The Week in Review (2/28/16) US Index performance (5d): SPX +1.6%, DJIA +1.5%, RTY +2.7%, NDX +1.7%, TLT -0.5%

Equities continued to grind higher last week and staged a strong reversal mid-day Wednesday which continued through Thursday’s session (albeit on light volumes). Correlation to crude oil remains very high (see chart below), and when oil is positive the SPX has been following and vice versa. Note Crude advanced every day last week except for Friday and finished +10.6% last week. What fueled the rally in Crude? More rumors of an OPEC production cut.

Crude Oil Futures vs SPX Futures in February

SPX vs CL 2-28-16Source: Bloomberg

Economics got better throughout the week. Consumer Confidence, Markit US Services PMI, and New Homes Sales were all disappointments in the beginning of the week, but Durable Goods, Cap Goods Orders, GDP, Personal Income & Spending and PCE Deflator all beat expectations later in the week. My conclusion is that while the US data is not what I would call strong it is not exactly terrible either. Next week all eyes will be on the monthly jobs report. If you are a market bull, I believe you want a positive report but not too positive that it will shift the focus to another possible interest rate hike.

This weekend the G-20 meeting is taking place and one takeaway from the meeting was that IMF Managing Director Christine Lagarde said that the effects of monetary policies, even innovative ones, are diminishing. The diminishing marginal returns for further central bank stimulus is something to keep in mind with an ECB meeting coming on Mach 10th.

Here are last week’s sector performers:


A few themes to note from the above performance:

  1. Home Builders (ITB) caught up in performance after Toll Brothers (TOL) reported and gained +10% last week. Note this group was a beaten up area of the market and are still -9% ytd.
  2. FDN (Internet ETF) was +3.8% as FANG stocks (FB, AMZN, NFLX, GOOGL) performed well. Netflix (NFLX) was the best performer of the FANG stocks +6.2% as there were active call buyers last week as I mentioned on twitter.
  3. Regional Banks (KRE) finally had a week of gains most of which at the end of the week as the group notched +3.6% in combined gains on Thursday & Friday.
  4. Biotech did not participate in last week gains and was the worst performing sector on my list.
  5. Utilities (XLU) and Consumer Staples (XLP) sold off on Friday as it appears there was some profit taking, they fell -2.8% and -1.4% on Friday

TTG’s market view (strictly our opinion):

A bit of caution after the GDP number was revised Friday from -0.4 to +1 causing financials to perform better and waiting to see if FED officials start pounding the table for higher interest rates in their Speeches again. Remember there are 4 new Members on the Board this Year and Most are Hawkish towards a demand in interest rates being increased. In addition, the SPX has gained +4.5% in the last two weeks and going into the weekend the market may have been looking for some action out of the G-20 meeting in terms of further central bank stimulus on the horizon. If no action, there may be some disappointment.


ETF Flows for the Week

Overall: Last week Equity ETFs saw -$3.8B in net outflows. However SPY skewed the numbers (-$4.3B outflow) as it often does considering it is the largest ETF by assets and is used for many purposes other than straight. Removing SPY from the analysis shows that equity flows were muted. Small Caps (IWM) outperformed last week +2.7% and saw $700M of ETF inflows. US Sectors continues to have a defensive stance with Utilities (XLU) and Consumer Staples (XLP) seeing the largest inflows while Financials saw the largest outflows, see below for details.

International ETFs saw outflows of -$775M. European and Japan saw the majority of the outflows while Emerging Markets saw inflows, more details below. Fixed Income ETFs saw +$3.1B of inflows last week which has been a theme of 2016, but what was different last week is that the inflows came from corporate bonds vs treasuries. High Yield Bond ETFs (HYG) added +$1.2B and Investment Grade Bonds (LQD) added +$597M. This could the result of oil climbing from lows giving some relief to this are of the market. For the week HYG climbed +2.0% vs SPX +1.6%.

US / Sectors (5d): Large Caps -$3.7B, Small Caps +$0.7B, Mid Caps -$0.2B


Sector Highlights (largest movers included)

Largest Inflows:

             – Utilities +$277M: XLU +$182M, VPU +$75M

             – Cons Staples +$271M: XLP +$237M, RHS +$65M

             – Materials +$219M: GDX +$135M, XLB +$77M

              – Industrials +$157M: XLI +$107M, IYT +47M

 Largest Outflows:

               – Financials -$456M: XLF -$365M, KBE -$36M

               – Consumer Discretionary -$198M: XLY -$153M, XRT +$80M, ITB -$57M

               – Tech -$185M: FDN -$170M, SMH -$55M


International (5d):

Country/ Region specific ETFs:

Largest Inflows:

               – Canada +$102M: EWC +$100M

Largest Outflows:

                – Emerging Mkts +134M: EMB +$96M, VWO +$79M 

                – Japan -$826M: DXJ -$323M, EWJ -$318M, HEWJ -$117M

                – Europe -$588M: EZU -$275M, HEDJ -$242M, FEZ -$65M


Largest Flows by Fund

FLows 2-28


ETF Charts of the Week:

  1. SPY (SPX Index): I am actually showing an SPX chart below. On Friday, the SPX climbed above the 1948 resistance area with the next resistance area of 2000 which also coincides with the 100 period moving average. Keep an eye on if the SPX slips back below 1948. The MACD and RSI studies are not telling me anything particularly interesting right now, no MACD crossover and RSI is not overbought. In terms of value areas, on the daily chart, the top of value is 1950 in the ESH6, and a level to keep an eye on. Considering the high correlation with oil, I will be watching Crude as well as overseas markets (in particular Europe) for clues on the next direction in the market.

SPX – S&P 500 Index Chart

SPX 2-28-16

Source: Bloomberg


2. KRE (SPDR S&P Regional Banking ETF)

Banks have been under pressure this year, the KRE ETF is down -14% ytd. Looking at the chart below, an inverse head & shoulder pattern may be developing and a break above the $35.90 level could result in a move up to the 50 period moving average of 37.63. Oil needs to continue to stabilize for the banks, but I like purchasing the April 37-39 call spread @ $0.59 for a reversion to the mean trade.

KRE – SPDR S&P Regional Banking ETF

KRE 2-28-16

Source: Bloomberg


Stocks to Watch

1. LRCX (Lam Research)

Corporation designs, manufactures, markets, refurbishes, and services semiconductor processing systems used in the fabrication of integrated circuits. Notable option flow: 4,742 LRCX Jun-16 80.0 C @ $2.60

LRCX 2-28-16

        Source: Think or Swim


2. AMGN (Amgen Inc.)

Amgen Inc., a biotechnology company, engages in discovering, developing, manufacturing, and delivering human therapeutics worldwide. It offers products for the treatment of illness in the areas of oncology/hematology, cardiovascular, inflammation, bone health, nephrology, and neuroscience. Slowly trending higher even through Market Choppiness Friday.


AMGN 2-28-16

Source: Think or Swim


3. MNK (Mallinckrodt PLC)

Mallinckrodt public limited company develops, manufactures, markets, and distributes specialty pharmaceutical and biopharmaceutical products, and nuclear imaging agents in the United States, Europe, the Middle East, Africa, and internationally. This company received 4 upgrades the past week and one the week before.

MNK 2-28-16Source: Think or Swim


4. XRAY (DENTSPLY International Inc)

DENTSPLY International Inc. designs, develops, manufactures, and markets various consumable dental products for the professional dental market in the United States and internationally. Upgrades this week plus another EU approval.

XRAY 2-28-16Source: Think or Swim

5. FDX (FedEx Corp.)


Option traders continue to be on the lookout for the next underpriced stock, and one customer thinks he’s found it in FedEx FDX – NYSE. Friday this customer bought 5,000 FDX March 145 calls for $1.25 apiece. That’s a bet of over 500,000.00 dollars and very interesting that they were March calls with that Large a bet. Fedex reports later in the month of March

FDX 2-28-16Source: Think or Swim


6.  EW (Edwards Lifesciences Corporation)

Edwards Lifesciences Corporation provides products and technologies to treat structural heart disease and critically ill patients worldwide. The company offers transcatheter heart valve therapy products comprising transcatheter aortic heart valves and their delivery systems for the nonsurgical replacement of heart valves. One of the top stocks for 2016 Great earnings and widely held by funds

EW 2-28-16

Source: Think or Swim