David Chojnacki S1F Market Technician
The Market moved to the upside at the open and the S&P was quickly trading at new highs. A pull back after the first hour, had the S&P back below 1465, where it straddled both sides of that level for most of the session. A push to the upside, in the last hour and a half, left the indices with moderate gains and the S&P at a new 5 year closing high of 1472. At the close, the DJIA and Nasdaq100 were up 0.6%, and the S&P added 0.76%. Breadth was positive, 2 to 1, on average volume. RSI's moved into the 60's, with the S&P at 64.6. ROC(10's) are positive and advanced in the session. MACD's continue above signal. The Market showed some strength in the session, with the S&P at a new closing high, the DJIA moving above its recent high and volume increasing. The strong technicals continue to favor an upside bias with the DJIA only 140 points from moving to a 5 year high. The Nasdaq100 is lagging the other two major indices in that it needs to move over 4.2% to get into new high territory. This is due partly to the recent weakness in AAPL , which is a large part of the index. We can see the Market strength in other sectors such as Financials, where the XLF is at a two year high and the IWM (Russell 2000) which is at a five year high. With the S&P closing above 1465, we see the next resistance at 1475 and 1488. Support for the S&P now sits at 1465 and 1450. The Nasdaq100 met resistance in the session just below 2750, which is the beginning of a congestion resistance area. The congestion area is between 2750 and 2800. The Nasdaq100 finds support at 2734 and 2725. The VIX was off 2.3% to close at 13.49. The VIX is only a few pennies away from being at 5 year lows. The last time the VIX was at these levels the S&P moved sideways for an extended period. Investors will continue to focus on earnings reports and action in the bond market. European markets are mixed in early trading. Futures are off slightly versus fair value.
Major Economic Reports Today
Export/Import Prices-8:30am Trade Balance-8:30am Treasury Budget-2:00pm
ALL PRICES NOTED IN THIS PUBLICATION ARE AS OF THE CLOSE ON TRADING PRIOR TO TODAY'S DATE, UNLESS OTHERWISE INDICATED
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In strong trending markets, being on the right side of the "trade" with L or LI ETFs can lead to very strong returns. 3) Investors should not expect these ETFs to deliver total returns linked to their benchmarks over any period other than daily. The effects of compounding and the daily re-leveraging or de-leveraging that occurs with L&LI ETFs can lead to unexpected results over the long term. As a result, we believe longer-term investors should consider regularly rebalancing positions. 4) Trendless markets, particularly those with a high level of volatility, can lead to substantial relative underperformance of L&LI ETFs. 2) Leveraged and Leveraged Inverse (L&LI) ETFs typically utilize futures and equity swap agreements. The use of these derivative instruments increases risk and enhances the possibility of tracking error. Relative to traditional ETFs, leveraged, inverse and leveraged inverse ETFs typically have higher costs and lower tax efficiency. 3) The effects of compounding can lead to significant deviations from traditional benchmarks over longer time periods. For example, if $100,000 is invested in an index that increases in value by 10% on day one and then decreases in value by 10% on day two, the investment will be worth $110,000 at the end of day one and $99,000 after day two. However, the value of a security that doubles the daily performance of the index would be worth $120,000 on day one and $96,000 after day two. Thus, the index is down 1% after two days, a doubling of which would be down 2%. However, the security attempting to double the return of the index is down 4%. Investors should consider carefully the potential impact over longer periods. MLP and MLP ETF Risks Individual MLPs are publicly traded partnerships that have unique risks related to their structure. These include, but are not limited to, their reliance on the capital markets to fund growth, adverse ruling on the current tax treatment of distributions (typically mostly tax deferred), and commodity volume risk. For tax purposes, MLP ETFs are taxed as C corporations and will be obligated to pay federal and state corporate income taxes on their taxable income, unlike traditional ETFs, which are structured as registered investment companies. These ETFs are likely to exhibit tracking error relative to their index as a result of accounting for deferred tax assets or liabilities (see funds' prospectuses). The potential tax benefits from investing in MLPs depend on their being treated as partnerships for federal income tax purposes and, if the MLP is deemed to be a corporation, then its income would be subject to federal taxation at the entity level, reducing the amount of cash available for distribution to the fund which could result in a reduction of the fund's value. 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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.