Macro Market · Market Commentary · Newsletter

Daily Commentary – Lucky 7 or Not

Another rough day for US markets, which followed through to previous day’s weakness with another -13pt drop in the SPX, an astonishing 7th day in a row in the red – we will get to that statistical phenomenon later. The Dow was dragged down 78pts, and although remains above yesterday’s low, it closed below the breakout horizontal support to become in sync with SPX.

20161103-INDU.png

Today we woke up to a weaker than expected ADP number which came in at 147k vs 165k expected and set the weak tone earlier on, before a non-event from FOMC meeting during which “The Federal Reserve kept interest rates unchanged on Wednesday in its last policy decision before the U.S. election, but signaled it could hike in December as the economy gathers momentum and inflation picks up.”

http://www.reuters.com/article/us-usa-fed-meeting-idUSKBN12X1K2

A bout of disappointment for those hoping for a more dovish message to save the markets, as they proceeded to close near the lows on the day. The VIX was also up 7 days in a row at 19.3% and closed above the September swing highs.

Another devastating day for crude oil, which plunged -3% and briefly touched the 44 handle before closing above 45, effectively wiping out all gains since the late September boost. More crucially, all trendlines were sliced through like butter, and we may ultimately drop to 200DMA at 43.5 area.

20161103-CLDaily.png

Gold continue its resurgence on the back of weaker US dollar and risk aversion, but now all eyes on whether it can get decisively above 1310 handle to negate a large H&S pattern. Until then gold bulls are advised to take profits and wait for further confirmation of bullish signals. Bears can take a stab at a short position here for a pullback towards 1260 if the H&S pattern plays out.

20161103-GCDaily.png

Back to the equity markets, it was red across all sectors with IBB leading the charge on the way down while the rush out of REITs (IYR) and Utilities (XLU) continued another day. No signs of relief yet for small caps (IWM) as it made yet another lower low down to 115 handle. The biggest question now is, are we finally going to bounce after 7 days of consecutive losses in SPX? We did a statistical analysis by looking at all the occurrences during which SPX closed 7 days red in a row since 2000. We found out there were only 3 such occurrences excluding today, illustrating the extent of this anomaly currently happening in the market.

20161103-SPXNegativeStreak.png

Looking at the chart, we can see the other occurrences were during Oct 2008, Aug 2011 and November 2011, all of which were clearly in the midst of a major correction/crash (Great Financial Crisis, US Downgrade, Europe Crisis). In the case of Oct 2008, the streak extended to 8 days before being snapped. The next 2-day, 5-day and 20-day return following the streak in all the cases are shown below:

Return of SPX after 7 Negative Day Streak Next 2 Days Next 5 Days Next 20 Days
2008/10/9 9.77% 4.49% 0.63%
2011/8/2 -4.40% -11.74% -3.84%
2011/11/25 3.10% 5.27% 5.92%
2016/11/2 ? ? ?
Average 2.83% -0.66% 0.91%

Empircally, Oct 2008 and Nov 2011 had sharp bounces of around 5% in the next 2 to 5 days, while Aug 2011 experienced a disastrous waterfall plunge of 11%. What does that mean for today? While one may infer we have a 66% chance of bouncing in the coming days, one thing that is in common among all 3 cases is that volatlity is here to stay with us with rollercoaster moves up and down.

One thing lacking in today’s stock market is the capitulation/panic selling common in major corrections such as in the aforementioned time periods. It is in our view that such moves are necessary for bottoms to be made, as sentiment reaches an extreme which usually signals a turning point. Today we clearly still do not have that condition, as down moves in the SPX have been limited to 10-20pts so far. Hence we will need to be prepared for potential of more severel plunges, and rely on sentiment indicators (TRIN, put-call ratio, etc.) to help us gauge potential bottoms. Right now in our opinion cash is the best position and look to trade in and out intraday until we see light in the tunnel.

 

Daily Market Snapshot

Sector ETFs by Daily Return %

SYMBOL NAME CLOSE DAILY (%) WTD % MTD %
XRT SPDR S&P Retail ETF 41.53  

0

0%

-1.42% -1.66%
XLP SPDR Select Sector Fund – Consumer Staples 52.44  

-0.13

-0.25%

-0.44% -0.68%
XLI SPDR Select Sector Fund – Industrial 56.51  

-0.21

-0.37%

-1.03% -1.22%
DIA Dow Jones Industrial Average ETF 179.35  

-0.77

-0.43%

-1.11% -1%
XLV SPDR Select Sector Fund – Health Care 66.65  

-0.35

-0.52%

-1.67% -1.05%
XLB Materials Select Sector SPDR 46.23  

-0.25

-0.54%

-1.07% -1.11%
SPY SPDR S&P 500 209.74  

-1.27

-0.60%

-1.32% -1.32%
XLY SPDR Select Sector Fund – Consumer Discretionary 77.08  

-0.47

-0.61%

-1.23% -1.31%
SMH HOLDRS Merrill Lynch Semiconductor 67.22  

-0.42

-0.62%

-0.84% -1.54%
XLK SPDR Select Sector Fund – Technology 46.71  

-0.3

-0.64%

-1.54% -1.50%
XLF SPDR Select Sector Fund – Financial 19.53  

-0.13

-0.66%

-1.21% -1.06%
XLFS S&P SmallCap Financials Portfolio 30.85  

-0.21

-0.68%

-1.06% -0.93%
XLG Rydex Russell Top 50 ETF 148.29  

-1.03

-0.69%

-1.36% -1.17%
QQQ PowerShares QQQ Trust 115.18  

-0.93

-0.80%

-1.64% -1.55%
PFF iShares S&P US Preferred Stock Fund 38.31  

-0.4

-1.04%

-1.82% -1.64%
XLE SPDR Select Sector Fund – Energy Select Sector 67.87  

-0.76

-1.11%

-2.16% -1.09%
XLU SPDR Select Sector Fund – Utilities 47.92  

-0.61

-1.26%

-1.11% -3.05%
IWM iShares Russell 2000 115.56  

-1.49

-1.28%

-2.09% -2.48%
IYR iShares Dow Jones U.S. Real Estate Index Fund 73.99  

-0.96

-1.29%

-2.03% -3.46%
KRE SPDR KBW Regional Banking ETF 42.91  

-0.78

-1.80%

-1.33% -2.01%
IBB iShares Nasdaq Biotechnology 254.33   -2.36% -0.92%

 

Commodity & Bond ETFs

SYMBOL NAME CLOSE DAILY  (%) WTD % MTD %
SLV iShares Silver Trust 17.56  

0.15

0.86%

4.09% 3.48%
GLD SPDR Gold Trust 123.64  

0.91

0.74%

1.69% 1.39%
DBA PowerShares DB Agriculture Fund 20.46  

0.12

0.59%

-0.82% -0.29%
TLT iShares Barclays 20 Year Treasury Bond Fund 131.58  

0.57

0.43%

0.87% 0.25%
LQD iBoxx $ Investment Grade Corporate Bond Fund 120.69  

0.18

0.15%

-0.15% -0.24%
AGG iShares Barclays Aggregate Bond Fund 111.16  

0.13

0.12%

0% -0.13%
HYG iShares iBoxx $ HY Corp Bond Fund 84.92  

-0.38

-0.45%

-1.58% -1.28%
GDX Market Vectors TR Gold Miners 24.76  

-0.37

-1.48%

3.99% 0.98%
USO United States Oil Fund 10.28  

-0.29

-2.78%

-6.63% -2.37%

Country ETFs

SYMBOL NAME CLOSE DAILY (%) WTD % MTD %
EWS iShares MSCI Singapore Index Fund 10.32  

0.02

0.19%

0.10% -0.29%
EWM iShares MSCI Malaysia Index Fund 7.95  

-0.02

-0.25%

-0.13% -0.38%
EWO iShares MSCI Austria Index Fund 16.31  

-0.07

-0.43%

-1.45% -0.79%
EWD iShares MSCI Sweden Index Fund 27.29  

-0.14

-0.51%

-1.73% -0.91%
EWU iShares MSCI United Kingdom Index Fund 14.87  

-0.08

-0.54%

-0.93% -0.87%
EWK iShares MSCI Belgium Index Fund 17.76  

-0.1

-0.56%

-1% -0.78%
EWN iShares MSCI Netherlands Index Fund 24.21  

-0.15

-0.62%

-1.14% -1.10%
EWL iShares MSCI Switzerland Index Fund 28.92  

-0.18

-0.62%

-0.52% -0.31%
EWJ iShares MSCI Japan Index Fund 12.5  

-0.08

-0.64%

-0.95% -1.03%
EWQ iShares MSCI France Index Fund 23.79  

-0.16

-0.67%

-1.12% -1.08%
EWY iShares MSCI South Korea Index Fund 54.48  

-0.42

-0.77%

-1.39% -1.57%
EWG iShares MSCI Germany Index Fund 25.51  

-0.2

-0.78%

-1.35% -1.54%
EWH iShares MSCI Hong Kong Index Fund 21.48  

-0.18

-0.83%

-0.56% -0.42%
EWT iShares MSCI Taiwan Index Fund 15.44  

-0.15

-0.97%

-1.34% -2.03%
EWA iShares MSCI Australia Index Fund 19.99  

-0.21

-1.05%

-0.84% -1.43%
EWC iShares MSCI Canada Index Fund 25.1  

-0.28

-1.11%

-1.38% -0.99%
EWP iShares MSCI Spain Index Fund 26.99  

-0.31

-1.14%

-1.64% -1.68%
EEM iShares MSCI Emerging Index Fund 36.4  

-0.44

-1.20%

-1.44% -1.99%
DXJ WisdomTree Japan Total Dividend Fund 43.91  

-0.57

-1.29%

-2.44% -2.75%
FXI iShares FTSE/Xinhua China 25 Index Fund 36.62  

-0.48

-1.30%

-0.62% -0.65%
EWX SPDR S&P Emerging Markets Small Cap ETF 42.28  

-0.57

-1.34%

-1.49% -1.67%
EWW iShares MSCI Mexico Index Fund 48.65  

-0.74

-1.51%

-3.93% -4.29%
EWI iShares MSCI Italy Index Fund 10.99  

-0.18

-1.62%

-2.92% -2.57%
EWZ iShares MSCI Brazil Index Fund 35.83  

-0.64

-1.77%

-4.17% -5.11%

 

Week Ahead – Events and Economic Data

11/3 Thursday

Time Event / Data
8:30am Initial Jobless Claims
10:00am ISM Non-Manufacturing

 

11/4 Friday

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

 

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