The markets staged an
impressive rally yesterday with the R2K index setting its 4th consecutive
record high and the other major indices less than 6% from their respective
records. However for some perspective volume was among the lowest this
year. Today the market opened fractionally higher and is mostly unchanged
for the most part with five sectors in the green led by Utilities (+0.7%) and
Financials (+0.6%), and REITs (-0.3%) lead to the downside. Concerns over
trade with China continue to abate with both sides offering concessions, though
both the WSJ and NY Times write that China has the upper hand. Treasuries
are slightly higher, the Dollar is off 0.1% and Gold up 0.1%, and crude oil
adds gains another 0.3%.
- Risk on
(somewhat) for the markets as U.S. - China trade tensions continue to
thaw. China has agreed in principle to cut car import tariff by 10% to 15%
from 25%. Auto imports into China totaled $51 billion in 2017 with $13.5
billion coming from North America. This goes hand in hand with the White House
pausing its proposed Chinese tariffs and lifting it sales ban on Chinese cell
phone maker ZTE. The markets are reacting as trade tensions begin to ease with
the Russell 2000 Index making an all-time high, reflecting a confidence in the
small and mid-cap names. Overall market volumes are lighter on the composite
tape which is also a sign of a passive investing environment which is good for
the bulls.
- Does the
leadership in Small Cap stocks translate to broader market rallies? Not
necessarily. The WSJ points out that the record is mixed, with strength
in the Russell 2000 often coinciding with weakness in the S&P 500 rather
than small caps passing the leadership baton to larger cap brethren.
According to Doug Ramsey of Leuthold Group, when the Russell 2000 had a
relative strength ratio above its 40-week moving average, the S&P had an
annualized return of 4.2%. However, when the Russell's relative strength
was below its 40-week average, the S&P averaged a 13% return. Jason
Goepfert of Sundial Capital also looked at the relatively few times in the past
four decades when the Russell was the first to hit a 52-week high after 30 days
without one. His data shows a mixed record in continued small cap
leadership and in overall stock performance.
- Crude oil
continues inching its way higher with WTI firming above the $72 line and Brent
just crossing above the $80 mark. Investor sentiment is shifting from a
glut mentality to seeing potential scarcity in the not too distant
future. Long-dated futures have also steadily risen lately in a sign of
'how stretched supplies have become' the WSJ says. Potential disruptions
in Iran and Venezuela only add to the upward bias. Needless to say but
higher oil means higher gasoline prices, which are already at three-year highs
and some analysts saying gas might reach $4/gallon in some part of the country.
- Today is
National Solitaire Day. If you've never heard of it, it's because today
is the first. Microsoft founded National Solitaire Day to celebrate one of the
most played computer games. In 1990 MSFT included the game in Windows
3.0, partly to help users learn how to use a mouse. According to the
National Day Calendar (yes there is one and today is also National Vanilla
Pudding day), in 2012, Microsoft evolved Solitaire into the Microsoft
Solitaire Collection , which features five of the top Solitaire games
in one app. Since then, the game has been played by over 242 million people and
has become so popular that each year 33 billion games are played with over 3.2
trillion cards dealt.
Technical Take: Commodities breaking out from a
2-year Base
The US dollar's recent surge
since the February lows has done little to slow down the normally inversely
correlated commodities sector. Both asset classes bottomed in early to
mid-February and have since been rising in tandem. Over this time the
inverse correlation between the two has weakened from -0.68 in March to last
week's low of -.18. The dollar's recent strength appears to be a bear
market rally following a steep decline throughout 2017 and January 2018.
This week's high has come within a few ticks of the 38.2% retracement of the
prior downtrend and thus the greenback's strength could be nearing completion.
If so, a downside reversal in the dollar could provide a nice tailwind
for commodities which are just beginning to breakout from a large consolidation
pattern. The Bloomberg Commodity Index (BCOM) is up 4.7% QTD largely on
the back of Brent and WTI crude which have gained 17% and 12% QTD and combined
make up nearly 17% of the index. Other members including gasoline,
aluminum, wheat, and nickel are also up double digits so far in Q2. Gold
is the second biggest weighting in the index, yet the precious metal is down
-2.7% QTD. Gold also has a strong inverse correlation to the dollar and
likely would benefit on a reversal lower in the greenback. Unlike the
dollar, the recent strength in the commodity asset class may have plenty of
upside left as the commodity index (BCOM) is this week breaking out from a
23-month consolidation pattern. Breakouts from such large bases are often
proceeded by accelerating upside momentum. With the BCOM index making
30-year plus secular lows just over two years ago in Q1'16, it wouldn't be a
major stretch to see the index making a run from here. However, with
Brent and WTI having already gained 81% and 73% over the last eleven months,
the driver of an accelerated move higher would likely need help from other
constituents. In our BLOG earlier
this month we noted the constructive technical setup in the long term structure
of gold which has the 2nd biggest weighting in the commodity index.
Nasdaq's
Market Intelligence Desk (MID) Team includes:
Charles Brown is Associate Vice President on The Market
Intelligence Desk with over 20 years of equity capital markets experience.
Charlie has extensive knowledge of equity trading on both floor and screen
based marketplaces. Charlie assists with the management of The Market
Intelligence Desk and works with Nasdaq listed companies providing them with
insightful objective trading analysis.
Steven
Brown is a Managing Director on the Market Intelligence Desk
(MID) at Nasdaq with over twenty years of experience in equities. With a focus
on client retention he currently covers the Financial, Energy and Media
sectors.
Christopher Dearborn is
a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has
over two decades of equity market experience including floor and screen based
trading, corporate access, IPOs and asset allocation. Chris is responsible for
providing timely, accurate and objective market and trading-related information
to Nasdaq-listed companies.
Brian Joyce,
CMT is a
Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Before
joining Nasdaq Brian spent 16 years as an institutional trader executing equity
and options orders for both the buy side and sell side. He also provided
trading ideas and wrote technical analysis commentary for an institutional
research offering. Brian focuses on helping Nasdaq's Financial, Healthcare and
Transportation companies, among others, understand the trading in their stock.
Brian is a Chartered Market Technician (CMT).
Michael
Sokoll, CFA is a
Senior Managing Director on the Market Intelligence Desk (MID) at Nasdaq with
over 25 years of equity market experience. In this role, he manages a team of
professionals responsible for providing NASDAQ-listed companies with real-time
trading analysis and objective market information.
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