By J Clinton Hill, Capital Markets Strategist @ Hillbent.com
Market Condition: October 21, 2016
It was somewhat of a mixed week for US Equities, with the Dow Industrials and Transports relatively unchanged and undergoing consolidation. Utilities, on the other hand, are testing a key support level and attempting a bullish reversal.
At the other end of the spectrum were the more technology oriented Nasdaq Composite and Nasdaq 100, which each gained close to +1% for the week and ranked within the top three for weekly relative strength. Also consolidating and maintaining the support at the lower range of their bullish channels were the S&P 500 and Russell 2000. However, if they continue trading below their 50-day moving averages for an extended period, they might be vulnerable to further declines as investors lose interest and patience.
Regarding Volatility, although the trend for the VIX is bearish, one distinct change in its character has been an uptick in its intra-week volatility. The fear gauge is beginning to exhibit restive patterns, thus explaining its recently much wider trading range. If one is a short-term trader, this provides some tactical opportunities.
Bonds caught a bid this week as treasury rates retreated. The long-term trend for rates remains bearish, but the 10-year rate may soon be testing resistance at its 50-week moving average @ 1.81, in which a break above would be most indeed undesirable for any bond bulls who still exist.
In currencies, the breakout in the US Dollar has now carried into its 3rd consecutive week. The weekly relative strength rating of 85 confirmed the dollar’s momentum is strong enough to carry it higher to potential levels of resistance @ 99.40 and 99.75. With other major currencies such as the Euro and Yen trading below their 50-day moving averages and just the opposite for the dollar, this makes it all the more probable.
Energy commodities may be finally getting some of their mojo back, but Crude Oil ran into a key level of resistance @ 52 and may be due for consolidation as the market awaits the resolution of some underlying fundamental issues, namely the cooperation between key OPEC and Non-OPEC members to keep production supplies from overwhelming demand; and whether or not North American shale oil producers will ramp up production due to the recent resurgence in oil prices.
Gold and Silver, despite a stronger dollar, advanced from oversold positions. However a significant amount of technical damage has been done to both and if the dollar maintains its run, then critical support tests for Gold @ @ 1243-1232 and Silver @ 17-16.50 could be next.
Lastly, the correction in Real Estate assets may be over as the Dow Jones Real Estate Index successfully tested a key support level @ 300 three weeks ago. An important resistance test @ 317 would be the next most logical stop.
Overall, the markets are shifting to technical patterns of neutral. I suspect this is mostly attributable to the upcoming US presidential election. Unlike most, I will not completely blame Donald Trump and/or Hilary Clinton, neither of which I strongly like. It appears Clinton is headed to victory, if we are to believe the latest polls. In spite of this, clouds of uncertainty still linger. If you don’t believe me, then just ask Fed Chair Yellen and her team engrossed in a game of scratch and sniff.
|1 Wk RS||Equities||Close||1 Wk %||YTD %||50 MA||200 MA|
|70||S&P 500 Index||2141.16||0.38%||4.76%||2160.30||2072.13|
|87||Nasdaq 100 Index||4851.86||0.90%||5.63%||4817.70||4507.12|
|52||Russell 2000 Index||1218.1||0.47%||7.24%||1236.58||1141.95|
|1 Wk RS||Volatility||Close||1 Wk %||YTD %||50 MA||200 MA|
|1 Wk RS||Bonds||Close||1 Wk %||YTD %||50 MA||200 MA|
|33||10-Year Treasury Rate||1.74||-2.79%||-23.01%||1.64||1.72|
|25||30-Year Treasury Rate||2.49||-2.35%||-17.28%||2.36||2.50|
|79||30-Year Treasury Bond||137.97||-0.07%||-4.73%||142.25||n/a|
|1 Wk RS||Currencies||Close||1 Wk %||YTD %||50 MA||200 MA|
|85||U.S. Dollar Index||98.64||0.56%||0.01%||95.91||95.84|
|1 Wk RS||Commodities||Close||1 Wk %||YTD %||50 MA||200 MA|
|0||High Grade Copper||2.0905||-1.16%||-1.65%||2.13||2.14|
|1 Wk RS||Real Estate||Close||1 Wk %||YTD %||50 MA||200 MA|
|47||U.S. Real Estate Index||307.43||0.62%||4.19%||317.11||307.08|
|16||U.S. Home Construction Index||530.14||-0.48%||-8.40%||561.94||551.26|