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The Price Action Lab Report-Week of September 18, 2023 [Premium Articles]

Photo by Burak The Weekender

Market analysis for the week of September 18, 2023. Major market indexes, large caps, ETFs, commodities, and forex.  This report includes 23 charts and tables. Access to the full report requires a Premium Articles or All-in-One subscription.

Report contents

  1. Weekly Summary.
  2. A Significant Breakout.
  3. S&P 500 Index Analysis With Backtest.
  4. CRB Index Analysis.
  5. Bond Market Analysis.
  6. US Dollar Index and Forex Analysis.
  7. Pair Trades Performance.
  8. Stocks and ETFs to Watch.

1. Weekly Summary (September 11 – September 15, 2023)

  • Stocks ended the week lower as crude oil rallied.
  • Bond yields were higher, and bond prices fell.
  • Commodities staged a broad-based rally.
  • The US dollar rally continued for the ninth week in a row.

As a result of the UAW auto strike and rising crude oil prices, US stocks fell. For the week, the S&P 500 index ($SPX) fell 0.2% after rising more than 1% in the first four days of the week. The NASDAQ-100 ($NDX) lost 0.5%. The Dow Jones Industrial Average ($DJI) rose 0.1%, while the S&P 500 low volatility index ($SP5LVI) gained 0.7% due to a switch to lower-risk securities. The S&P 500 high beta index ($SP5HBI) and small caps ($RUT) lost 1% and 0.2% due to risk-off. The action on Friday could be bearish in the short term.

The 10-year note yield gained six basis points to 4.32%. The US Treasury Bond Total Return Index lost 0.3% for the week. Gains in crude oil helped commodities ($CRB) stage a rally. The US dollar index ($USDX) rose for the ninth week in a row to end the week up 0.2%. The spot price of crude oil (@WTI) gained 3.8%. Gold on the spot market (@GC) was unchanged on the back of a strong US dollar. The CRB index and spot crude oil are in overbought territory.

Year-to-date, tech stocks ($NDX) are up 39% and down 8.3% from all-time highs. The S&P 500 index ($SPX) has gained 15.9%. Gold (@GC) is up 6.4%, and crude oil (@WTI) is gaining 13.3%. Commodities ($CRB) are up 4.3% for the year. Low-volatility stocks are down year-to-date, with the S&P 500 low volatility index ($SP5LVI) losing 4.3%.

As far as momentum (252 days), tech stocks ($NDX) have the strongest reading at 25.3%, with gold (@GC) following at 13.1%. Low-volatility large caps ($SP5LVI) have negative momentum at 3.5%, and the US dollar index’s momentum is at -6.5% despite the strong rally. There are signs that asset momentum may be entering a mean-reversion mode.

Last week, I wrote:

The stock gains this year, and especially of the tech stocks, should be considered in the context of the losses of the previous year. For example, last year the NASDAQ-100 fell 33%, and a gain of 39.7% after the bottom of October is part of a recovery process. This recovery process has different dynamics as compared to a market that goes up 10% one year, for example, and then rises an additional 20% or 30%. A recovery process normally has a higher chance of faltering because it reflects mean reversion rather than momentum.

The mean reversion of the recent asset moves could lead to a significant return reduction. One way of dealing with these market dynamics is by investing or trading based on a robust ensemble of strategies. Ensembles trade-off returns for lower volatility, i.e., they might provide better risk-adjusted returns, but they are not for everyone, especially those who are trying to grow their wealth and must assume higher risks. The risk-aversion profile is most important when considering what action to take and how to trade or invest.

Our PSI5TF trend-following strategy with 23 futures contracts (long and short) is up 10.7% year-to-date (backtest). The DBMF iMGP DBi Managed Futures Strategy ETF is down 2.7% 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

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