Views From The Hill

View From the Hill: First Shall Be Last And Last Shall Be First, Including Your Purse!

Summary

  • US blue chip stock indexes show resilience and minimal price change while emerging markets cede some of their recent rally gains.
  • Treasury bond markets showing most signs of damage among asset classes while corporate bonds diverge and maintain the support of their uptrends.
  • Last week’s gainers are today’s laggards: Crude Oil (USO) and Energy (XLE).
  • FOMC meeting and rate policy announcement will occur this upcoming Wednesday, but do not anticipate any significant moves, despite the overlap with earnings reporting season.

 

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Market Commentary

As markets ebb and flow, it is not unusual to see the “out of favor” gain favor while those “most recently favored” lose their status and get demoted to laggards. According to Churnham and Burnham, Inc., where profits are derived from schizophrenic sell side analysts and high turnover ratios, that’s Wall Street in a nutshell.

Those securities or asset classes which can buck this trend and maintain consistency in their price patterns should not be ignored and generally tend to offer investors the best risk to reward ratio and probability for profits. It is for this primary reason that I write the View From the Hill (VFTH) report and impose the discipline of following the price trends and trading patterns of a select group of exchange traded funds which mimic or represent various asset classes and major sectors of the economy.

Besides that, it’s almost impossible to know which team is winning or losing unless you keep score and constantly monitor these investment vehicles. Sometimes, even when there is nothing notable to bring to the attention of others, the value of recognizing that things have not changed is just as worthy as when things do change. It is with these intentions that I share with others. fact, the only people making any real money in the markets until then will probably by Messrs. Churnham and Burnham. You are well advised to act accordingly.)

 


Chart Analysis and Market Diary

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Asset Class Analysis and Performance Summary

Equities: Overall, stocks were weak and, not surprisingly so, with the most notable decliners being the rally’s best performers, i.e. Brazil (EWZ) @ -1.36%, Latin America 40 (ILF) @ -1.30% and China (FXI) @ -1.19%. Blue chip indexes, e.g. S&P 500 (SPY) @ -0.17% and DJ-30 Industrials (DIA) @ -0.20%, were more resilient with minimal change in price. For now, the VIX (VXX) @ +1.19% appears to have found some support and could soon test resistance at its 20-day moving average.

Equity Sectors: Some of last week’s laggards were the day’s biggest gainers, although up less than a percentage point. Consumer Discretionary (XLY) @ +0.11%, Consumer Staples (XLP) @ +0.69% and Utilities (XLU) @ +0.19% were today’s only positive sectors. Energy (XLE), one of last week’s biggest advancers, declined @ -1.12% today.

Fixed Income: The asset class seeing the most damage lately is the bond market. The 20+Year Treasury (TLT) is vulnerable to failing support at its 20-week moving average and should it fail to hold then another support test at its 200-day moving average is also imminent. The Treasury Inflation Protection (TIP) is also encountering headwinds as it continues to retreat from the support of its 20-day moving average. Corporate bonds have been diverging from this pattern of weakness so far as High Yield Corporate (HYG) and  Investop Corporate Bonds (LQD) are maintaining the support of their uptrends.

Currencies: The US Dollar (UUP) took a pause and probably will continue to do so until Wednesday’s FOMC meeting and rate policy announcement. It is consolidating its recent gains. Although the Euro (FXE) and Yen (FXY) increased in price today, the recent downtrends initiated by both remain intact and further weakness is highly probable.

Commodities: By advancing significantly last week, oil may have mocked the failure of last week’s Doha meeting to reach a price freeze, but today’s price action in the US Oil Fund (USO) @ -1.95% may have brought us back to the natural order of supply vs demand. Gold (GLD) increased slightly but remains in a consolidating trading pattern.

Real Estate: With exception to the VIX and Consumer Staples, the DJ Real Estate (IYR) and Residential Real Estate (REZ) indexes were some of the day’s top performers, which itself is quite impressive on a day comprised mainly of negative breadth.

 

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