0.30%

-0.67% -1.74%
XLB Materials Select Sector SPDR 46.73  

0.12

0.26%

-0.70% -2.14%
PFF iShares S&P US Preferred Stock Fund 39.02  

-0.17

-0.43%

-0.86% -1.22%
QQQ PowerShares QQQ Trust 117.1  

-0.74

-0.63%

-0.89% -1.36%
XLE SPDR Select Sector Fund – Energy Select Sector 69.37  

-0.19

-0.27%

-1.17% -1.76%
XRT SPDR S&P Retail ETF 42.13  

0.22

0.52%

-1.91% -3.26%
XLY SPDR Select Sector Fund – Consumer Discretionary 78.04  

-0.18

-0.23%

-1.95% -2.50%
IWM iShares Russell 2000 118.03  

-0.33

-0.28%

-2.51% -4.98%
IBB iShares Nasdaq Biotechnology 260.49  

-4.98

-1.89%

-2.72% -10.01%
XLV SPDR Select Sector Fund – Health Care 67.78  

-1.5

-2.19%

-2.77% -6%
IYR iShares Dow Jones U.S. Real Estate Index Fund 75.52  

0.15

0.20%

-3.17% -6.35%

 

Commodity & Bond ETFs

SYMBOL NAME CLOSE DAILY  (%) WTD % MTD %
DBA PowerShares DB Agriculture Fund 20.63  

-0.07

-0.34%

1.73% 3.25%
SLV iShares Silver Trust 16.87  

0.14

0.83%

1.32% -7.31%
GLD SPDR Gold Trust 121.58  

0.57

0.47%

0.62% -3.23%
AGG iShares Barclays Aggregate Bond Fund 111.16  

0

0%

-0.60% -1.12%
HYG iShares iBoxx $ HY Corp Bond Fund 86.28  

-0.42

-0.49%

-1.25% -1.12%
LQD iBoxx $ Investment Grade Corporate Bond Fund 120.87  

-0.14

-0.12%

-1.34% -1.88%
TLT iShares Barclays 20 Year Treasury Bond Fund 130.45  

-0.29

-0.22%

-2.15% -4.96%
GDX Market Vectors TR Gold Miners 23.81  

0.08

0.34%

-3.29% -9.91%
USO United States Oil Fund 11.01  

-0.2

-1.80%

-4.09% 0.73%

Country ETFs

SYMBOL NAME CLOSE DAILY (%) WTD % MTD %
EWO iShares MSCI Austria Index Fund 16.55  

0.04

0.24%

1.60% 1.41%
EWP iShares MSCI Spain Index Fund 27.44  

0.06

0.22%

1.40% 2.31%
DXJ WisdomTree Japan Total Dividend Fund 45.01  

-0.04

-0.09%

1.08% 4.89%
EWI iShares MSCI Italy Index Fund 11.32  

-0.02

-0.18%

0.98% 2.72%
EWQ iShares MSCI France Index Fund 24.06  

0.16

0.67%

0.54% -0.41%
EWJ iShares MSCI Japan Index Fund 12.62  

0.02

0.16%

0.40% 0.64%
EWG iShares MSCI Germany Index Fund 25.86  

0.06

0.23%

0.08% -1.56%
EWN iShares MSCI Netherlands Index Fund 24.49  

0.11

0.45%

-0.08% -2.27%
EWT iShares MSCI Taiwan Index Fund 15.65  

0.03

0.19%

-0.57% -0.32%
EWC iShares MSCI Canada Index Fund 25.45  

-0.06

-0.24%

-0.97% -0.93%
EWZ iShares MSCI Brazil Index Fund 37.39  

-0.38

-1.01%

-1.01% 10.85%
EWH iShares MSCI Hong Kong Index Fund 21.6  

-0.16

-0.74%

-1.05% -1.86%
EWS iShares MSCI Singapore Index Fund 10.31  

-0.06

-0.58%

-1.06% -5.06%
EWM iShares MSCI Malaysia Index Fund 7.96  

-0.01

-0.13%

-1.12% -1.85%
EWU iShares MSCI United Kingdom Index Fund 15.01  

-0.01

-0.07%

-1.31% -5.24%
EWX SPDR S&P Emerging Markets Small Cap ETF 42.92  

-0.17

-0.40%

-1.36% -0.56%
EWY iShares MSCI South Korea Index Fund 55.25  

0.04

0.07%

-1.67% -4.95%
EWL iShares MSCI Switzerland Index Fund 29.07  

-0.02

-0.07%

-1.76% -4.84%
EEM iShares MSCI Emerging Index Fund 36.93  

-0.15

-0.41%

-1.78% -1.39%
EWD iShares MSCI Sweden Index Fund 27.77  

0.04

0.14%

-2.08% -4.47%
EWK iShares MSCI Belgium Index Fund 17.94  

-0.16

-0.89%

-2.23% -4.88%
EWW iShares MSCI Mexico Index Fund 50.64  

-0.39

-0.77%

-2.52% 4.46%
FXI iShares FTSE/Xinhua China 25 Index Fund 36.85  

-0.41

-1.11%

-2.59% -3.05%
EWA iShares MSCI Australia Index Fund 20.16  

-0.1

-0.49%

-2.75% -3.54%

 

Week Ahead – Events and Economic Data

10/31 Monday

Time Event / Data
8:30am Core PCE, Personal Income & Spending
9:45am Chicago PMI

 

11/1 Tuesday

Time Event / Data
10am ISM Manufacturing

 

11/2 Wednesday

Time Event / Data
8:15am ADP Employment
10:30am Crude Oil Inventories
2:00pm FOMC Interest Rate Decision

 

11/3 Thursday

Time Event / Data
8:30am Initial Jobless Claims
10am ISM Non-Manufacturing

 

11/4 Friday

Time Event / Data
8:30am Nonfarm Payrolls (NFP)
4pm FOMC Member Stanley Fischer Speaks

 

 

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