Note to subscribers: Due to the annual vacation, there will be no Weekly Price Action Lab Report next week. Enjoy the last week of summer and the holiday!
- Weekly Summary.
- Low Volatility Performance.
- S&P 500 Index Analysis.
- CRB Index Analysis.
- Bond Market Analysis.
- US Dollar Index and Forex Analysis.
- Sector Performance.
- Stocks and ETFs to Watch.
1. Weekly Summary (August 21 – August 25, 2023)
- Stocks ended the week higher after the Fed Chairman’s comments.
- Bond yields fell slightly after the previous week’s rally.
- Commodities were up primarily due to gains in precious metals.
- The US dollar rebound continued for the sixth week in a row.
On Friday, August 25, 2023, the Fed Chairman promised equity investors the best of all possible worlds: low inflation and strong growth. The S&P 500 index ($SPX) gained 0.7% after the Fed Chairman’s comments to finish the week with a 0.8% gain. The NASDAQ-100 ($NDX) rose 1.7% for the week. The Dow Jones Industrial Average ($DJI) fell 0.4%, while the S&P 500 low volatility index ($SP5LVI) added 0.1%. The S&P 500 high beta index ($SP5HBI) rose 0.4%, but small caps ($RUT) fell 0.3%.
The 10-year note yield fell one basis point to 4.24% after making a high at 4.32% on Tuesday, August 22, 2023. The US Treasury Bond Total Return Index gained 0.2% for the week. Commodities ($CRB) were up 1%, primarily due to gains in precious metals. The US dollar index ($USDX) rose for the sixth week in a row to end the week up 0.7%. The spot price of crude oil (@WTI) fell 1.1%. Gold on the spot market (@GC) was up 1.2% despite a rallying US dollar.
Year-to-date, tech stocks ($NDX) are up 36.6% and down 9.8% from all-time highs. The S&P 500 index ($SPX) has gained 14.7%. Gold (@GC) is up 5.7%, and crude oil (@WTI) is gaining 0.3%. Commodities ($CRB) are up 0.2% for the year. Only low-volatility stocks are down year-to-date, with the S&P 500 low volatility index ($SP5LVI) losing 4.1%.
Last year, low-volatility stocks were down the least, and the underperformance this year is the result of portfolio rebalancing involving selling lower-risk stocks and buying the higher-risk ones that were down the most last year. This martingale strategy maximizes gains if the forecast of a continuing uptrend is correct. However, in the event of a reversal to the downside, the martingale strategy can result in devastating losses due to a stampede to get out.
Fed officials are aware of the exposure to higher-risk stocks and are trying their best to appease investors with promises of low inflation, low rates, and higher growth in the future. However, these are just promises and are based on wishful thinking. No one knows the future direction of prices because it depends on many factors, some of which are beyond the control of the central bank.
Our PSI5TF trend-following strategy with 23 futures contracts (long and short) is up 4.1% year-to-date (backtest). The DBMF iMGP DBi Managed Futures Strategy ETF is down 4.5% year-to-date.
2. Chart Of The Week
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Specific disclaimer: This report includes charts that may reference price target levels determined by technical and/or quantitative analysis. No charts will be updated if the market condition changes affect the charts’ levels 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