Macro Market · Market Commentary · Newsletter

Daily Commentary – Crude Carnage

A rather quiet trading session on Happy Halloween with yet another signature choppy day for the US equity market. Considering the FBI probe bombshell headline last Friday, some would have expected a volatile session but major indices closed virtually flat. SPX closed red 5 days in a row, though remains hovering just above the line in the sand. Sideway trading ensues until that is broken.

20161101-SPX.png

Without a doubt, the “scariest” action today is crude oil, which followed through to last week’s confirmed false break with a -$2 carnage under 47 handle. The ongoing OPEC drama is once again to blame for the devastation, as “officials from the Organization of the Petroleum Exporting Countries (OPEC) and non-member producers met in Vienna on Saturday, but did not come to specific terms, agreeing only to meet again before a scheduled regular OPEC meeting on Nov. 30.”

http://www.businessinsider.com/crude-oil-price-october-31-2016-10

Technically, as mentioned last week, an onslaught is to be expected on a confirmed close back under 50. Good news for bulls is that uptrend drawn off YTD lows at 46.4 area should provide strong support and stop the bleeding in the near-term

20161101-CLDAily.png

But don’t hold your breath for any LT recovery, as seasonality is a negative for crude oil heading into year-end, especially November. Hat-tip to ForexLive for the below seasonality heatmap:

20161101-OilHeatMap.png

http://technical-analysis.forexlive.com/!/top-5-forex-seasonal-trends-for-november-1-slick-like-a-waterslide-20161031

Sector-wise in the equity market, XLE was a notable drag expectedly due to crude carnage, but the worst sector was once again the biotechs (IBB), as after breaking the 200WMA all eyes on the crucial neckline support just under 250.

20161101-IBB.png

In terms of headlines, it is none other than the infamous VRX, which plunged to new 52-week lows south of $18 as it was “under investigation for accounting fraud by the DOJ, sources told Bloomberg. The company’s former CEO Michael Pearson and CFO Howard Schiller are said to be the focus of investigation.”

https://www.thestreet.com/story/13874050/1/valeant-pharmaceuticals-vrx-stock-lower-on-doj-probe.html

On the positive side, Utilities (XLU) and REITs (IYR) rose sharply by 2% and 1.5% respectively as long bonds (TLT) staged a mild recovery off 50WMA with a 0.6% gain on weaker than expected Chicago PMI number earlier the morning. The Utilities have been outperforming REITs throughout the month, as it was able to eek out a positive month (+0.9%), disconnecting from TLT and IYR which were down -4% and -5% respectively on the month. Short-term technicals point to resistance up at 20DMA and top of a descending megaphone pattern just below 50.

20161101-XLU.png

Meanwhile, the Russell 2000 (IWM) outperformed other indices for a change, as it bounces off breakout area and lower Bollinger Band as we were anticipating in our Trading Game Plan. Chances are we bounce back just above 120 where it will meet cluster of resistance from 20DMA to bottom of up channel line.

20161101-IWM.png

With the Election now just one week away, it would be an understatement to say we have a critical month ahead of us. While the three flagship indices (SPX, Dow, Nasdaq) remain rangebound, the options markets turned clearly much more anxious as witnessed by the spike in VIX index up above 17% despite stocks largely flat on the day. It is conceivable that funds are buying insurance in case of a Trump victory, which would most certainly point to a crash. Technically, the VIX could squeeze up further given the close above descending downtrend.

20161101-VIX.png

In our opinion, the spike up in VIX does not necessarily imply stocks would go down, but rather it signifies a large move looms in either direction. In the event of a Clinton victory, the ensuing short squeeze and the collapse in VIX would propel SPX back toward the highs. On the other hand, as market crashes through key strike levels, the put sellers (dealers) would have to sell the market to hedge their losses in the options positions, magnifying the moves to the downside. All in all, plenty of trading opportunities will arise and as traders it is our objective to capitalize on them.

 

 

 

 

Daily Market Snapshot

Sector ETFs by Daily Return %

SYMBOL NAME CLOSE DAILY (%) WTD % MTD %
XLU SPDR Select Sector Fund – Utilities 49.43  

0.97

1.98%

2% 0.90%
IYR iShares Dow Jones U.S. Real Estate Index Fund 76.64  

1.12

1.47%

1.48% -4.96%
SMH HOLDRS Merrill Lynch Semiconductor 68.27  

0.48

0.71%

0.71% -1.73%
KRE SPDR KBW Regional Banking ETF 43.79  

0.3

0.69%

0.69% 3.60%
IWM iShares Russell 2000 118.5  

0.47

0.40%

0.40% -4.60%
XLP SPDR Select Sector Fund – Consumer Staples 52.8  

0.13

0.25%

0.25% -0.77%
XRT SPDR S&P Retail ETF 42.23  

0.1

0.24%

0.24% -3.03%
XLI SPDR Select Sector Fund – Industrial 57.21  

0.11

0.19%

0.19% -2%
XLY SPDR Select Sector Fund – Consumer Discretionary 78.1  

0.06

0.08%

0.08% -2.42%
XLB Materials Select Sector SPDR 46.75  

0.02

0.04%

0.04% -2.09%
SPY SPDR S&P 500 212.55  

0.01

0%

0% -1.73%
XLK SPDR Select Sector Fund – Technology 47.42  

-0.02

-0.04%

-0.04% -0.75%
QQQ PowerShares QQQ Trust 116.99  

-0.11

-0.09%

-0.09% -1.46%
DIA Dow Jones Industrial Average ETF 181.17  

-0.19

-0.10%

-0.10% -0.88%
XLFS S&P SmallCap Financials Portfolio 31.14  

-0.04

-0.13%

-0.13% 2.27%
XLF SPDR Select Sector Fund – Financial 19.74  

-0.03

-0.15%

-0.15% 2.28%
PFF iShares S&P US Preferred Stock Fund 38.95  

-0.07

-0.18%

-0.18% -1.39%
XLG Rydex Russell Top 50 ETF 150.04  

-0.29

-0.19%

-0.19% -1.79%
XLV SPDR Select Sector Fund – Health Care 67.36  

-0.42

-0.62%

-0.62% -6.59%
XLE SPDR Select Sector Fund – Energy Select Sector 68.62  

-0.75

-1.09%

-1.08% -2.82%
IBB iShares Nasdaq Biotechnology 256.68  

-3.81

-1.47%

-1.46% -11.32%

 

Commodity & Bond ETFs

SYMBOL NAME CLOSE DAILY  (%) WTD % MTD %
GDX Market Vectors TR Gold Miners 24.52  

0.71

2.94%

2.98% -7.23%
TLT iShares Barclays 20 Year Treasury Bond Fund 131.25  

0.8

0.61%

0.61% -4.38%
SLV iShares Silver Trust 16.97  

0.1

0.59%

0.59% -6.76%
GLD SPDR Gold Trust 121.94  

0.36

0.30%

0.30% -2.94%
AGG iShares Barclays Aggregate Bond Fund 111.3  

0.14

0.13%

0.13% -1%
LQD iBoxx $ Investment Grade Corporate Bond Fund 120.98  

0.11

0.09%

0.09% -1.79%
HYG iShares iBoxx $ HY Corp Bond Fund 86.02  

-0.26

-0.30%

-0.30% -1.42%
DBA PowerShares DB Agriculture Fund 20.52  

-0.11

-0.53%

-0.53% 2.70%
USO United States Oil Fund 10.53  

-0.48

-4.46%

-4.36% -3.66%

Country ETFs

SYMBOL NAME CLOSE DAILY (%) WTD % MTD %
EWZ iShares MSCI Brazil Index Fund 37.76  

0.37

0.98%

0.99% 11.95%
EWT iShares MSCI Taiwan Index Fund 15.76  

0.11

0.70%

0.70% 0.38%
EWA iShares MSCI Australia Index Fund 20.28  

0.12

0.59%

0.60% -2.97%
EEM iShares MSCI Emerging Index Fund 37.14  

0.21

0.57%

0.57% -0.83%
EWS iShares MSCI Singapore Index Fund 10.35  

0.04

0.39%

0.39% -4.70%
EWW iShares MSCI Mexico Index Fund 50.83  

0.19

0.37%

0.38% 4.85%
DXJ WisdomTree Japan Total Dividend Fund 45.15  

0.14

0.31%

0.31% 5.22%
EWM iShares MSCI Malaysia Index Fund 7.98  

0.02

0.25%

0.25% -1.60%
EWG iShares MSCI Germany Index Fund 25.91  

0.05

0.19%

0.19% -1.37%
EWX SPDR S&P Emerging Markets Small Cap ETF 43  

0.08

0.19%

0.19% -0.37%
EWY iShares MSCI South Korea Index Fund 55.35  

0.1

0.18%

0.18% -4.78%
EWJ iShares MSCI Japan Index Fund 12.63  

0.01

0.08%

0.08% 0.72%
EWP iShares MSCI Spain Index Fund 27.45  

0.01

0.04%

0.04% 2.35%
FXI iShares FTSE/Xinhua China 25 Index Fund 36.86  

0.01

0.03%

0.03% -3.03%
EWN iShares MSCI Netherlands Index Fund 24.48  

-0.01

-0.04%

-0.04% -2.31%
EWQ iShares MSCI France Index Fund 24.05  

-0.01

-0.04%

-0.04% -0.46%
EWU iShares MSCI United Kingdom Index Fund 15  

-0.01

-0.07%

-0.07% -5.30%
EWH iShares MSCI Hong Kong Index Fund 21.57  

-0.03

-0.14%

-0.14% -2%
EWL iShares MSCI Switzerland Index Fund 29.01  

-0.06

-0.21%

-0.21% -5.04%
EWK iShares MSCI Belgium Index Fund 17.9  

-0.04

-0.22%

-0.22% -5.09%
EWI iShares MSCI Italy Index Fund 11.28  

-0.04

-0.35%

-0.35% 2.36%
EWC iShares MSCI Canada Index Fund 25.35  

-0.1

-0.39%

-0.39% -1.32%
EWO iShares MSCI Austria Index Fund 16.44  

-0.11

-0.67%

-0.66% 0.74%
EWD iShares MSCI Sweden Index Fund 27.54  

-0.23

-0.83%

-0.83% -5.26%

 

 

Week Ahead – Events and Economic Data

11/1 Tuesday

Time Event / Data
10:00am 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
10:00am ISM Non-Manufacturing

 

11/4 Wednesday

Time Event / Data
8:30am Nonfarm Payrolls (NFP)
4:00pm FOMC Member Stanley Fischer Speaks

 

 

 

 

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