Purpose: The end of the week wrap-up addresses changes in macro views and weekly activity of securities that I follow and discuss, including SPY, VIXY, IWM, GDX, GLD, UNG, gold, natural gas; provides a summary of articles written throughout the week; gives a forward outlook based on this information.
Friday, Janet Yellen signaled that the Federal Reserve was ready to raise interest rates in March. While not a guarantee, as the Fed has backed out of rate hikes in the past, it does suggest that a rate hike is coming. Home sales data suggests a decline.
SPY was trading at high volume on Wednesday. The last time trading volume was higher was back in December of 2016. Thursday saw lower volume, slightly below the recent average. Over the course of the week, the S&P rose considerably, exceeding 2,400 on Wednesday, but ended the week well off of its highs at 2382.98. Thanks to the downward movement on Thursday, a clear shooting star pattern, on the two day time scale and a harami pattern on the one day time scale formed. To confirm a downtrend on Friday, I was looking for the S&P 500 to open below the prior day's low. That did not happen, but it did open below the prior day's close.
By the end of the day, stocks had barely moved, and no new trend on the single day or two day time frame emerged. For that reason, I expanded to the three day time frame, which shows a new harami pattern forming. Again, harami by themselves are weak indicators, and need to be followed by a bearish candlestick for confirmation. RSI analysis still suggests that the S&P 500 is overbought. This is true at the single day time scale, the weekly time scale, and the monthly time scale. Even if there are no major downturns for a while, the consolidation does indicate strong resistance level, suggesting a flat market.
Volatility dropped considerably throughout the day, which is to be expected as the certainty of a rate hike increases. The drop in the VIX has driven down VIXY, but VIXY failed to break below its current support. That being said, price history over the last week or two appears to be setting up a multiple top pattern.
While my articles, so far, have pretty much only addressed the S&P 500, I do look at larger indices, such as the Russell 2000 (IWM). The RUT opened at 1394.53 on Monday and while the index had started to rise over the last few days, reaching a high of 1414.82, it did not receive the same kind of boost that the S&P 500 did on Wednesday, and has since turned negative for the week, dropping to a low of 1386.53, before closing at 1394.10. This price range establishes a shooting star candlestick pattern at the weekly time scale, suggesting a strong consolidation, and a possible reversal, depending on what follows next week.
GDX, GLD, and Gold, and Silver
After a more than 5% drop in GDX on Thursday, the price rose during, and after, the Yellen speech on Friday, a high of $22.47, before settling down at 22.19. This could indicate some improvement in sentiment, although it is in line with a four week downward trend, with the centers of the candlestick bodies forming an almost perfect line. GLD did not changed much however. This mirrors the changes in silver and gold prices. While silver was up by over 1%, gold barely moved for the day. This suggests that GDX is getting a boost from rising silver prices. Noting volume, while Thursday's drop saw high volume, Friday's recovery saw weaker volume, consistent with the price-volume trend that has established itself over the last week or two.
UNG and Natural Gas
UNG dropped over the course of the week, but remained above its low of $13.98 set at the beginning of February. On Thursday, the EIA reported an unexpected weekly climb in U.S. natural-gas supplies. That surprise had little effect on UNG.
USD/JPY has been trading within a channel between a resistance level of roughly 115 and a support level of roughly 111.50. Janet Yellen's speech on Friday failed to push the yen above the resistance, suggesting that it will fall back towards 111.5.
This week, news came out of a new bill: H.R.1227 - Ending Federal Marijuana Prohibition Act of 2017. This bill would remove marijuana from the CSA, eliminating federal regulation of the substance, at least within state borders.
Summary of Articles
During the week, I wrote: One general state of the market article and two other macro articles addressing the disconnect between stocks and the economy: "State Of The Market," "Yes; Stocks Really Are Overvalued," and "Market Sentiment Vs. Reality." Three articles on GDX: "The Potential For Divergence: How Politics Could Drive A Wedge Between Gold And Gold Stocks," "GDX: Canary In The Gold Mine," and "Explaining GDX'S Divergence From Gold." In these articles, I addressed the risks associated with GDX due to the threat of protectionist policies. One article on UNG and how natural gas consumption is becoming less cyclical: "The Declining Seasonality Of Natural Gas Consumption." And one article on the potential of marijuana stocks to prosper due to actions being taken by congress, even with the White House has voiced interested in increasing federal enforcement: "A Silver Lining In The Fight Over Cannabis."
Based on the information addressed in this article, I am neutral to mildly bearish on the stock market as a whole, mildly bearish on GDX, preferring to look towards gold futures or physical metals, weakly bullish on natural gas and UNG, bullish on the Japanese Yen, expecting it to move back towards 111.5, and bullish on marijuana stocks, recognizing the high risk associated with OTC securities. While I do not do too much FX trading, I would suggest that those interested in wanting to take advantage of the sideways movement of the yen should put a stop loss at 115, in order to prevent a potential loss from a breakout.
Disclosure: I am/we are long SH,VIXY, UNG.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I have a general contrarian portfolio.