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Market analysis for week of March 29, 2021, covering major market indexes, ETFs and spot currencies. Access to full article requires Premium Articles subscription.

This is a sample report. The information in this report is outdated.

Report contents

  1. Weekly summary and recap.
  2. Analysis of major indexes.
  3. Popular ETFs.
  4. Sector, Factor and Asset ETFs
  5. Commodity ETFs.
  6. Spot currency pairs.
  7. Chart of the week

1. Weekly summary and recap

  • U.S. stocks were higher on the week.
  • High beta large caps fell in volatile week.
  • Bond yields were down and prices rose.
  • Commodities were lower.
  • Crude oil correction continued.
  • The U.S. dollar ended the week higher.

Recap (March 22, 2021 – March 26, 2021)

Large caps gained on the week with S&P 500 rising 1.6% to new all-time highs. High beta large caps ended the week down 0.3% after falling as much as 6.4% on Tuesday. The recovery in high beta large caps from the lows was rare event. Since 1990, the high beta large cap index has made a similar recovery only on six other occasions and the last four were near the bottoms of 2009 (twice), 2011 and 2016.

Low volatility large caps rallied 3.6%. Dow 30 added 1.4%. NASDAQ-100 rose 0.9%. Bond prices were higher after a rebound from oversold territory. Precious metals were weak with the U.S. dollar index up nearly 1%. Commodities fell for a second week in a row but ended the week off their lows.

2. Analysis of major indexes

VIX fell 10% to close at 18.86 for the week.

Last week I wrote:

[V]olatility may decrease in the medium term and VIX may fall towards 2020 lows around 15 during the year.

Volatility mean reversion may continue during next month as expectations of higher rates and inflation are fading. There are known unknowns that can cause a resurge in volatility including pandemic recovery uncertainty and possibility of rising prices but investors and traders seem to rely on central bank promises that these can be handled effectively with monetary policy. For now it appears that mean reversion in volatility is strong and will continue despite any uncertainties.

The U.S. dollar index rose 0.9% on the week.

The U.S. dollar index has gained 2.7% in the last five weeks despite expectation of continuation of the downtrend. The index also broker above the 40-week moving average this week. On the average since 1970, the index has stayed above the 40-week moving average 8.6 weeks with 13.7 weeks standard deviation based on available sample. Further gains are possible with resistance around 94.

The yield of 10-Year Note fell seven basis points after eight consecutive weekly gains to end the week at 1.66%.

Last week I wrote:

Bonds are in oversold territory and there may be a short-term rebound in prices and correction in yields. The medium term uptrend is up and the 10-Year Note yield could rise near 2% in the next few weeks.

If 10-Year yields fall below 1.42% this may mark the start of another short-term downtrend towards 1%.

The S&P 500 index gained 1.6% for the week to finish at new all-time highs.

Last week I wrote:

The bull market is strong and a rise to 4000 has high probability for next week. A drop below 3820 could offer a signal of a short-term trend reversal with a target towards 3650.

The S&P 500 index may test 4000 next week. In the weekly timeframe the index is not overbought according to PAL OB/OS indicator. Technically 4000 is the target except in the case of a change in fundamentals.

NASDAQ-100 gained 0.9% on the week.

This index is lagging large caps due to high valuations of constituents. Year-to-date NASDAQ-100 is up 0.7% while the S&P 500 is gaining 5.8% and high beta large caps have gained 22.9%. The focus of investors is on higher risk securities since NASDAQ-100 rose 47.6% in 2020 and there appears to be limited upside potential before some profit taking pushes down valuations to acceptable levels.

Low Volatility S&P 500 index ($SP5LVI) gained 3.1% while the High Beta S&P 500 index ($SP5HBI) fell 0.3% on the week.

Last week I wrote:

This rotation game can continue in the absence of adverse developments for much longer the bears can remain solvent.

The same rotation dynamics as in 2017 – 2019 period appear to have emerged recently, i.e., switching from low volatility to high beta and back, while the positive upward drift of the broader market remains intact. Bears can do nothing to defeat this rotation game since the bulls have several orders of magnitude higher purchasing power. In other words, in the presence of this rotation game, the only chance bears have is a significant change in fundamentals that is nowhere in sight at this point.

3. Popular ETFs.

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

XLP and SPLV are overbought. There are no oversold ETFs. XHB gained the most on the week (4.2%) while SLV fell the most (-4.2%).  XLP, XHB, XLI, DIA, XLB and SPY closed at new all-time highs.

TLT

TLT rebounded 1.4% after seven down weeks in a row. In our opinion 132 level may be tested before another short-term rebound.

Sector ETFs

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

Real estate (XLRE) and consumer staples (XLP) are overbought. There are no oversold sector ETFs. XLRE gained the most on the week (+4.3%) while XLC fell the most (-4%). All asset ETFs are up year-to-date with XOP gaining the most (43%) and XLU the least (2%). In our opinion positive performance across all sectors is unsustainable and there may be some rotation is coming weeks. Specifically we expect a correction in energy sector (XOP, XLE) and gains in consumer staples and tech (XLP, XLK).

XLRE

There may be some potential for more gains in XLRE but we expect profit taking in the next two weeks towards 38.

Asset ETFs

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

There are no overbought/oversold asset ETFs. Commodities (DBC) are up the most year-to-date (+14.1%) while bonds (TLT) are down the most (-13.2%). Real Estate (VNQ) gained the most on the week (+3.2%) while small caps (IWM) fell the most (-2.6%). PFF closed at new all-time highs.

IWM

It is possible IWM will rebound to new all-time highs but after the action of the last two weeks it appears further consolidation is a higher probability scenario.

Factor ETFs

Value (VLUE) is up 19% year-to-date while momentum (MTUM) is down 1.7%. Quality (QUAL) and minimum volatility (USMV) made new all-time highs. The return spread between value and momentum is 21.7%. There are no overbought/oversold conditions in factor ETFs.

5. Commodity ETFs

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

Palladium (PALL) is overbought and basic materials (IYM) made new all-time highs. Gasoline (UGA) is up 30% year-to-date while gold (GLD) is down 9%.

PALL

Palladium is overbought in daily and weekly timeframes. There is potential for a rise towards 260 while in overbought territory. It may be early to consider the scenario of a short-term correction.

6. Spot currency pairs

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

Most currencies fell against the US dollar. Taiwan dollar is oversold for four days in a row. Malaysian Ringgit and Japanese Yen are oversold for two days in a row.

MYRUSD


The path of MYRUSD could be towards 0.2300 for the rest of the year.

7. Chart of the Week

S&P 500 vs. S&P 500 Total Return

Since 1988, S&P 500 Total return is more than double the return of the index. There has been significant contribution to total return from dividends but that effect decreased after about 1998. The bottom chart shows the rolling 2520-day (about 10 years) difference of the two returns. Maximum was 145.5% in 1998 and minimum was 10.4% in 2008. Current value of the 10-year rolling return difference is 70% and it is about half the maximum value realized in late 90s. Conclusion: impact of dividends on total return has been decreasing over the years.


Notes:

-Overbought conditions occur in 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 weekly timeframe when 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. 

 

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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.