Today's Technical Outlook - 11/01/2017
Growth
Contributor Since 2009
Summary
- Major Economic Reports Today ADP Employment Report-8:15am PMI/ISM Manf. Index-9:45am Construction Spending-10:00am FOMC Announcemnet-2:00PM
- Market Summary David Chojnacki – Market Technician, StreetOne Technical Analysis
Good economic numbers helped equities move to the upside at the open on Tuesday, but they quickly reversed to the downside. Strong Consumer Confidence numbers pushed the major indices back to the upside through the morning hours. Equities then traded sideway till late in the day, when a quick sell-off left the averages holding on to small gains. The NDX had enough of a gain to hit new highs for the third straight session. The DJIA and SPX ended with small gains. At the close, the DJIA gained 28.5 points, the SPX inched up 2.4 points, and the NDX added 0.34%. Breadth was positive, 1.5 to 1, on above average volume. ROC(10)’s declined in the session, but all three remain in positive territory. RSI’s inched higher, with the DJIA the strongest, ending at 72.9. The NDX moved into over-bought territory at 72.1 and the SPX finished at 65.7. The DJIA and NDX remain with their MACD above signal. The SPX MACD continues below signal. The ARMS index ended at 1.33, a bearish reading. Techs continue to have taken over from the Industrials, as we see healthy sector rotation. This lead the NDX to make three straight new highs and begin to move into over-bought territory. All three major averages developed ‘Doji’s’ in the session, indicating indecision. The NDX closed at 6248 and traded as high as 6258. It finished just above its upper Bollinger band of 6222. The NDX 20D-SMA is now at 6098. The DJIA closed at 23377 and remains comfortably above its 20D-SMA of 23079. The SPX closed at 2575, and traded as high as 2578. Its 20D-SMA sits at 2559. The VIX fell 3% to finish at 10.18. Near term support for the NDX is at 6225 and 6200. Near term resistance is at 6250, 6258 and 6275. Near term support for the SPX is at 2575, 2559 and 2550. Near term resistance is at 2580-82 and 2588. We get the FOMC decision at 2:00PM today; no rate increase is expected. Earnings continue this week. Europe is higher in early trade. US Futures are pointing significantly higher in the pre-market.
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Data sources include ETF Database, ETFTrends.com, IndexUniverse.com, Google Finance, and Bloomberg data and at times other data sources are utilized. Leveraged, Inverse & Leveraged Inverse Conclusions and Risks 1) Leveraged, Inverse, and Leveraged Inverse (L&LI) ETFs generally capture a high percentage of their expected daily returns, particularly on a net asset value basis. 2) L&LI ETFs are not appropriate for all investors. However, we believe they can be appropriate tools for some investors looking to make short-term tactical trades if they perceive a high likelihood of a strong market move occurring in a relatively short time period. 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.
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