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Market Analysis For Week of January 18, 2021 [Premium Articles]

The analysis is for week of January 18, 2021, and includes major market indexes, index, asset, sector, commodity ETFs and spot currencies. Access to full article requires Premium Articles subscription.

Report contents

  1. Weekly summary and recap.
  2. Technical analysis of major indexes.
  3. Low volatility versus high beta S&P 500.
  4. Analysis of major indexes.
  5. Analysis of major ETFs.
  6. Analysis of sector, asset and commodity ETFs.
  7. Analysis of spot currency pairs.
  8. Chart of the week
  9. Conclusion.

1. Weekly summary

  • The S&P 500 fell on the week.
  • The rally in high beta large caps and small caps continued.
  • Bond yields fell slightly after the surge of last week.
  • Commodity markets rebound continued.
  • Gold fell while crude oil was slightly higher.
  • The U.S. dollar gained most in two months.

Recap (January 11, 2021 – January 15, 2021)

Index Week YTD
S&P 500 -1.5% +0.3%
DJIA -0.9% +0.7%
NASDAQ -1.5% +0.9%
Russell 2000 +1.5% +7.5%
10-Year Note -1 bps +0.18%
Gold (London fix) -1.3% -2.8%
Dollar Index +0.8% +1.0%
WTI Crude Oil spot +0.2% +8.1%
CRB Commodity Index +1.1% +4.4%

The rebound in commodities continued in the second week of the year. The CRB commodity index has gained 65% from the bottom of April of last year but it is still 62% below 2008 highs. Some analysts believe the rally in commodities has just started.

Specifically, some analysts look at the above chart and after drawing a few lines and adding a few indictors conclude there is still considerable upside. Others claim this is a temporary rally due to demand caused by the pandemic. But in reality, no one has a clue. Known unknowns are plenty, for example a possibility of a supply chain disruption, a war, a natural disaster, etc. On the other hand, in the absence of adverse developments as everyone hopes to be the case, prices may again fall to even lower levels. It is possible that in some specific sectors there may be additional gains. We have made references to rare earths in these premium reports before and to associated ETF, REMX, which has gained more than 180% from the bottom of March of last year.

REMX is still 70% below 2011 highs but this fact alone does not imply there will be significant gains going forward. Although there may be fundamental drivers in favor of continuation of the move, risks are elevated even along uptrends due to high volatility. For example, 21-day annualized volatility of REMX is nearly 50% versus about 9.8% for SPY ETF. Drawing lines and making calls for longer-term gains are exercises in futility if not accompanied by sound risk analysis.

Unfortunately, the bulk of technical analysis attempts to forecast direction without any measure of associated risk. If all market participants were aware of risk, especially in high beta tech stocks and even cryptocurrencies, then periods of irrational exuberance would be shorter along with the adverse economic impact that follows them. However, there are two types of market participants: those who are not aware of risks because they are either kept in dark by their sources or fail to understand them, and those who do not even want to hear anything about risks because they are sure they will profit and any references to risks is just an effort to prevent them from becoming rich. For a large fraction of the market, risk has no meaning: it is all about reckless speculation.

2. Analysis of major indexes

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Specific disclaimer: This report includes charts that may reference price target levels determined by technical and/or quantitative analysis. No updates to charts will be provided if market condition changes occur that affect the levels on the charts and/or any analysis based on them. All charts in this report are for informational purposes only. See the disclaimer for more information.

Disclaimer:  No part of the analysis in this blog constitutes a trade recommendation. The past performance of any trading system or methodology is not necessarily indicative of future results. Read the full disclaimer here.

Charting and backtesting program: Amibroker

Data provider: Norgate Data

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