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Daily Commentary – Monthly Charts at Critical Juncture – Part 2

On the heels of better than expected GDP number, US markets opened with a positive sentiment before grinding sideways to close slightly up on the day with SPX +3pts while the Dow +23pts. Quite simply, from technical perspective no new development in the daily charts for the major indices. Though worth noting for the SPX, it is barely holding onto the bottom of ascending wedge. The ST target is still 2220, but if we see a breakdown below, it would point to quick drop to 2175 area.

20161130-SPX.png

Heading into the last day of what has been a game-changing month for politics and markets around the world, let us assess the monthly charts of the major sectors which had no doubt undergone a massive rotation. Similar to what we observed in the analysis of US flagship indices and US Dollar yesterday, there are quite many sector ETFs at critical junctures which could prove to be the turning point of the next long-term directional move.

In other words, “Is this a fake out, or a fresh breakout to a new bull market?” The million dollar question that we all try to answer and it all hinges on whether the momentum of Trump Trade could continue. Recall the Russell 2000, which rallied ferociously to the top of 15-year up channel line and multi-year megaphone in the monthly chart. A similar picture can be seen in the Financials (XLF) chart as well.

20161130-XLF.png

It was the biggest rally in Financials (XLF) ever recorded in history per observed by ZeroHedge, as “US Financials added over $275 billion in market capitalization in November – the greatest gain in the index’ history.”

http://www.zerohedge.com/news/2016-11-29/us-financial-stocks-are-set-their-greatest-monthly-gain-ever

But until a confirmed breakout above the 8-year ascending channel, the momentum will likely stall and a mean-reversion would mean a round trip back towards to the middle of the channel at 20. Hence from the bulls’ perspective, there is simply no rush to panic buy at this point and ought to wait until we see both the IWM and XLF break above their respective resistance trendlines before jumping in.

A good illustration of a confirmed breakout from LT up channel line is the Semiconductors (SMH), which punched through a similar 8-year up channel in September, followed with a classic retest of the breakout area before launching the new fresh ATHs:

20161130-SMH.png

From a technical perspective, the sky is the limit in SMH and we could see a potential parabolic move from here. The bullish case for the other potential breakout candidates: IWM, XLF and the Dow, is that they could mirror the SMH to confirm a breakout above their respective LT resistances. In fact, as we saw yesterday, the Dow is already above the 18-year resistance line and is only pending confirmation of the monthly close. We will find out soon enough.

20161129-djia

Switching gears, the next sector is the Energy (XLE), which is set to have a volatile month-end as we await the outcome of the OPEC meeting. Literally as we write, headlines hit the tape that Iran agrees to a production cut deal, sending crude oil soaring higher by 5% above the 47 handle.

http://news.forexlive.com/!/opec-latest-saudis-dont-know-if-theyre-optimistic-iraq-agrees-a-cut-20161130

A confirmed deal certainly would significantly alter the LT technical picture in XLE, which is sitting at the right shoulder of a very large H&S pattern. A successful close above the shoulder line near 71.5 area would likely point to a squeeze to 80 area. On the other hand, a flop and failed breakout would suggest a severe drop back towards the bottom of the neckline about 25% from here at 52 area. Certainly another crucial monthly close we do not want to miss.

20161130-XLE.png

Moving on to the sectors which are on course to be red on the month – Utilities (XLU) and REITs (IYR), which suffered a plunge earlier the month on the massive spike up in interest rates, but gradually recovered in the past couple weeks. On a monthly basis, the IYR held a LT uptrend while the XLU defended a crucial horizontal breakout support, and both are on the verge of creating a bullish hammer candle despite all the fear surrounding higher interest rates. That said, with an impending rate hike next month, how the Fed changes the projection of its rate hike trajectory could easily alter the picture in December’s close.

20161130-iyr20161130-xlu

On the back of US Dollar strength and uncertainty surrounding Trump’s foreign policy, Emerging Markets (EEM) and Gold Miners (GDX) have both taken a big hit. Nonetheless for the former, it is still enjoying a healthy 10% YTD gain and bounced off inverse H&S breakout at 34 area. That said, its upside is constrained by descending trendline connecting 2014 and 2015 highs. Hence we expect a sideways chop between 34 and 37 until one side gives way.

20161130-EEM.png

The GDX, similar to the Gold chart, is pulling back to the right shoulder line of a large inverse H&S pattern which has bullish implication with eventual retest of the 30 neckline. In the near-term, still headwind with the USD strength and Fed meeting, but unless it breaks 20 on a monthly basis, we see this as a great buying opportunity for 2017.

20161130-GDX.png

That wraps up the monthly charts recap for the major sectors. Tomorrow we will review all monthly closes including the country ETFs, and update if there are any significant technical developments.

 

 

 

Daily Market Snapshot

Sector ETFs by Daily Return %

SYMBOL NAME CLOSE DAILY (%) WTD % MTD %
IYR iShares Dow Jones U.S. Real Estate Index Fund 75.8  

0.62

0.82%

1.17% -1.10%
XLV SPDR Select Sector Fund – Health Care 69.41  

0.45

0.65%

-0.10% 3.04%
XLU SPDR Select Sector Fund – Utilities 48.27  

0.2

0.42%

2.35% -2.35%
QQQ PowerShares QQQ Trust 118.94  

0.41

0.35%

0.12% 1.67%
KRE SPDR KBW Regional Banking ETF 51.48  

0.17

0.33%

-1.57% 17.56%
XLF SPDR Select Sector Fund – Financial 22.21  

0.06

0.27%

-0.89% 12.51%
XLY SPDR Select Sector Fund – Consumer Discretionary 82.54  

0.22

0.27%

-0.53% 5.69%
XLG Rydex Russell Top 50 ETF 154.5  

0.34

0.22%

-0.13% 2.97%
DIA Dow Jones Industrial Average ETF 191.19  

0.41

0.21%

-0.06% 5.53%
SPY SPDR S&P 500 220.91  

0.43

0.19%

-0.28% 3.93%
IBB iShares Nasdaq Biotechnology 280.4  

0.41

0.15%

-1.43% 9.24%
XLP SPDR Select Sector Fund – Consumer Staples 51.4  

0.07

0.14%

0.35% -2.65%
PFF iShares S&P US Preferred Stock Fund 37.66  

0.05

0.13%

-0.03% -3.31%
XLB Materials Select Sector SPDR 49.41  

0.05

0.10%

-0.30% 5.69%
XLI SPDR Select Sector Fund – Industrial 62.33  

0.05

0.08%

-0.61% 8.95%
XLK SPDR Select Sector Fund – Technology 48.07  

0.03

0.06%

0.15% 1.37%
IWM iShares Russell 2000 132.26  

-0.07

-0.05%

-1.35% 11.61%
XRT SPDR S&P Retail ETF 46.01  

-0.06

-0.13%

-1.35% 8.95%
SMH HOLDRS Merrill Lynch Semiconductor 71.26  

-0.27

-0.38%

-0.63% 4.38%
XLE SPDR Select Sector Fund – Energy Select Sector 70.83  

-0.88

-1.23%

-2.60% 3.22%
           

Commodity & Bond ETFs

SYMBOL NAME CLOSE DAILY  (%) WTD % MTD %
TLT iShares Barclays 20 Year Treasury Bond Fund 122.22  

0.51

0.42%

1.16% -6.88%
LQD iBoxx $ Investment Grade Corporate Bond Fund 117.28  

0.16

0.14%

0.59% -3.06%
AGG iShares Barclays Aggregate Bond Fund 108.67  

0.12

0.11%

0.46% -2.36%
SLV iShares Silver Trust 15.78  

0.01

0.06%

0.96% -7.01%
HYG iShares iBoxx $ HY Corp Bond Fund 85.61  

-0.11

-0.13%

-0.14% -0.48%
GLD SPDR Gold Trust 113.27  

-0.53

-0.47%

0.59% -7.11%
GDX Market Vectors TR Gold Miners 21.23  

-0.17

-0.80%

3.01% -13.42%
DBA PowerShares DB Agriculture Fund 20  

-0.25

-1.24%

-1.48% -2.53%
USO United States Oil Fund 10.06  

-0.38

-3.71%

-2.61% -4.46%

Country ETFs

SYMBOL NAME CLOSE DAILY (%) WTD % MTD %
EWI iShares MSCI Italy Index Fund 21.38  

0.53

2.51%

0.42% 89.54%
EWQ iShares MSCI France Index Fund 23.5  

0.36

1.54%

0.56% -2.29%
EWP iShares MSCI Spain Index Fund 25.18  

0.23

0.92%

0% -8.27%
EWG iShares MSCI Germany Index Fund 24.92  

0.21

0.85%

-0.20% -3.82%
EWO iShares MSCI Austria Index Fund 16.02  

0.13

0.81%

-0.37% -2.56%
EWY iShares MSCI South Korea Index Fund 53.4  

0.37

0.70%

0.70% -3.52%
EWN iShares MSCI Netherlands Index Fund 23.59  

0.16

0.68%

-0.46% -3.64%
EWL iShares MSCI Switzerland Index Fund 28.42  

0.18

0.64%

-0.28% -2.03%
FXI iShares FTSE/Xinhua China 25 Index Fund 37.46  

0.23

0.62%

1% 1.63%
DXJ WisdomTree Japan Total Dividend Fund 48.43  

0.28

0.58%

0.58% 7.26%
EWH iShares MSCI Hong Kong Index Fund 21.02  

0.12

0.57%

0.14% -2.55%
EWU iShares MSCI United Kingdom Index Fund 30.05  

0.14

0.47%

-0.79% 100.33%
EWK iShares MSCI Belgium Index Fund 17.18  

0.08

0.47%

-0.23% -4.02%
EWX SPDR S&P Emerging Markets Small Cap ETF 41.1  

0.18

0.44%

0.56% -4.42%
EWT iShares MSCI Taiwan Index Fund 30.83  

0.06

0.19%

0.42% 95.62%
EWD iShares MSCI Sweden Index Fund 27.45  

0.04

0.15%

-0.76% -0.33%
EWA iShares MSCI Australia Index Fund 20.78  

0.03

0.14%

-0.24% 2.47%
EEM iShares MSCI Emerging Index Fund 35.44  

0.05

0.14%

0.54% -4.58%
EWW iShares MSCI Mexico Index Fund 44.05  

0.05

0.11%

-0.07% -13.34%
EWM iShares MSCI Malaysia Index Fund 29.37  

0.03

0.10%

-0.24% 268.05%
EWJ iShares MSCI Japan Index Fund 49.97  

0.05

0.10%

0.97% 295.65%
EWS iShares MSCI Singapore Index Fund 20.98  

-0.02

-0.10%

0.53% 102.71%
EWC iShares MSCI Canada Index Fund 25.85  

-0.05

-0.19%

-0.12% 1.97%
EWZ iShares MSCI Brazil Index Fund 33.2  

-0.71

-2.12%

0.42% -12.08%

 

 

Week Ahead – Events and Economic Data

11/30 Wednesday

Time Event / Data
TBD OPEC Meeting
09:45 Chicago PMI
10:00 Pending Home Sales
10:30 Crude Oil Inventories
14:00 Beige Book

 

12/1 Thursday

Time Event / Data
08:30 Initial Jobless Claims
10:00 ISM Manufacturing

 

12/2 Friday

Time Event / Data
08:30 NFP & Unemployment Rate
10:00 ISM Manufacturing
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