Macro Market · Market Commentary · Newsletter

Daily Commentary – The Great Rotation

No hangover from market’s celebration of Trump’s victory, as stocks rallied a second day despite uncertainty and unrest lingering from the shocking Election outcome. The Dow launched to ATHs, breaking through key resistance on strong volume back inside a sharp ascending wedge. With technicals getting more overstretched, we likely consolidate inside the wedge until the next big move.

20161111-INDU.png

Beneath the surface, there is no short of bifurcation as we are experiencing a massive sector rotation. The biggest winner so far is the banks and financials with XLF up another 3.6%, as they will likely benefit from “key measures passed in Congress, regulatory measures rolled back and an inflow of cash to the financial system.” The regional bank ETF (KRE) is up 4% today and 12.5% WTD.

http://www.cnbc.com/2016/11/09/dick-bove-for-banks-trumps-election-is-a-grand-slam.html

20161111-KRE.png

Technically, the KRE is having a massive breakout about post-crisis highs, and took no time to spike all the way up to top of channel line in the weekly chart. With technicals turning overbought, most likely KRE will consolidate and pullback towards top of Bollinger Band in the coming weeks.

Another day of dumping in Treasuries sparked another sell-off in Utilities (XLU) and REITs (IYR), as they have been the worst losers during this rotation so far, down -6% and -5% respectively WTD. For the latter, support continues to be found at the bottom of a steep descending wedge, so not all hopes are gone for the beleaguered sector unless it broke decisively below the wedge which looks unlikely given the positive technical divergence.

20161111-IYR.png

The worst hit on the day was actually the Consumer Staples (XLP) (-2.6%), which plunged through H&S pattern today with a vengeance and is on verge of a death cross pointing to further weakness ahead.

20161111-XLP.png

Talking about H&S, Gold and the Gold Miners (GDX) are the other two with clear-cut bearish H&S patterns which could spell more trouble ahead for the safe haven asset class. We covered Gold chart yesterday, and for the GDX, similar picture as it plunged -7% right down to the neckline. A break below would give a downside target of 17 in the LT which is the neckline of a multiple year inverse H&S.

20161111-GDX.png

Expectedly the most victimized country is Mexico (EWW) with its stock market crashing 17% the last 2 days down to the 2016 lows. The other is Brazil (EWZ) which crashed 8% today as it unwound some of this year’s impressive gain. On the weekly chart, EWZ remains in a solid uptrend unless the 20WMA gets pierced through and a large inverse H&S is in the process. Hence in our view, this pullback is merely a breather before the next leg higher and dips to shoulder line at 30 is a LT buy.

20161111-EWZ.png

In light of today’s action, we want to revisit the outlook for stocks in general. In our view, the most important divergence of the day for US stocks is the IWM vs. QQQ, with the former +1.6% while the latter -1.6%. Why is this important? Going back to 2000, there are only a handful of occasions during which the daily return of QQQ and IWM is < -1% and >1% respectively. Most interestingly, the last 2 instances (2002 Sept and 2011 Sept) foreshadowed the beginning of a new bull market.

20161111-IWMQQQ.png

Date QQQ Daily % IWM Daily % Next 200-Day Return in QQQ Next 200-Day Return in IWM
2016/11/10 115.75 -1.61% 124.50 1.60%  ? ?
2011/9/29 50.68 -1.19% 61.37 1.73% 18% 22%
2002/9/26 19.46 -1.23% 30.57 1.32% 49% 30%
2001/4/26 39.59 -2.55% 38.95 1.43% -16% -1%
2001/3/26 37.66 -2.31% 36.42 1.36% -4% 9%
2001/1/16 55.83 -1.20% 40.10 2.00% -43% -11%

The other 3 instances all occurred in first half of 2001 during the aftermath of tech bubble, which explains the skew in QQQ’s performance heavily on the downside. A new bull market after an 8-year bull market certainly sounds ridiculous, especially considering the rich valuations in the face of heightened political and economic uncertainty, but the charts will paint a clear picture – so far we have a confirmed breakout in Dow, but SPX and Russell 2000 also confirm a breakout above their ATHs, then most certainly a new bull market is upon us which we must respect and capitalize on. So the price to watch is 2190 in SPX and 126 in IWM to give us the LT buy signal in US equity market.

 

 

Daily Market Snapshot

Sector ETFs by Daily Return %

SYMBOL NAME CLOSE DAILY (%) WTD % MTD %
KRE SPDR KBW Regional Banking ETF 48.4  

1.95

4.11%

12.58% 10.53%
XLF SPDR Select Sector Fund – Financial 21.61  

0.77

3.63%

10.88% 9.47%
XLFS S&P SmallCap Financials Portfolio 34.05  

1.2

3.59%

10.73% 9.34%
XRT SPDR S&P Retail ETF 43.72  

1.13

2.62%

6.45% 3.53%
XLI SPDR Select Sector Fund – Industrial 60.94  

1.27

2.11%

7.92% 6.52%
IBB iShares Nasdaq Biotechnology 289.78  

4.79

1.67%

15.13% 12.90%
IWM iShares Russell 2000 124.5  

1.96

1.59%

7.57% 5.06%
DIA Dow Jones Industrial Average ETF 188.13  

2.17

1.16%

5.27% 3.84%
XLB Materials Select Sector SPDR 48.82  

0.56

1.15%

5.22% 4.43%
XLV SPDR Select Sector Fund – Health Care 71.56  

0.78

1.10%

7.64% 6.24%
XLE SPDR Select Sector Fund – Energy Select Sector 70.75  

0.3

0.42%

4.40% 3.10%
XLY SPDR Select Sector Fund – Consumer Discretionary 79.27  

0.29

0.37%

3.31% 1.50%
SPY SPDR S&P 500 216.92  

0.54

0.25%

4.01% 2.06%
XLG Rydex Russell Top 50 ETF 152.58  

-0.08

-0.06%

3.77% 1.69%
PFF iShares S&P US Preferred Stock Fund 37.38  

-0.55

-1.46%

-1.99% -4.03%
XLK SPDR Select Sector Fund – Technology 46.59  

-0.76

-1.62%

0.89% -1.75%
QQQ PowerShares QQQ Trust 115.75  

-1.9

-1.63%

1.85% -1.06%
IYR iShares Dow Jones U.S. Real Estate Index Fund 72.87  

-1.35

-1.84%

-1.46% -4.92%
SMH HOLDRS Merrill Lynch Semiconductor 66.89  

-1.27

-1.88%

0.45% -2.02%
XLU SPDR Select Sector Fund – Utilities 46.22  

-1.14

-2.44%

-3.61% -6.49%
XLP SPDR Select Sector Fund – Consumer Staples 50.59  

-1.39

-2.71%

-1.98% -4.19%

 

Commodity & Bond ETFs

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

0.11

0.63%

0.57% 3.48%
LQD iBoxx $ Investment Grade Corporate Bond Fund 118.59  

-0.1

-0.08%

-1.84% -1.98%
AGG iShares Barclays Aggregate Bond Fund 109.45  

-0.45

-0.41%

-1.61% -1.66%
DBA PowerShares DB Agriculture Fund 20.21  

-0.13

-0.64%

-1.03% -1.51%
HYG iShares iBoxx $ HY Corp Bond Fund 84.26  

-1.12

-1.32%

-0.85% -2.05%
TLT iShares Barclays 20 Year Treasury Bond Fund 122.73  

-1.85

-1.50%

-6.84% -6.49%
GLD SPDR Gold Trust 119.75  

-1.81

-1.50%

-3.73% -1.80%
USO United States Oil Fund 10.04  

-0.24

-2.36%

0.60% -4.65%
GDX Market Vectors TR Gold Miners 22.75  

-1.84

-7.78%

-9.25% -7.22%

Country ETFs

SYMBOL NAME CLOSE DAILY (%) WTD % MTD %
DXJ WisdomTree Japan Total Dividend Fund 45.28  

0.63

1.40%

4.38% 0.29%
EWD iShares MSCI Sweden Index Fund 27.86  

0.17

0.61%

3.57% 1.16%
EWO iShares MSCI Austria Index Fund 16.47  

0.03

0.18%

1.86% 0.18%
EWI iShares MSCI Italy Index Fund 22.17  

0.03

0.14%

2.45% 96.54%
EWJ iShares MSCI Japan Index Fund 49.43  

0.04

0.08%

-0.18% 291.37%
EWU iShares MSCI United Kingdom Index Fund 30.39  

0

0%

3.16% 102.60%
EWA iShares MSCI Australia Index Fund 20.49  

-0.04

-0.20%

2.96% 1.04%
EWH iShares MSCI Hong Kong Index Fund 20.96  

-0.05

-0.24%

-0.80% -2.83%
EWG iShares MSCI Germany Index Fund 25.57  

-0.08

-0.31%

1.51% -1.31%
EWL iShares MSCI Switzerland Index Fund 29.37  

-0.11

-0.37%

2.58% 1.24%
EWC iShares MSCI Canada Index Fund 25.3  

-0.15

-0.59%

1.48% -0.20%
EWQ iShares MSCI France Index Fund 23.9  

-0.17

-0.71%

1.57% -0.62%
FXI iShares FTSE/Xinhua China 25 Index Fund 36.39  

-0.35

-0.96%

0.41% -1.28%
EWS iShares MSCI Singapore Index Fund 20.52  

-0.22

-1.07%

-0.10% 98.26%
EWY iShares MSCI South Korea Index Fund 53.11  

-0.62

-1.16%

-2.34% -4.05%
EWN iShares MSCI Netherlands Index Fund 24.01  

-0.3

-1.24%

0.29% -1.92%
EWK iShares MSCI Belgium Index Fund 17.47  

-0.22

-1.25%

-0.23% -2.40%
EWP iShares MSCI Spain Index Fund 26.37  

-0.43

-1.62%

-1.20% -3.93%
EWX SPDR S&P Emerging Markets Small Cap ETF 40.74  

-0.83

-2.02%

-1.97% -5.26%
EWT iShares MSCI Taiwan Index Fund 29.97  

-0.68

-2.24%

-2.12% 90.16%
EWM iShares MSCI Malaysia Index Fund 30.07  

-0.81

-2.66%

-3.99% 276.82%
EEM iShares MSCI Emerging Index Fund 35.22  

-1.03

-2.88%

-1.98% -5.17%
EWZ iShares MSCI Brazil Index Fund 33.45  

-2.86

-8.20%

-5.40% -11.41%
EWW iShares MSCI Mexico Index Fund 44.2  

-4.09

-8.85%

-10.44% -13.04%

 

Week Ahead – Events and Economic Data

11/11 Friday

Time Event / Data
10:00 Michigan Consumer Confidence

 

 

 

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