Macro Market · Market Commentary · Newsletter · On Our Radar

Daily Commentary – Honeymoon Rally

The astonishing month of November finally ended. Based on how much the world has changed during that span, it did felt a lot longer than a month. Indeed, 30 days ago, few imagined the possibility of a Trump presidency. 30 days later, most are now embracing the fresh, bright future for America, including the politicians who were not shy in condemning the President-elect before he was elected. For example, Mitt Romney’s “stunning 180”:

https://www.washingtonpost.com/news/the-fix/wp/2016/11/30/mitt-romneys-stunning-180-on-donald-trump/?utm_term=.60b6ca6a5d8e

In some way, people are behaving just like the markets, with the Dow firmly in the breakout mode above the ascending wedge on the daily chart as well as LT up channel in the monthly chart. Seemingly the success of Trump’s grand plan which would “create 25 million jobs and push growth to 4 percent annually” is being priced in:

https://www.washingtonpost.com/business/economy/trump-nominees-map-out-plans-for-tax-cuts-trade-and-carrier-style-negotiations/2016/11/30/54cfca98-b73d-11e6-a677-b608fbb3aaf6_story.html?utm_term=.8c717936503f

20161201-DOW.png

Whether it turns out to be fruitful remains to be seen, but we are in the “honeymoon period” during which hope trumps reality. Nonetheless, focusing on the technicals, yesterday we saw a shooting star doji, a bearish reversal candle pattern, for the first time since the beginning of the Trump Rally in the Dow. These type of candles especially in overbought conditions, have a high probability of a pullback in the coming days. While the LT technical picture is unambiguously bullish, in the ST, a pullback is expected in the Dow towards the wedge breakout area at 19000.

Likewise, the S&P 500 also has ST bearish technical development by breaking back under the ascending wedge, pointing to a downside target of 2175, the September swing high and a rising 20DMA:

20161201-SPX.png

Broader markets were not able to hold gains despite the OPEC production cut deal yesterday, which sent crude oil up 8% to just under 50 handle. To recap what transpired, “The 14-member group of major oil producers reached an agreement to reduce their collective output by 1.2 million barrels a day to a ceiling of 32.5 million barrels a day, al-Sada announced.”

http://www.marketwatch.com/story/heres-what-happened-at-opecs-oil-meeting-2016-11-30

While oil had an impressive rally, the big picture hardly changed for the commodity, as the daily chart remains bounded in a descending wedge between $43 and $51.

20161201-CL.png

Meanwhile, it was indeed an early “Christmas gift for U.S. oil producers”, with the XLE launching 5% to further confirm a breakout in all timeframes, including the invalidation of the bearish H&S pattern on the monthly chart with an upside target of 80 from the current price point of 74.43:

20161201-XLE.png

On the other hand, the biotechs (IBB) are already suffering from the end of the honeymoon rally, as it continues to retrace and looks set to fill the gap left open since the Election. But we will likely find support from the bottom of descending channel and bounce towards the top again.

20161201-IBB.png

Switching gears, it has been a while since we look at the Treasury Bonds (TLT), which has been hovering near the lows since the post-Election waterfall drop. Technicals are increasingly suggesting the sell-off is getting exhausted, as positive technical divergence on marginally lower lows is pointing to a near-term bottom, similar to 2015 May-July bottoming period.

20161201-TLT.png

Across the pond, the country that continues to make negative headlines is Italy (EWI) and could be a catalyst for a partial reversal in the honeymoon rally in the US as well as onslaught in bonds and safe haven assets including Yen and Gold. On Dec 4, Italy will hold a referendum which could a renewed shockwave in Europe and across the globe:

https://www.washingtonpost.com/news/monkey-cage/wp/2016/11/30/italy-is-having-a-referendum-next-week-it-may-spark-a-major-european-crisis/?utm_term=.d46bdb9c5651

Per Washington Post, the reasoning behind global consequences on a negative outcome is that “A panic in Italy could lead to a bank run, forcing the Italian central bank to impose capital controls as a stopgap measure. Italy’s political parties may plausibly react to this measure by clamoring for an exit from the euro zone.” In other words, a potential “Itexit” leading to contagion effects across Europe and the globe. While “Brexit” turned out to be an isolated event, a 2nd country following suit would be unthinkable.

http://www.independent.co.uk/news/world/europe/italy-referendum-euro-matteo-renzi-five-star-movement-a7443706.html

Technically, the EWI has been marred near YTD lows though does have an inverse H&S pattern, which could turn out to be a bullish breakout if the referendum outcome surprises positively. But wouldn’t bet on it for now.

20161201-EWO.png

 

 

Daily Market Snapshot

Sector ETFs by Daily Return %

SYMBOL NAME CLOSE DAILY (%) WTD % MTD %
XLE SPDR Select Sector Fund – Energy Select Sector 74.43  

3.6

4.96%

2.35% 8.47%
KRE SPDR KBW Regional Banking ETF 52.41  

0.93

1.79%

0.21% 19.68%
XLF SPDR Select Sector Fund – Financial 22.51  

0.3

1.34%

0.45% 14.03%
XLB Materials Select Sector SPDR 49.94  

0.53

1.07%

0.77% 6.82%
XLI SPDR Select Sector Fund – Industrial 62.41  

0.08

0.13%

-0.48% 9.09%
DIA Dow Jones Industrial Average ETF 191.4  

0.21

0.11%

0.05% 5.65%
SPY SPDR S&P 500 220.38  

-0.53

-0.24%

-0.51% 3.68%
SMH HOLDRS Merrill Lynch Semiconductor 71.06  

-0.2

-0.28%

-0.91% 4.09%
XLG Rydex Russell Top 50 ETF 153.99  

-0.51

-0.33%

-0.46% 2.63%
PFF iShares S&P US Preferred Stock Fund 37.48  

-0.18

-0.48%

-0.50% -3.77%
IWM iShares Russell 2000 131.61  

-0.65

-0.49%

-1.83% 11.06%
XRT SPDR S&P Retail ETF 45.71  

-0.3

-0.65%

-1.99% 8.24%
XLY SPDR Select Sector Fund – Consumer Discretionary 81.85  

-0.69

-0.84%

-1.36% 4.80%
XLV SPDR Select Sector Fund – Health Care 68.75  

-0.66

-0.96%

-1.05% 2.06%
XLK SPDR Select Sector Fund – Technology 47.5  

-0.57

-1.19%

-1.04% 0.17%
QQQ PowerShares QQQ Trust 117.51  

-1.43

-1.21%

-1.09% 0.44%
IYR iShares Dow Jones U.S. Real Estate Index Fund 74.85  

-0.95

-1.26%

-0.09% -2.34%
XLP SPDR Select Sector Fund – Consumer Staples 50.58  

-0.82

-1.61%

-1.25% -4.20%
IBB iShares Nasdaq Biotechnology 274.07  

-6.33

-2.28%

-3.65% 6.77%
XLU SPDR Select Sector Fund – Utilities 46.75  

-1.52

-3.20%

-0.87% -5.42%
           

Commodity & Bond ETFs

SYMBOL NAME CLOSE DAILY  (%) WTD % MTD %
USO United States Oil Fund 10.93  

0.87

8.29%

5.81% 3.80%
HYG iShares iBoxx $ HY Corp Bond Fund 85.65  

0.04

0.05%

-0.09% -0.43%
DBA PowerShares DB Agriculture Fund 19.94  

-0.06

-0.30%

-1.77% -2.83%
LQD iBoxx $ Investment Grade Corporate Bond Fund 116.84  

-0.44

-0.38%

0.21% -3.42%
AGG iShares Barclays Aggregate Bond Fund 108.24  

-0.43

-0.40%

0.06% -2.75%
SLV iShares Silver Trust 15.66  

-0.12

-0.76%

0.19% -7.72%
GLD SPDR Gold Trust 111.75  

-1.52

-1.35%

-0.76% -8.36%
TLT iShares Barclays 20 Year Treasury Bond Fund 120.24  

-1.98

-1.63%

-0.48% -8.39%
GDX Market Vectors TR Gold Miners 20.83  

-0.4

-1.90%

1.07% -15.05%

Country ETFs

SYMBOL NAME CLOSE DAILY (%) WTD % MTD %
EWI iShares MSCI Italy Index Fund 21.75  

0.37

1.72%

2.16% 92.82%
DXJ WisdomTree Japan Total Dividend Fund 49.2  

0.77

1.58%

2.18% 8.97%
EWZ iShares MSCI Brazil Index Fund 33.49  

0.29

0.87%

1.30% -11.31%
EWH iShares MSCI Hong Kong Index Fund 21.17  

0.15

0.71%

0.86% -1.85%
EWC iShares MSCI Canada Index Fund 26.01  

0.16

0.62%

0.50% 2.60%
EWO iShares MSCI Austria Index Fund 16.09  

0.07

0.41%

0.03% -2.16%
FXI iShares FTSE/Xinhua China 25 Index Fund 37.59  

0.13

0.35%

1.35% 1.98%
EWS iShares MSCI Singapore Index Fund 21.05  

0.07

0.33%

0.86% 103.38%
EWX SPDR S&P Emerging Markets Small Cap ETF 41.17  

0.07

0.17%

0.73% -4.26%
EEM iShares MSCI Emerging Index Fund 35.5  

0.06

0.17%

0.71% -4.42%
EWW iShares MSCI Mexico Index Fund 44.12  

0.07

0.16%

0.09% -13.20%
EWD iShares MSCI Sweden Index Fund 27.49  

0.04

0.15%

-0.61% -0.18%
EWU iShares MSCI United Kingdom Index Fund 30.06  

0.01

0.03%

-0.76% 100.40%
EWP iShares MSCI Spain Index Fund 25.17  

-0.01

-0.04%

-0.04% -8.31%
EWJ iShares MSCI Japan Index Fund 49.89  

-0.08

-0.16%

0.81% 295.01%
EWQ iShares MSCI France Index Fund 23.45  

-0.05

-0.21%

0.34% -2.49%
EWL iShares MSCI Switzerland Index Fund 28.35  

-0.07

-0.25%

-0.53% -2.28%
EWN iShares MSCI Netherlands Index Fund 23.53  

-0.06

-0.25%

-0.72% -3.88%
EWY iShares MSCI South Korea Index Fund 53.26  

-0.14

-0.26%

0.43% -3.78%
EWM iShares MSCI Malaysia Index Fund 29.29  

-0.08

-0.27%

-0.51% 267.04%
EWK iShares MSCI Belgium Index Fund 17.13  

-0.05

-0.29%

-0.52% -4.30%
EWT iShares MSCI Taiwan Index Fund 30.74  

-0.09

-0.29%

0.13% 95.05%
EWG iShares MSCI Germany Index Fund 24.83  

-0.09

-0.36%

-0.56% -4.17%
EWA iShares MSCI Australia Index Fund 20.44  

-0.34

-1.65%

-1.87% 0.79%

 

 

Week Ahead – Events and Economic Data

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

 

12/4 Sunday

Time Event / Data
TBD Italy Referendum

 

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s