Macro Market · Market Commentary · Newsletter

Weekly Commentary – Game Changer

All you can say is “Wow, what a week!” Amazing how quickly things have evolved, from an expected Clinton victory after FBI cleared her name to a shocking Trump victory, and from an outright panic selling in equity futures to new ATHs in the Dow, which ripped higher 5 days in a row towards the top of ascending wedge.

20161114-INDU.png

Last week was not only a game changer for both the political, economic landscape around the world, but also for the markets as many new long-term trends are being defined during the explosive rotational moves. Few key bullet points from Yahoo Finance summarizing best and worst sector performances since the Election.

  • The financial sector (XLF) is the clear winner.
  • Second up are the industrials (XLI) — and to a slightly lesser extent, materials (XLB). Trump promises massive infrastructure spending.
  • The witch hunt in pharmaceuticals (IBB) is over
  • It might not be an all-out “war,” but Trump has been openly hostile toward the sector (XLK), calling its recent stock price ascendancy a “bubble.”
  • Mortgage rates are going up, and REITs (XLRE) are going down.

http://finance.yahoo.com/news/biggest-stock-winners-losers-under-president-elect-trump-145129209.html

The weekly charts illustrate the game changing trends eloquently. First, the XLF has a clear-cut breakout and points to a retest of a broken LT up trend around the 22.50 area:

20161114-XLF.png

Higher interest rates are one of the biggest catalysts, and the 30Y Treasury Yield points to further upside towards the 200WMA after a massive trendline breakout like the one back in 2015.

20161114-TYX.png

The Russell 2000 (IWM) defied all odds to close back above trendline off YTD lows and launched to fresh ATHs in the process. We may consolidate after extremely overstretched conditions, but ultimately wants to retest the 2013-2015 broken trendline to create a mega ascending wedge.

20161114-IWM.png

The weaklings were the trio of REITs (-4.4%), Consumer Staples (-4.2%), Utilities (-6.9%), with major technical damages on the weekly charts as all 3 sectors broke through their bearish H&S patterns. The XLU in particular is most vulnerable after closing below the 2015 swing high, confirming a false breakout. The LT downside target is 43 area.

20161114-xlu

Across the globe, the top performing country was Japan (DXJ) with a 5% jump, but more critically successfully defended 50 and 200WMA while broking above LT downtrend from the post-crisis highs. Next target is channel resistance near 48, about +5% from here.

20161114-DXJ.png

The Japan equity market’s resurgence has the strengthening US Dollar to thank for, as the DXY propelled above LT descending channel to the upside, and has its sight set on post-crisis highs near 101 area:

20161114-DXY.png

On the flip side, Gold and Gold Miners were hammered as the strength in US dollar and rise in interest rates dampens demand for the precious metal. Technically, Gold plunged right to the neckline of the large H&S that we have been highlighting for weeks now, and a confirmed breakdown will project under 1200 in coming weeks.

20161114-gold

The Gold Miners (GDX) look to be one step ahead of Gold, as it already broke through its respective H&S pattern as well as pivotal 50WMA support. LT target now stands at 17, the neckline of a larger inverse H&S formed between 2015 and 2016.

20161114-GDX.png

In overall, the equity market is undoubtedly overstretched to the upside and is likely to pullback to work off overbought conditions. Though, we are most likely headed for higher highs into 2017 given the technical breakouts as well as positive seasonality. Specifically, per McClellan’s weekly post, in a typical election year during which a new president from a new party (Democratic à Republican) is elected, markets tend to rally from Election Day into January before chopping sideways.

20161114-Seasonality.gif

http://www.mcoscillator.com/learning_center/weekly_chart/the_market_under_a_new_president/

Next week, we have deluge of economic data as well as Fed Chair Yellen testifying before the Joint Economic Committee. It will be most certainly interesting to hear what she has to say in the face of President-elect Trump’s harsh criticism of her monetary policies.

http://www.nbcnews.com/storyline/2016-election-day/trump-said-janet-yellen-should-be-ashamed-herself-so-will-n681581

 

Weekly Market Snapshot

Sector ETFs by Weekly Return %

SYMBOL NAME CLOSE DAILY (%) WTD % MTD %
KRE SPDR KBW Regional Banking ETF 49.49  

1.09

2.23%

15.12% 13.02%
IBB iShares Nasdaq Biotechnology 288  

-1.78

-0.62%

14.42% 12.20%
XLFS S&P SmallCap Financials Portfolio 34.22  

0.17

0.50%

11.28% 9.89%
XLF SPDR Select Sector Fund – Financial 21.67  

0.06

0.28%

11.19% 9.78%
IWM iShares Russell 2000 127.36  

2.89

2.29%

10.04% 7.48%
XRT SPDR S&P Retail ETF 44.41  

0.69

1.57%

8.13% 5.16%
XLI SPDR Select Sector Fund – Industrial 61.05  

0.11

0.18%

8.11% 6.71%
XLV SPDR Select Sector Fund – Health Care 70.49  

-1.07

-1.51%

6.03% 4.65%
DIA Dow Jones Industrial Average ETF 188.47  

0.34

0.18%

5.46% 4.03%
XLY SPDR Select Sector Fund – Consumer Discretionary 79.72  

0.45

0.57%

3.90% 2.07%
SPY SPDR S&P 500 216.42  

-0.47

-0.22%

3.77% 1.82%
XLB Materials Select Sector SPDR 48.15  

-0.67

-1.38%

3.77% 2.99%
XLG Rydex Russell Top 50 ETF 152.17  

-0.41

-0.27%

3.50% 1.42%
SMH HOLDRS Merrill Lynch Semiconductor 68.56  

1.67

2.47%

2.96% 0.42%
XLE SPDR Select Sector Fund – Energy Select Sector 69.46  

-1.29

-1.84%

2.49% 1.22%
QQQ PowerShares QQQ Trust 115.8  

0.12

0.10%

1.89% -1.02%
XLK SPDR Select Sector Fund – Technology 46.73  

0.14

0.30%

1.19% -1.46%
IYR iShares Dow Jones U.S. Real Estate Index Fund 73.26  

0.39

0.53%

-0.93% -4.41%
XLP SPDR Select Sector Fund – Consumer Staples 50.54  

-0.05

-0.10%

-2.07% -4.28%
PFF iShares S&P US Preferred Stock Fund 37.34  

-0.04

-0.11%

-2.10% -4.13%
XLU SPDR Select Sector Fund – Utilities 46.03  

-0.19

-0.41%

-4% -6.88%

Commodity & Bond ETFs

SYMBOL NAME CLOSE DAILY  (%) WTD % MTD %
DBA PowerShares DB Agriculture Fund 20.18  

-0.03

-0.15%

-1.18% -1.66%
HYG iShares iBoxx $ HY Corp Bond Fund 83.47  

-0.79

-0.94%

-1.78% -2.96%
AGG iShares Barclays Aggregate Bond Fund 109.25  

-0.2

-0.18%

-1.79% -1.84%
USO United States Oil Fund 9.77  

-0.27

-2.73%

-2.10% -7.22%
LQD iBoxx $ Investment Grade Corporate Bond Fund 118.08  

-0.48

-0.41%

-2.26% -2.40%
SLV iShares Silver Trust 16.47  

-1.09

-6.44%

-5.67% -2.95%
GLD SPDR Gold Trust 117.1  

-2.68

-2.26%

-5.86% -3.97%
TLT iShares Barclays 20 Year Treasury Bond Fund 122.04  

-0.69

-0.56%

-7.36% -7.02%
GDX Market Vectors TR Gold Miners 20.92  

-1.83

-8.39%

-16.55% -14.68%

Country ETFs

SYMBOL NAME CLOSE DAILY (%) WTD % MTD %
DXJ WisdomTree Japan Total Dividend Fund 45.53  

0.25

0.55%

4.96% 0.84%
EWA iShares MSCI Australia Index Fund 20.43  

-0.06

-0.29%

2.66% 0.74%
EWD iShares MSCI Sweden Index Fund 27.51  

-0.35

-1.26%

2.27% -0.11%
EWU iShares MSCI United Kingdom Index Fund 30.1  

-0.29

-0.96%

2.17% 100.67%
EWI iShares MSCI Italy Index Fund 22.09  

-0.08

-0.36%

2.08% 95.83%
EWL iShares MSCI Switzerland Index Fund 29.18  

-0.19

-0.65%

1.92% 0.59%
EWG iShares MSCI Germany Index Fund 25.49  

-0.08

-0.31%

1.19% -1.62%
EWO iShares MSCI Austria Index Fund 16.33  

-0.14

-0.85%

0.99% -0.67%
EWQ iShares MSCI France Index Fund 23.62  

-0.28

-1.18%

0.38% -1.79%
EWJ iShares MSCI Japan Index Fund 49.5  

0.07

0.14%

-0.04% 291.92%
EWC iShares MSCI Canada Index Fund 24.85  

-0.45

-1.79%

-0.32% -1.97%
EWN iShares MSCI Netherlands Index Fund 23.78  

-0.23

-0.96%

-0.67% -2.86%
FXI iShares FTSE/Xinhua China 25 Index Fund 35.98  

-0.41

-1.13%

-0.72% -2.39%
EWK iShares MSCI Belgium Index Fund 17.38  

-0.09

-0.52%

-0.74% -2.91%
EWS iShares MSCI Singapore Index Fund 20.36  

-0.16

-0.78%

-0.88% 96.71%
EWH iShares MSCI Hong Kong Index Fund 20.81  

-0.15

-0.72%

-1.51% -3.52%
EWY iShares MSCI South Korea Index Fund 52.85  

-0.26

-0.49%

-2.81% -4.52%
EWT iShares MSCI Taiwan Index Fund 29.75  

-0.22

-0.74%

-2.84% 88.77%
EWP iShares MSCI Spain Index Fund 25.85  

-0.52

-1.99%

-3.15% -5.83%
EWX SPDR S&P Emerging Markets Small Cap ETF 40.21  

-0.53

-1.31%

-3.25% -6.49%
EEM iShares MSCI Emerging Index Fund 34.55  

-0.67

-1.92%

-3.84% -6.97%
EWZ iShares MSCI Brazil Index Fund 32.5  

-0.95

-2.88%

-8.09% -13.93%
EWM iShares MSCI Malaysia Index Fund 28.57  

-1.5

-5.12%

-8.78% 258.02%
EWW iShares MSCI Mexico Index Fund 43.34  

0.86

-1.96

-12.18% -14.74%

Week Ahead – Events and Economic Data

11/14 Monday

Time Event / Data
10:00 ECB President Draghi Speaks
13:20 FOMC Member Kaplan Speaks

 

11/15 Tuesday

Time Event / Data
08:30 Retail Sales
13:30 FOMC Member Fisher Speaks

 

11/16 Wednesday

Time Event / Data
08:30 PPI
09:15 Industrial Production
10:30 Crude Oil Inventories

 

11/17 Thursday

Time Event / Data
08:30 Initial Claims, CPI
10:00 Fed Chair Yellen Testifies
12:30 FOMC Member Brainard Speaks

 

11/18 Friday

Time Event / Data
03:00 ECB President Draghi Speaks
09:30 FOMC Member George Speaks
13:00 FOMC Member Kaplan Speaks
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