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Market analysis for the week of March 14, 2022. The analysis focuses on major market indexes, ETFs, commodities, and forex.

Report contents

  1. Summary and recap.
  2. Performance analysis.
  3. Major indexes.
  4. Popular ETFs.
  5. Commodity ETFs.
  6. Spot currency pairs.
  7. Charts to watch.

1. Weekly summary and recap

  • Large-cap stocks fell amid rising tensions and inflation.
  • Bond prices reversed direction and bond yields rose.
  • Commodities were down ending an 11-week winning streak.
  • Precious metals were higher due to rising geopolitical uncertainty.
  • Crude oil fell and the US dollar gained on the week.

Recap (March 7, 2022 – March 11, 2022)

Large-cap stocks ($SPX) fell 2.9% after falling as much as 4% during the week. Tech stocks ($NDX) fell as much as 5.1% but losses were reduced to 3.9%. The Dow 30 ($DJI) lost 2%. Small caps ($RUT) were down 1.1%. High beta large-cap stocks ($SP5HBI) ended the week down 3.6% after plunging as much as 5.7% amid risk-off. Low volatility large-cap stocks ($SP5LVI) fell 3.3% for the week. The common denominator of this broad market sell-off was the failure to reach an agreement to end the war in Europe and rising inflation.

US Treasury Bonds ($SPBDUSBT) fell 1.4% and 10-Year Note yields rose 28 basis points to 2%, erasing the previous week’s down move of 26 basis points. Crude oil spot (@WTI) fell 5.6% after surging 26.3% the previous week. The CRB index ($CRB) reversed direction after an 11-week winning streak and fell 1.6%. Gold rallied about 4% in the first two days of the week but ended up 0.9%. The US dollar rose 0.5%.

Year-to-date, NASDAQ-100 is down 18.5% and 19.7% below all-time-highs. Russell 2000 is down 11.8% year-to-date and 19% below all-time highs. On the winner side, the CRB index is up 27% year-to-date and the crude oil spot is up 45.1%.

2. Performance Analysis

Below is a chart of the relative year-to-date performance of eight asset ETFs.

Equities (SPY, VEU, QQQ, EEM) are in the red while commodities (DBC, DBA), gold (GLD), and crude oil (USO) are up. USO is up 40.5% year-to-date while GLD is up 8.3%. Commodities (DBC) are up 25%.

Below is a chart of the relative year-to-date performance of six-factor ETFs.

Value (VLUE) and Minimum Volatility (USMV) factors are down the least year-to-date at -8.9%. Size factor (SIZE) is down 10.4%. Quality factor (QUAL) is down 14.05% while Momentum (MTUM) and Growth (IWF) factors are down the most at -16.4% and -18.5%, respectively.

Below are the top stock holdings of the factors.

Top Holding % Assets
VLUE T 6.92%
QUAL J&N 4.28%
SIZE MRNA 0.35%
USMV WM 1.45%
MTUM MSFT 5.14%
IWF AAPL 12.55%

Growth factor (IWF) has high exposure to AAPL and the stock is down 12.8% year-to-date. MSFT is down 16.5% and impacts momentum factor (MTUM) performance. On the other hand, T is down only 3.8% year-to-date and the impact on the value factor (VLUE) is not as pronounced. However, during bull markets, the conservative factors gain less than the aggressive ones.

Note that spot gold gained 0.9% on the week while the US dollar index gained 0.5%. Traders usually expect the US dollar and gold moves to diverge in sign: gold falls when the US dollar gains and the other way around. Is this common perception correct? Below we look at some statistics

The chart below shows the sum of weekly returns of UUP (US dollar index ETF) and GLD (Gold ETF) when their sign of returns is the same.

There are 785 weekly returns since the inception of UUP and 262, or 33.25%, had the same sign as GLD returns. This percentage stays about the same in daily and monthly timeframes. Therefore, both gold and the US dollar moving in opposite directions in daily, weekly or monthly timeframes has only been true in the above chart period about 67% of the time. Note that about the same percentages are obtained if futures contracts are used starting in 1986. Therefore, it is difficult to forecast gold moves by forecasting US dollar moves, or vice versa, due to high randomness in their correlation, even if it is negative on the average.

3. Major indexes

The S&P 500 index fell 2.9% to close at 4,204.31 for the week.

The index fell to retest the first Fibonacci level of 23.6% around 4,200. As I wrote two weeks ago these levels rarely make sense but they may work during certain periods of increased uncertainty and fear.

Last week I wrote:

In absence of a solution to this geopolitical conflict and war, which I don’t see coming soon, 3815 in S&P 500 could be the next level to watch…

The 3815 level is the next stop as uncertainty grows. Central banks, talking heads, some pundits, and large funds may attempt to reverse this downtrend, or at least offer an impression of an orderly and “normal” correction. But there is nothing normal about the drivers of this correction: high inflation and a serious geopolitical conflict with the potential of changing the world as we knew it.

The U.S. dollar index gained 0.5% to close at 99.12 for the week.

The US dollar index is now overbought in the weekly timeframe according to PAL OB/OS indicator.

Last week I wrote:

[I]n short-term I’m neutral US dollar but I’m still bearish long term not because of loss of reserve status but of possible intervention to lower the dollar to provide support to emerging markets and US multinational corporations, as it has been done in the past.

I expect pressure from multinationals and Emerging Markets soon for intervention in the forex markets and USA dollar selling.

The CRB commodities ended an 11-week winning streak with a loss of 1.6% for the week.

Commodities were mixed on the week with energy, some gain markets, and base metals down the most. A correction was overdue but the medium-term uptrend is intact. The correction may continue into next week but I expect another rally in CRB towards 320 by the end of the month.

4. Popular ETFs.

ETFs are sorted by the highest RSI(14) value in a daily timeframe.

Metals & Mining (XME) is overbought for11 days in a row. Emerging Markets (EEM) are oversold. Solar (TAN) gained the most on the week (+8.3%) while Consumer Staples (XLP) fell the most (-5.8%).

Year-to-date USO is up the most (+40.5%) while Homebuilders (XHB) is down the most (-21.9%). There were no new all-time highs.

Based on 14-day ATR as a percentage of closing price, the most volatile commodity ETF is TAN at 5% while the least volatile is the US dollar index (UUP) at 0.6%.

5. Commodity ETFs

ETFs are sorted by highest year-to-date return.

Commodities were mixed on the week with softs and some grain markets up along with uranium and nickel. There are no overbought/oversold commodity ETFs.

Nickel (JJN) gained the most on the week (+13.2%) while Grains (GRU) fell the most (-14.4%). Year-to-date JJN is up the most (+64.7%) while Lithium (LIT) is down the most (-18.4%).

Based on 14-day ATR as a percentage of closing price, the most volatile commodity ETF is JJN at 12.9% while the least volatile is Gold (GLD) at 1.5%.

6. Spot currency pairs

Currency pairs are sorted by highest year-to-date return.

There are several oversold currencies with the Ruble (RB) being the most oversold for 10 days in a row due to the geopolitical conflict. Currencies were mostly lower on the week versus the US dollar.

The Polish Zloty (PLN) gained the most on the week (+2.1%) while the Russian Ruble (RUB) plunged (-3.5%). Year-to-date, the Brazilian real (BRL) is up the most (+9.8%) while RUB is down the most (-40.6%).

7. Charts to watch

Emerging Markets (EEM)

EEM could rebound after falling in the 42 to 41 area.

Japan (EWJ)

A short-term rebound towards 61 has higher odds given overbought conditions.

Bonds 20+ (TLT)

Continuation of the reversal of last week towards 130.50 has higher odds but then the market may get oversold.

Sugar (CANE)

Sugar may go higher from here but a break above 9.9 could offer a better signal.


Notes:

-Overbought conditions occur in the daily timeframe when RSI(14) indicator is greater than 70 and oversold when the indicator is less than 30. Length of overbought/oversold conditions in days is also shown.
-Overbought conditions occur in the weekly timeframe when the PAL OB/OS indicator is greater than 95 and oversold when the indicator is less than 5. Length of overbought/oversold conditions in weeks is also shown.
-Normally, overbought/oversold conditions indicate rising momentum in the relevant direction but they are also used as reversal indicators.


If you have any questions, you may contact support.

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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