Macro Market · Market Commentary · Newsletter

Daily Commentary – Rude Awakening

US equity markets got off to a tumultuous start to 2 final critical months of 2016, as SPX crumbled -14pts and critically closed below 2 month trading range while the Dow is just clinging on to its own line in the sand.

20161102-spx20161102-indu

It was a wake-up call for the markets which had been trading sideways despite the reality that it is no longer a sure victory for Clinton in light of recent scandalous headlines.  Does feel like Brexit deja-vu as per FT, “A Washington Post-ABC News tracking poll released on Tuesday showed Mr Trump with a one-point lead over Mrs Clinton nationally, marking the first time that the Republican has held a lead in that poll since May. In the RealClearPolitics average of recent polls, Mrs Clinton now leads Mr Trump by just 2.2 points — down from a 7 point lead just two weeks ago.”

https://www.ft.com/content/8a6e52be-a054-11e6-86d5-4e36b35c3550

The VIX is now green 6 days in a row with the put call ratio pushed to highs since the January market turmoil, as investors rushed into buying insurance.

20161102-VIX.png

Sector-wise broad weakness but a few notable surprises. On the downside, despite the intraday recovery in bonds (TLT), REITs (IYR) and Utilities (XLU) were the weak links, smacked with the former plunging -2% to new swing lows. The outperformer was biotechs (IBB) for a change with a 1% gain, while Energy (XLE) was able to close flat even though oil made marginally lower lows today. The IWM continued its underperformance, down -1% and closed at new swing lows. One observation is that the MACD of IWM is now as oversold as in Aug and Dec 2015, during which a sharp relief bounce would ensue shortly in both occasions before a flushout to the downside:

20161102-IWM.png

In other asset classes, the US Dollar was also jolted due to heighted political uncertainty, as the DXY resumed its recent retracement since hitting the top of LT descending channel to plunge below 98. In the short-term, support can be expected at 97.5, the breakout area from July swing point.

20161102-DXDaily.png

The biggest beneficiary from the market turmoil was Gold, as it confirmed a breakout from ST up channel with an impressive $15 up move, and technically there is minimal resistance until 1300-1305 which was the broken channel line prior to the waterfall drop on October 4th

20161102-GCDaily.png

The Gold Miners (GDX) gapped over descending trendline off YTD highs, but met cluster of strong resistance from Oct 4th gap, 50DMA as well as right shoulder of a large H&S pattern before closing with a shooting star candle.  As a result, technical picture remains bearish unless GDX can get decisively above 26 to negate the H&S pattern.

20161102-GDX.png

In overall, investors are clearly getting nervous though tech picture remains mixed given Dow is hanging above the line of the sand while SPX tumbled below. Despite positive seasonality, this time could especially be different due to the extraordinary political landscape. Hence we ought to stay neutral and be open to possibility of a large move to the downside as Dow gets synchronous with SPX. That said, we can also expect sizable oversold bounces on these moves especially with put call ratio signaling a panic sell-off pattern. Another ingredient we need for a large bounce would be a large TRIN reading (above 2), which today closed way under 1 suggesting there is no signs of capitulation just yet.

20161102-SPXTRIN.png

Tomorrow we have ADP employment number in the morning as well as FOMC decision in the afternoon. Would a dovish Fed be the white knight coming to the rescue for the shaky markets?

 

Daily Market Snapshot

Sector ETFs by Daily Return %

SYMBOL NAME CLOSE DAILY (%) WTD % MTD %
IBB iShares Nasdaq Biotechnology 259.09  

2.41

0.93%

-0.54% 0.94%
XLE SPDR Select Sector Fund – Energy Select Sector 68.63  

0.01

0.01%

-1.07% 0.01%
KRE SPDR KBW Regional Banking ETF 43.69  

-0.1

-0.23%

0.46% -0.23%
XLFS S&P SmallCap Financials Portfolio 31.06  

-0.08

-0.26%

-0.39% -0.26%
XLF SPDR Select Sector Fund – Financial 19.66  

-0.08

-0.41%

-0.56% -0.41%
XLP SPDR Select Sector Fund – Consumer Staples 52.57  

-0.23

-0.44%

-0.19% -0.44%
XLG Rydex Russell Top 50 ETF 149.32  

-0.72

-0.48%

-0.67% -0.48%
XLV SPDR Select Sector Fund – Health Care 67  

-0.36

-0.54%

-1.15% -0.53%
XLB Materials Select Sector SPDR 46.48  

-0.27

-0.58%

-0.53% -0.58%
DIA Dow Jones Industrial Average ETF 180.12  

-1.05

-0.58%

-0.68% -0.58%
PFF iShares S&P US Preferred Stock Fund 38.71  

-0.24

-0.62%

-0.79% -0.62%
XLY SPDR Select Sector Fund – Consumer Discretionary 77.55  

-0.55

-0.71%

-0.63% -0.70%
SPY SPDR S&P 500 211.01  

-1.54

-0.73%

-0.72% -0.72%
QQQ PowerShares QQQ Trust 116.11  

-0.88

-0.76%

-0.85% -0.75%
XLI SPDR Select Sector Fund – Industrial 56.72  

-0.49

-0.86%

-0.67% -0.86%
XLK SPDR Select Sector Fund – Technology 47.01  

-0.41

-0.87%

-0.91% -0.86%
SMH HOLDRS Merrill Lynch Semiconductor 67.64  

-0.63

-0.93%

-0.22% -0.92%
IWM iShares Russell 2000 117.05  

-1.45

-1.23%

-0.83% -1.22%
XRT SPDR S&P Retail ETF 41.53  

-0.7

-1.67%

-1.42% -1.66%
XLU SPDR Select Sector Fund – Utilities 48.53  

-0.9

-1.84%

0.14% -1.82%
IYR iShares Dow Jones U.S. Real Estate Index Fund 74.95  

-1.69

-2.23%

-0.75% -2.21%

 

Commodity & Bond ETFs

SYMBOL NAME CLOSE DAILY  (%) WTD % MTD %
SLV iShares Silver Trust 17.41  

0.44

2.56%

3.20% 2.59%
GDX Market Vectors TR Gold Miners 25.13  

0.61

2.46%

5.54% 2.49%
GLD SPDR Gold Trust 122.73  

0.79

0.65%

0.95% 0.65%
USO United States Oil Fund 10.57  

0.04

0.38%

-4% 0.38%
TLT iShares Barclays 20 Year Treasury Bond Fund 131.01  

-0.24

-0.18%

0.43% -0.18%
AGG iShares Barclays Aggregate Bond Fund 111.03  

-0.27

-0.24%

-0.12% -0.24%
LQD iBoxx $ Investment Grade Corporate Bond Fund 120.51  

-0.47

-0.39%

-0.30% -0.39%
HYG iShares iBoxx $ HY Corp Bond Fund 85.3  

-0.72

-0.84%

-1.14% -0.84%
DBA PowerShares DB Agriculture Fund 20.34   -1.41% -0.88%

 

Week Ahead – Events and Economic Data

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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