Market analysis for the week of April 10, 2023. Major market indexes, ETFs, commodities, and forex. This report includes 29 charts and tables. Free access to weekly summary. Access to the full report requires a Premium Articles or an All-in-One subscription.
- Weekly Summary.
- Chart of the Week.
- Major Market Indexes.
- Russell 1000 Equities.
- Major ETFs.
- Commodity ETFs.
- International Market ETFs.
- Spot Currency Pairs.
1. Weekly Summary (April 3 – April 6, 2023)
- Stocks ended a short week slightly lower.
- Bond yields fell, and bond prices rose.
- Commodities were higher for the third week in a row.
- The US dollar fell for the fourth week in a row.
Stocks ($SPX) fell 0.1% as uncertainty about interest rate policy and the state of the economy grew. Wide divergences in the interpretation of economic data have translated into different expectations about the path of interest rates and the possibility of a recession.
The Dow Jones Industrial Average ($DJI) gained 0.6% due to large gains in the healthcare and energy sectors. Small-cap stocks ($RUT) fell 2.7%. Tech stocks ($NDX) finished the week down 0.9%. The S&P 500 high beta index ($SP5HBI) plunged 3.8%. The S&P 500 low volatility index ($SP5LVI) gained 1.6% as investors sold higher-risk stocks and bought lower-volatility ones.
The US Treasury Bond Total Return Index gained 0.5%. The yield on 10-year notes fell 20 basis points to 3.29%. The spot price of crude oil gained 6.6% after a surprise OPEC+ announcement of production cuts. Gold on the spot market (@GC) was up 1.1% (close of Friday, April 7, 2023) and on its way to testing the all-time highs of August 2020. Commodities ($CRB) gained 1.6% due to gains in energy and precious metals. The volatile action in the forex markets continued, with the US dollar index ($USDX) falling 0.4% (close of Friday, April 7, 2023).
Gold (@GC) and the US Dollar Index ($USDX) have positive 252-day momentum, as measured by the price rate of change in this lookback period, but for the latter, it is on a downtrend since October of last year. Crude oil (@WTI) has the most negative momentum but it shows signs of bottoming out.
Year-to-date, tech stocks ($NDX) are up 19.4% but remain 21.2% below all-time highs. Gold (@GC) is up 10.5%, and the S&P 500 high beta index ($SP5HBI) is up 8%. Crude oil (@WTI) is up 0.7%. Commodities ($CRB) are down 2.1%, and the S&P 500 low volatility index ($SP5LVI) has dropped 0.8%. In previous reports, we noted that one of the main trades this year has been selling, or shorting, the winners of last year and buying the losers. There are preliminary indications that this trade may be reversing but further confirmation is required.
The ensemble of our six systematic strategies is up 0.5% year-to-date. Our PSI5TF trend-following strategy with 23 futures contracts (long and short) is down 0.5% after gains of about 24% last year. The DBMF iMGP DBi Managed Futures Strategy ETF is down 11.2% year-to-date due to high volatility in the fixed-income markets.
2. Chart Of The Week
First Republic Bank (FRC)
In three weeks, the FRC stock fell nearly 90%, or a drop of more than 10 standard deviations based on the available sample. This was another event that illustrated the severity of specific equity risks. The bad news is that specific equity risk is high and can lead to total loss, but the good news is that it is diversifiable.
3. Major Market Indexes
The S&P 500 fell 0.1% to finish the week at 4,105.02.
The S&P 500 index has been in a 233-day consolidation between 4,325 and 3,490 since May 4 of last year. The index has a short-term positive bias, but that can quickly reverse to a negative bias.
Last week I wrote:
According to the PAL OB/OS indicator in the weekly timeframe, the S&P 500 index will soon enter the overbought territory, but the odds are high that 4,200 will be reached first.
From experience, we know that the stock market usually manages to trick most investors. There are high odds that the lows of the correction that started last year have not been set yet and will be lower than 3,490. A break above 4,325 may confirm that the rebound that started last October is genuine and not a massive bull trap. There is a lot of uncertainty because different market participants talk about their books and give different interpretations of the news. No one has a crystal ball, but some will turn out to be right post hoc, although their forecasts are the result of bias and noise.
On the other hand, waiting for confirmation that the current move is not a massive bull trap means missing a solid 5% gain from current levels and a move of 24% from the October lows. One way of dealing with the uncertainty is by limiting risk and using martingale position sizing, but these strategies fall beyond the scope of these reports. This is a game of position sizing and risk under conditions of high uncertainty.
The CRB Index was higher for the third week in a row and finished the week at 271.99 after a 1.6% gain.
According to the PAL OB/OS indicator, the CRB index is on its way to becoming overbought in the weekly timeframe. “Overbought” usually means strong momentum, and markets can stay overbought for extended periods. However, at this stage, it appears that commodities are on a rebound rather than a new uptrend and may reverse again to the downside after reaching overbought levels. Furthermore, the CRB index has a negative trend bias and has only managed to rebound inside the long consolidation channel that started during the summer of last year. The rebound could end soon, but a break above the 40-week moving average at 276.31 could serve as a signal that there is a small positive bias forming.
The yield on the 10-year note fell 20 basis points to 3.29%.
Last week I wrote:
We maintain a 3% target for the 10-year note yield.
The 3% yield is still the target, but volatility around 3.2% could increase. Any surprise from the inflation front on April 12 could cause a sudden reversal, but it is unlikely that the March CPI will be strong. We cannot say the same for the April CPI given the uncertainty in the energy markets after the OPEC+ surprise production cuts. Therefore, only the short-term outlook is possible, and any medium- to long-term forecast lacks significance and may reflect biases.
The U.S. dollar index fell for the fourth week in a row to finish the week at 102.09, down 0.4%.
The US dollar index has dropped 2.8% in the past four weeks due to expectations of a Fed pause, or even a cut, according to the most optimistic analysts.
The truth is that no one can forecast medium- to long-term foreign exchange moves because they depend not only on fundamentals but also on the policies and arrangements of central banks. In the short term, the index is oversold in the weekly timeframe according to the PAL OB/OS indicator, and a rebound should be expected, especially after a test of support of around 100.82.
4. Russell 1000 Equities
Below are the top 25 stocks ranked by the highest 252-day rate of change (momentum).
There are several stocks at all-time highs in the list of the top 25 stocks with the highest 252-day momentum.
Lamb Weston Holdings (LW)
LW made new all-time highs and is now overbought in the weekly timeframe according to the PAL OB/OS indicator. The stock is also overbought in the daily timeframe according to the 14-day RSI indicator. The momentum is strong, and the stock may forge higher before profit-taking starts.
Below is a list of Russell 1000 stocks that have been overbought or oversold for more than five days.
Due to the banking crisis, only FRC has been oversold for 22 days.
Last week I wrote:
HSY is forging higher, but it has been overbought for 5 days in the daily timeframe and also became overbought in the weekly timeframe.
Hershey Co (HSY)
The stock is now overbought for nine days in the daily timeframe and for two weeks in the weekly timeframe. The chart above shows that this stock has a long history of staying overbought for extended periods. This is a high-momentum stock that could make new all-time highs before a retracement starts.
General Mills Inc. (GIS)
The stock has been overbought for two weeks according to the PAL OB/OS indicator and for 10 days according to the 14-day RSI. The momentum is strong, and prices could climb higher before a correction starts.
5. Major Equity Index and Fixed Income ETFs
ETFs that are up year-to-date and sorted by highest return
The Metals and Mining (XME) ETF is the only one from the list of ETFs that is up year-to-date and was also up last year. This ETF is up 3.5% year-to-date.
There are high odds for a continuation of this week’s drop during next week, with a target of around 62.25.
ETFs that are down year-to-date, sorted by largest loss
There are higher odds that the rebound will be short-lived and there will be a test of support around 29.25 in the next two months.
Most overbought or oversold ETFs
Gold Miners (GDX)
The GDX ETF is overbought in the weekly timeframe according to the PAL OB/OS indicator and has also been overbought in the daily timeframe for three days, according to the 14-day RSI. A case could be made for continuation toward 36, but afterward, profit-taking could commence.
ETFs with positive momentum
Although XLE has the strongest momentum based on the 252-day rate of change, this year has been marked by a strong decline, and only recently has there been a rebound, as shown in the bottom pane of the chart above. There are high odds XLE will rise toward 89, but then it could plunge again toward 80.
6. Commodity ETPs
Commodity ETS that are up-to-date, sorted by highest return
Many commodity ETFs are up year-to-date. Most of those ETFs were down last year.
Last week I wrote:
CANE could reach 14 in the next few months before facing strong resistance.
CANE surged 7.4% on the week and shows potential for further advance, although it is now overbought in the weekly timeframe according to the PAL OB/OS indicator and also has been overbought for six days in the daily timeframe according to the 14-day RSI.
Commodity ETPs that are down year-to-date sorted by largest loss
PALL bottomed after significant losses from the March 2022 highs. There is potential for a rise toward 143, but a change in trend is unlikely at this point.
Most overbought/oversold commodity ETPs
SLV and CANE have been overbought for six days in the daily timeframe.
Commodity ETPs with positive momentum
The SLV ETF has gained 21.4% in the last four weeks but has been overbought for two weeks according to the PAL OB/OS indicator and for six days according to the 14-day RSI. Additional gains toward 14 are possible, but a correction may start soon.
7. International markets ETFs
International markets are mostly up year-to-date, with Mexico (EWW) up the most (+18.6%).
Although EWP is up 18.5% year-to-date and second in performance after Mexico (EWW), this ETF has been in a long sideways market since the GFC. The high of 2014, around 32, may be reached this year.
8. Spot currency pairs
Currencies were mostly up against the US dollar. The Hungarian forint (HUF) gained the most, by 2%. The Russian ruble (RUB) fell the most, by 3.3%. There are no overbought or oversold currencies.
The Hungarian forint (HUF) has gained the most (+9.6%) year-to-date, while the Russian ruble (RUB) is down the most, at -11.4%.
British Pound (GBPUSD)
Last week I wrote:
The pair may make another attempt toward resistance at 1.2400, and there are high odds of a move higher.
The GBPUSD pair made a high at 1.2525 and finished the week at 1.2416 amid increasing volatility. This pair is now overbought in the weekly timeframe according to the PAL OB/OS indicator, and a correction is highly possible toward 1.2300.
-Overbought conditions occur in the daily timeframe when RSI(14) indicator is greater than 70 and oversold when the indicator is less than 30. The 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. The 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.
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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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