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The Price Action Lab Report-Week of October 2, 2023 [Premium Articles]

Photo by Burak The Weekender

Market analysis for the week of October 2, 2023. Major market indexes, large caps, ETFs, commodities, and forex. This report includes 17 charts and tables. Access to the full report requires a Premium Articles or All-in-One subscription.

Report contents

  1. Weekly Summary.
  2. A Self Fulfilling Prophecy.
  3. S&P 500 Index Analysis.
  4. CRB Index Analysis.
  5. Bond Market Analysis.
  6. US Dollar Index and Forex Analysis.
  7. Factor ETF Performance.
  8. Markets to Watch.

1. Weekly Summary (September 25–September 29, 2023)

  • Stocks fell for the fourth week in a row.
  • Bond yields rose for the fourth week in a row.
  • Commodities were mixed during the week.
  • The US dollar gained for the eleventh week in a row.

As a result of a hawkish Fed and expectations of high-for-longer interest rates, US stocks fell for the fourth week in a row. The S&P 500 index ($SPX) lost 0.7%. The NASDAQ-100 ($NDX) ended the week up 0.1%. The Dow Jones Industrial Average ($DJI) dropped 1.3%. The S&P 500 low volatility index ($SP5LVI) plunged 2.6% into oversold territory. The S&P 500 high beta index ($SP5HBI) and small caps ($RUT) each gained 0.5%.

The 10-year note yield gained 13 basis points to 4.57% after making a high of 4.69%. The US Treasury Bond Total Return Index lost 0.5% for the week. Commodities ($CRB) retreated 0.5%. The US dollar index ($USDX) rose for the eleventh week in a row to end the week up 0.6%. The spot price of crude oil (@WTI) gained 0.8%. Gold on the spot market (@GC) dropped 2.9% on the back of an exceptionally strong US dollar.

Year-to-date, tech stocks ($NDX) are up 34.5% and down 11.2% from all-time highs. The S&P 500 index ($SPX) has gained 11.7%. Gold (@GC) is up 3.2%, and crude oil (@WTI) is gaining 13.2%. Commodities ($CRB) are up 2.4% for the year. Low-volatility stocks are down year-to-date, with the S&P 500 low volatility index ($SP5LVI) losing 8%.

Tech stocks ($NDX) have the strongest 252-day momentum reading at 28%, with the S&P 500 High Beta Index ($SP5HBI) following at 15.9%. Low-volatility large caps ($SP5LVI) have negative momentum at -1.9%, and the US dollar index’s momentum is at -6.3% despite the strong rally. Momentum is a lagging indicator and sometimes not representative of market price action.

Last week, I wrote:

The primary driver of mean reversion is profit-taking due to macroeconomic uncertainty. During the last quarter of the year, fund managers may want to take profits and secure a higher level of closed equity at the end of the year. This behavior could cause reflexivity and the amplification of losses for equity indexes.

Fund managers will probably not add to their equity portfolio exposure unless they have strong indications there will be no further rate increases. See Section 3 below for further details.

Our PSI5TF trend-following strategy with 23 futures contracts (long and short) is up 9.2% year-to-date (backtest). The DBMF iMGP DBi Managed Futures Strategy ETF is down 0.7% 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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