SP500 Chart update from November 7th (SP500 was @ 2085 – Red ellipse) in which I wrote :
« SP500 Chart technical rationale for a bounce from friday’s closing…. » , « …Targets 2120 @ thereafter 2140 – 2150 range . Should 2150 be broken up on a daily closing basis, the US index will probably hit new highs and go beyond 2200…. ».
Market has gone from Oversold territory at 2085 on November 4th to Overbought at last week closing (2213) and crossed previous all time high at 2193 in-between.
I would remain neutral to bullish from here and any reaction down to 2195 – 2200 would be normal and healthy . A close below previous all time high (2193) would support more immediate downside. We cannot exclude this latter possibility given the fact that 50%+ of SP500 sub-sectors (See table below) are well in overbought territory .
2193 on a closing basis IS KEY.
Source : The Bespoke Investment Group
- Gold Strongly negatively correlated to USD ( See 2d chart below ).
- Gold strongly negatively correlated to US (and global) long term yields.
- Inflation risks do not play any role … for the time being.
USD 1200 support gives away and if prices does not go back quickly above this level/stabilizes at current level (USD1190) more pressure on the downside to USD 1150 – 1100 range might be expected.
Gold crossing the USD 1200 support :
Strong negative correlation between Gold price and USD especially since US election : Today EUR/USD at 1,0550 and USD/JPY at 112,40 .. USD INDEX AT MULTI YEAR HIGH
Stocks suggested by RBC do match following criteria :
- Domestic orientation.
- Low P/E stocks : Perform better if strong growth.
- High operating leverage : Benefit in case of strong growth.
- Highly taxed companies : Will benefit more in case of decreased tax rates.
- High volatility stocks : Will outperform low vola stocks which are more rate sensitive.
The 40 Stocks :
Legg Mason (LM)
Alliance Data Systems (ADS)
Lincoln National (LNC)
Southwest Airlines (LUV)
Alaska Air (ALK)
Ameriprise Financial (AMP)
Norfolk Southern (NSC)
Bed Bath & Beyond (BBBY)
PNC Financial (PNC)
Best Buy (BBY)
Cardinal Health (CAH)
Capital One (COF)
Discover Financial Services (DFS)
Express Scripts (ESRX)
Urban Outfitters (URBN)
Huntington Bancshares (HBAN)
United Rentals (URI)
U.S. Bancorp (USB)
Wells Fargo (WFC)
Nikkei, thanks to a very weak JPY is the best performer this week. US small and mid caps including a majority of domestic companies not affected by a strong USD largely overperformed the rest of US markets since election. SP400 Mid Cap and Russell 2000 will probably continue to overperform SP500 in the next weeks . Russia and Brazil recovered this week after poor post election performance. Nasdaq stocks recovered most of heavy losses incurred in the days just after Trump was elected.
Italian referendum planned for December 4rd started to weigh on european stocks which did not profit at all from a weakening EURO ; Italy was down 3% , Dax and Eurostoxx50 were flat . There is a risk that populists voting concerns will continue to weigh on european stocks. Second worst performer was the Indian market (-2,70%) with government decision to demonetize high denomination bills persistently weighing on the local market. Conversely Indian bond markets is a big beneficiary of the move. Generally speaking EM including their currencies did poorly since the US election.
10 Years Treasuries from 1,80% before election to > 2,30% today.
This move represents around 5% in price on the bond price .
10 Years Treasuries LONG term chart :
Yields are back to the top of the downtrend line that contained (around 6 touching points) yields surges in last 10 Years : The 2,35-2,40 range is significant barrier to the upside .
Bonds markets are extremely oversold at current levels and I do not believe these resistances (2,40 ultimately 2,50%) will be broken at this stage . If despite of strong resistance 2,50% is broken on the upside more bonds investors would take the exit door and quickly drive yields in the 3 % area.
In this latter case, equities markets would definitely start to be vulnerable.
10 Years Treasuries minus 2 Years Treasuries :
Curve steepening since election : spread increase of 25 BPs since election and even 50 BPs since september shows market expectation of increased inflation and improved economic outlook and explains strong Financials stocks performances recently.
I refer to the Oct.11th post : « Warning for more downside if quote below 1,11 persists »
- The cross is now a few tens of pips off its 2015 long term support in the 1,0450-1,0550 area.
- The EURO oversold level lies at 20 which might look low but this level does NOT necessarilly guarantee a bounce as one can see in September 2014 ane March 2015.
- The EURO short/mid (and even long ..) term outlook does not look bright with the Italian referendum looming early December .
- A 0,25 % hike in US Fed rates in December is fully priced , more than 0,25 % is not.
- European investors holding significant positions denominated in USD should start to think of partially hedge the USD risk and so take profit on USD bought at lower levels . Do not take me wrong, i am not EUR bullish but i do not either believe the current USD strength will go on at such a speed.
- In a nutshell : 1/ A bounce is possible from 1,05 area 2/ A negative (for the italian government ) result in referendum might have as a consequence to trigger a move to parity.
I refer to the Oct.6th post : « USD/JPY (103,90) … Bullish setup …… »
Technical elements shown in october have produced their effects and cross is now at 110,50. The trend remains clearly up but some reaction is due from here and the 200 days MA around 107 should act as support .
I refer to the Oct.21th post : « EUR/AUD Break of 1,4350-1,4450 support »
AUD thanks to its strong correlation to a very weak GOLD is as weak as EUR versus the USD so this cross is rather stable in current environnment. After having touched 1,40 a while ago short of our 1,36-1,37 targets we are now at 1,4350 . NEUTRAL from here.
For a low risk diversification of his bond allocation an investor could use the « AXA World Fund Global Inflation SHORT DURATION Bonds » – See Fund presentation below .
- Inflation Protection : Via a diversified portfolio invested in Inflation Linked Bonds issued mainly by OECD governments.
- SHORT DURATION : The Low Duration – portfolio currently has an average duration of around 3 years – will limit the impact of potential increase of long term bond yields.
As shown on the weekly chart below, the Nikkei225 will probably break end of this week on the upside the 18 months down trendline resistance. This break has high probabilty to be significant as this TL had 5 touching points , 3 of them in the last month.
Japanese market held support on the 200 W MA in the after Trump election and has just crossed the 50 weeks MA. MACD is nicely up and crossed the 0 line recently. ADX (Second bottom chart) is showing positive signs as well : the black line indicating existence of a trend (if above 15-20 area) is reversing while the green one indicating positive trend is turning as well .
We keep – advise to buy for those who did not previously – in portfolio the iShares Currency Hedge Japan ETF (Ticker : HEWJ) that was bought in september (See Sept 21st post) . This tracker is a a currency hedgd one so a pure play on Nikkei performance and immune to JPY movements versus USD.
- Silver tracker was bought at USD 17,86, yesterday’s opening.
- No limit reached for XLV (Healthcare Tracker) and IBB (Nasdaq Biotech tracker) buy orders ; those of you who followed advice to buy IBB without following (my) advice to place a limit could have booked today a profit of 14 to 15% in 3 days … Markets remain very volatile , we keep limits as they are.
- The 2X Daily Dax was bought at the 218,75 modified limit.
- Second half of Gold position was bought at USD 1302,25 for an average price of USD 1286,12.
Virt.Portfolio Open positions :
- An « unknown » has been removed : The President is known .
- + Big hopes in term of growth outlook.
- + Trump President to be more pragmatic vs populist Trump candidate.
- …Global Equity rally against all odds from before election : Looks overdone but technicals are to be watched for break up/down confirmations.
- Financial & Healtcare rallying the most (Regulations & Yield curve steepening )
- Industrials 3rd best sector (Big Infrastructure spending expected).
- Promised tax cuts to favour US companies in general.
- Metals up.
- USD (more stimulus = inflation risk = more fed hikes) & Commodities currencies up.
- Fear of more inflation linked to fiscal stimulus/tax cuts.
- + Rising trade barriers is also inflationnary (supply side shock).
- + Fear of more Bonds issue linked to increased deficit.
- + Fear of a less independant FED / Yellen to resign ?
- … Bond markets sell-off : 10Y treasury > 2% / more pain to come ?
- .. depends on stimulus size ..House republicans are fiscally conservative!!
- Risk : If too large deficits expected from policies put in place , bond yields could skyrocket and kill the growth induced by new policy .
- Uncertainty to persist : Time lag before new administration discloses its real plans.
Stocks Climb With Metals as Trump Win Revitalizes Growth Outlook
Bond-Market Inflation Outlook Picks Up After Trump Victory
I refer to messages posted on Nov.3rd and Nov.7th.
The aim was to « ..play a potential bounce from major index support. » (Post Nov.7th) by buying the DAX 2X ETF . And again the german index bounced from its 10250-10400 key support range with NO CLOSING below the 10250 point.
The very strong – Dax futures even touched levels below the 10000 bar yesterday morning, now at 10730 ! – and unexpected U-turn after Trump election seems overdone.
On a technical basis Dax is back near the top of its range – 10800/10830 closing basis– but nevertheless has the potential to go much higher IF it crosses the 10820-10850 on the upside on a closing basis with trend indicator (Daily MACD – bottom chart) crossing up at the same time . Initial targets would be then set at 11400 and 11800 for 5 to 10% gains by end of year . On the downside one should continue to watch the 10250-10400 levels with also the 200Days MA as support a bit lower.
As a reminder DAX is still down 0,50 % year to date (Eurostoxx50 -6%). Everything being equal most german (and european) companies might benefit from a weaker EUR / strong USD . The chances are great that Trump intended fiscal spending policy will be inflationary and drive the Fed to hike rates at a fastest pace than anticipated with positive impact for the USD / weaker EURO . A Euro in the 1 to 1,05 range would definitely not leave the european markets at current levels .
The US election outcome more than likely will create more uncertainty for equities, bond markets and global trade going forward . We definitely enter a risk-off and volatile period. Not all sectors are equally positionned to potentially benefit from measures announced by Donald Trump in his program . Pharma, Defense, Steel , Construction, infrastructure in general are amongst the sectors that should perform better RELATIVELY SPEAKING ( I insist on last 2 words !!).
Indices support levels on a closing basis :
- SP500 : 2080 – See Nov.7th post.
- DAX : 10250 – See Nov.3rd post.
- Nasdaq 100 : 4650 – See Nov.3rd post.
Virt. Portfolio Action :
- The ETF Dax Daily Long 2 X has been bought at EUR 218,75 Limit yesterday PM.
- iShares Nasdaq Biotech ETF (IBB) : New limit at 257 Eur was missed by a little – Session Low 258,27 / Session High 265. The healthcare sector as a whole is welcoming the Clinton non-election : Preopening is at 277,25 (+6%). We are not going to chase the stock at such level but given the expected volatility to come we nevertheless adapt the limit to 265,50 . Why 265,50? The reason is that a gap will form at today’s opening compared to yesterday sclosing at 265 . Gaps are filled in around 80% of cases.
- In order to protect the portfolio against uncertainty and risk-off period to come we add traditional safe haven vehicles which are GOLD and SILVER :
- 1/ We buy the second half of Gold position @ current price (13:15 CET) of 1302,25.
- 2/ We buy 1 Unit in SLV the Silver Tracker quoted in NY. Limit at 18,05 USD. The trend is up and, 200 days MA is support, 50 Days MA reversing up.
XLV – Health care sector tracker – Buy 1 Unit at yesterday’s closing price of 68,40. This is a very low limit considering the preopening price which is currently at 70,50. We will try here to benefit from market volatility to enter this unloved sector year to date – see rationale above and in the last post.
After Brexit failures, polling institures definitely lost all their credibility …..
Buy iShares Nasdaq Biotech ETF (IBB) at limit 253,50 USD
Permanent attacks of Hillary Clinton against the drug industry had the consequence she has been seen as the biggest threat for the sector for months. In recent months investors sold the »Rumor » of a Clinton election and made of the S&P500 Health care sector one of the worst performing sector in US : – 13% since August top and – 8,50% YTD .
This is a « Buy the News » trade in anticipation of a Clinton win and we use here the Biotech Sub Sector which is more volatile and suffered even more than the global index : -35% since 2015 top, -27% YTD and -16% since August interim top.
The Technical rationale for this trade :
- The Index is at 2 Year support line in the 240-250 USd range.
- Reached oversold levels that matched 6 out 7 times in the last 5 years with excellent entry points for the mid term (see purple ellipses).
- Divergences appear in daily MACD but no crossing up yet.
- Index price is back to its 3 years ago price.
Stocks (17:15 CET Time) currently quotes USD 261,18 up 9,50 USD so the limit put pre market (253,50 USD) was too probably too low : I increase a bit limit to USD 257 . If we enter this trade SL set at below USD 230
Buy ETF Dax Daily Long 2 X at limit 218,25 ( Current @ 219 EUR) – Leverage ETF .. 2 times the dax daily performance. – ISIN DE000A0X8994.
For rationale for this trade on The Dax see the post on « Dax Technical comment » dated November 3rd : We play here a potential bounce from major index support. Here too i was too cautious with the limit at 218,25 and i change it to 218,75 EUR (Current 219,99 EUR) .
************** Click on the charts to enlarge *******************
Odds of a Trump presidency, which has scared investors in the last week, retreats again today on FBI reaffirmation it will not take action against Hillary Clinton over new emails diclosure. This will likely have as an effect for the equity markets to interrupt a long losing streak of daily losses – 9 days for SP500 , not seen since 1980 – and initiate a strong bounce .
This bounce will (is taking) place from already discussed support levels : in the 10250-10400 area for the Dax , from 4650 (at which we closed puts holdings on friday ) for Nasdaq 100, and from 2080 for SP500 as shown on chart below. The said supports should hold at least for the short term if H.Clinton gets elected.
SP500 Chart technical rationale for a bounce from friday’s closing ( Note that SP500 futures are already 25 points higher) :
- Bottom of downtrend channel .
- 200 days MA is support.
- RSI @ oversold levels matching with entry points in the past (>75% of cases).
- Streak of 9 down days.
Targets 2120 @ thereafter 2140 – 2150 range . Should 2150 be broken up on a daily closing basis, the US index will probably hit new highs and go beyond 2200.
On the downside (Trump elected) 2080 will be broken down and a minimum of 5% and up to 10% slide is expected so after Brexit levels would be revisited .
Buy 1 unit in the ETF Dax Daily Long 2 X at limit 218,25 ( Current @ 219 EUR) – Leverage ETF .. 2 times the dax daily performance. – ISIN DE000A0X8994.
Buy 1 Unit of iShares Nasdaq Biotech ETF (IBB) at max price of 253,50 USD , Last closing at 251,70 USD. ISIN US78464A8707-
SEE NEXT POST FOR CHARTS & COMMENTS .
What to expect for Stocks, Bonds, Currencies, Emerging Markets & Commodities depending on US election outcome ?
The second half of Nasdaq 100 put was sold yesterday @ our 2,70 Limit – See Below Exchange price yesterday and NDX 100 Chart – . With the day before sale @ 2,28 EUR for first half position , we have an average sale price at 2,49 EUR for a total profit of 139% on this position that represented only 1,5% of PF (0,3 Unit) – See October 7th post for explanation and rationale for taking this position.
Weekly review :
Equities markets have started to price the « Trump » risk since last friday and the notification by FBI to the Congress on new information potentially damaging to Hillary Clinton in the email case. On top of that the earnings season for US companies is not as rosy as expected especially in terms of guidance for the next quarters. As expected Fed did hold on rates but a hike is nearly a given for the December meeting as per current market expectations.
In this context, our benchmarks are down 2% (SP500) and 4,13 % for (Eurostoxx50) , an average of 3,05% decline on the week. Weekly indices performances here : http://www.investorid.one/indices-perfs-051116/
Seven out of ten of our holdings did perform better than the benchmarks : 5 were positive (Nasdaq Put + 58% / GDX +4,97% / Easy Jet +3,15% / Gold +2,34% / Twitter +2,05% ) and 2 (EU Retail Tracker & EM tracker ) negative but better than benchmark. The Japan tracker, Eurostoxx50 & Eu Banks tracker (-3,67 -4,13 & -5,21%) underperformed the benchmark.
Closed Positions :
Second Half of Nasdaq 100 put sold on Friday @ 2,70 EUR based on Tech index touching lowest « stopping points » around 4650 – 4660 mentionned in Thursday’s post :
Nasdaq 100 on September low support :