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The Price Action Lab Report-Week of October 30, 2023 [Premium Articles]

Photo by Burak The Weekender

A disturbing collapse. The state of momentum in small and large-cap stocks. Are commodities about to enter another bull market? Two backtests because all that counts is evidence-based analysis. Access to the full report requires a Premium Articles or All-in-One subscription.

Report contents

  1. Weekly Summary
  2. A Disturbing Collapse
  3. Stock Market Analysis
  4. Commodity Market Analysis
  5. Bond Market Analysis
  6. Forex Market Analysis
  7. The State of Momentum

1. Weekly Summary (October 23–October 27, 2023)

  • Stocks fell after a strong GDP and geopolitical worries.
  • Bond yields were down due to short covering and a flight to quality.
  • Commodities were mixed amid rising uncertainty.
  • The US dollar ended the week higher.

A stronger-than-expected GDP report and geopolitical uncertainty were the main drivers of the stock market sell-off. The bond market rebounded slightly due to hedge fund short covering. Commodities were mixed with natural gas and precious metals up and crude oil, gasoline, and grains down. The US dollar was mostly higher for the week, despite gains in the currencies of commodity-producing countries.

Large-cap stocks (SPY) fell 2.5% on top of a 2.4% loss the previous week. The NASDAQ-100 (QQQ) dropped 2.6%. The Dow Jones Industrial Average (DIA) lost 2.1%. The S&P 500 low volatility index (SPLV) ended the week down 0.9%. The S&P 500 high beta index (SPHB) plunged 3.7% due to risk-off, and small caps (IWM) fell 2.5%. Large caps (SPY, SPHB), the Dow-30 (DIA), and small caps (IWM) are in oversold territory.

All in all, it was another bad week for stocks, with “capital destruction” as the main theme. In the past 13 weeks, the SPY ETF has fallen 9.8%. What is the state of momentum in stocks? See Section 7 below for a few details.

The 10-year note yield ended the week at 4.85% after reaching a high of 5%. The TLT ETF gained 1.4% due to short-covering in the bond market by hedge funds. Commodities (DBC) fell 0.5%, mainly due to losses in crude oil and grains. The US dollar index (UUP) was up 0.4%. Crude oil (USO) was down 2.9%. Gold (GLD) ended the week up 1.4% due to rising geopolitical uncertainty, and it remains in overbought territory.

Year-to-date, tech stocks (QQQ) are up 30.2% and down 13.4% from all-time highs. Large caps (SPY) have gained 8.6% on a total return basis. Gold (GLD) is up 8.2%, and crude oil (USO) is gaining 11.8%. Commodities (DBC) are up 1.4% for the year. Low-volatility large-cap stocks are down 8.2% year-to-date, while high-beta large-cap stocks are up 2.4%.

Since last year, large caps (SPY) and tech stocks (QQQ) are down 11.2% and 12.2%, respectively. Small caps (IWM) are down 25.2% since last year, while bonds (TLT) are down 40.3%. Despite the rebound in tech stocks, the market is fragile.

Tech stocks (QQQ) have the strongest 252-day momentum at 25.1%, with gold (GLD) following at 20.1%. The US dollar index’s momentum turned positive at 2.5%. Bonds (TLT) have a negative momentum of -9.7%.

2. A Disturbing Collapse

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Specific disclaimer: This report includes charts that may reference price levels determined by technical and/or quantitative analysis. No charts will be updated if market conditions change the price 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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