The Week in Review (3/6/16) US Index performance (5d): SPX +2.7%, DJIA +2.2%, RTY +4.3%, NDX +2.2%, TLT -1.4%
Equities advanced for the third week in a row as US economics, commodities, and central bank policies were the catalyst for the continuation in the equity move last week. In the beginning of the week an improvement in the ISM Manufacturing data (49.5 vs exp of 48.5) carried the market rally and at the end of the week a positive job report (Private Payrolls +230k vs exp of 190k) kept the rally going.
For the week, oil advanced 9.6% and gained just about every day despite the weekly oil inventories showing another large weekly build of 10,374k barrels. Clearly sentiment has changed in oil and other commodities as copper gained 6.8% for the week. This ignited a rally in the unloved sectors including SLX (Steel) +24%, XME (Metals & Mining) +18.5%, and XOP (Oil & Gas Expl & Prod) +17.2%. Those numbers are startling for just a week of price action, see below for complete list of sector performance.
Emerging markets also gained +9.2% last week led by Brazil (EWZ) which gained +24.9% (again just in a week) as the former Brazil president Lula da Silva was detained in a sweeping corruption probe. We saw heavy call buying in names like ITUB, PBR, and EWZ leading up to the events in Brazil. On Friday, EEM (Emerging Markets) saw bullish interest in both cash and options. In what appeared to be a roll, 143,189 Mar 33 strike calls were sold and 120,573 Apr 35 strike calls were bought for $0.20 expressing a view of further upside price action as EEM closed at $32.82 on Friday. The ETF also saw +$768m in inflows on Friday, the biggest gain of any ETF on the day. The Emerging Markets group saw a total of +$1.7B in inflows last week (see the ETF flows section for more details).
Finally, Gold had another strong week +2.9%. On Friday, Blackrock, the manager of the IAU (Gold) ETF announced they will need to temporarily halt issuing new shares of IAU as demand for the metal caught the world’s largest money manager off guard (according to Bloomberg). Note, there has now been +$6.1B in assets added to the GLD (Gold) ETF in 2016. This is far more than any other ETF… the next highest ETF inflow is TLT (20+yr Treasury Bonds) at +$2.9B. Silver (SLV) also saw interest last week with 9,790 SLV Jan 17 strike calls being purchased for $3.45, which is $3.4M in premium. The SLV ETF added +$172M in assets last week and finished +5.3%. However, the moves were more even more extreme in Palladium (PALL), rising +14.8% and Platinum (PPLT) +9.9% for the week.
Here are last week’s sector performers:
A few themes to note from the above performance:
- XME (Metals & Mining) had a gigantic week and this ETF saw call buying the last few weeks but saw a large put buyer late on Friday: 20,000 Jun 17 strike puts @ $0.93. Note the RSI is a 79.6 on the daily chart.
- FDN (Internet ETF) gained +3.5% for the week but the majority of those gains were on Tuesday. The “FANG” stocks (FB, AMZN, NFLX, GOOGL) were quiet the rest of the week… and as the performance above dictates, last week was not about the FANG stocks.
- The Banks (KRE, KBE) woke up and are now +9.2% in two weeks. One of the last groups to catch a bid.
- Biotech once again did not participate in last week gains and remains out of rotation.
- The beaten down Oil & Gas Explorers and Producers (XOP) gapped higher +17.2% as Crude oil gained +9.6%
TTG’s market view (strictly our opinion):
Next week, the US economic calendar and earnings reports are light. The focus will be on International data as China reports on Foreign Reserves (3/6), Trade Data (3/7), and CPI / PPI (3/9). Japan’s (3/7) GDP and an estimate of Eurozone (3/8) GPD numbers are also out this week. All eyes will be on Mario Draghi on Thursday morning as the ECB meets to reassess their monetary policy stance. After a 3 week run the US indices are starting to look overbought as the SPX reached a high of 2009 on Friday before falling back to 1999, just a hair under 2000 and its 100 day ma (moving average). The 100 day ma will act as short term support followed by the 200d ma at 2023. Keep an eye on crude oil as correlation remains high and it seems there were several times last week where the indices looked to be headed lower and then were helped by a quick move higher in oil (see below).
Crude Oil (USO) vs SPY (SPX) 3 day chart
ETF Flows for the Week
Overall: Last week Equity ETFs saw +$4.0B in net inflows. Financials (+$1.1B), Emerging Markets (+$1.7B), and Small Caps (+$800M) all had sizable inflows last week. Most of the Emerging Market inflows occurred at the tail end of the week. EEM (iShares MSCI Emerging Markets ETF) added +768M, EWZ (iShares MSCI Brazil Capped ETF) added +$125M, and VWO (Vanguard FTSE Emerging Markets ETF) +$73M all on Friday. One interesting observation in International ETFs was that while Emerging Markets saw inflows, Developed regions saw outflows. Japan ETFs lost -$448M and European ETFs lost -$509M in assets. This is the second week in a row of this trend.
In Fixed Income ETFs, High Yield bonds saw huge inflows of +$2.6B last week. This is in addition to +$1.2B the previous week. In fact, JNK (SPDR Barclays High Yield Bond ETF) saw the largest inflow of any ETF last week at +$1.3B with HYG (iShares iBoxx $ High Yield Corporate Bond ETF) and EMB (iShares J.P. Morgan USD Emerging Markets Bond ETF) also seeing large inflows. Gold (GLD) also continues to see large inflows, adding +$1.2B last week (inflows now stand at +$6.1B in GLD ytd).
US / Sectors (5d): Large Caps +$1.9B, Small Caps +$0.8B, Mid Caps +$0.1B
Sector Highlights (largest movers included)
Largest Inflows:
- Financials +$1.2B: XLF +$866M, KRE +$144M, KBWB +$95M
- Industrials +$226M: XLI +$247M
- REITs +$222M: IYR +$290M, VNQ -$72M
- Energy +$374M: XLE +$234M, XOP +$66M
- Health Care +$168M: IBB +$157M
Largest Outflows:
- Materials -$126M: GDX -$120M
- Tech -$123M: FXL -$58M, SOXX -$28M
International (5d):
- International ETFs +$1.8B
- Country/ Region specific ETFs:– Emerging Mkts +1.7B: EEM +$812M, EMB +$595M, VWO +$167M, IEMG +$143M, EEMB +99M– Mexico +$158M: EWW +$100M– Japan -$448M: EWJ -$311M, HEWJ -$117M
- – Europe -$509M: EZU -$269M, HEDJ -$75M, EWG -$66M, FEZ -$42M
- Largest Outflows:
- – Brazil +$193M: EWZ+$225M
- Largest Inflows:
Largest Flows by Fund
ETFs of the Week
1. IWM (Small Caps)
Small Caps have had a powerful rally and have led Large Caps +11.5% vs +7.4% over the last three weeks. However, IWM has approached the red resistance line in the below chart and the 100d moving average and may be due for some price digestion next week. The ETFs RSI is also approaching overbought at a 67 level (>70 is considered overbought). If IWM cannot climb above its 100d moving average, I am considering selling call spreads on this ETF.
IWM – iShares Russell 2000 ETF
Source: Bloomberg
2. UNG (United States Natural Gas Fund LP)
Natural Gas was one of the few commodities that did not participate in the rally last week falling -6.8% vs Crude +9.6%. Recent price action has taken out the December lows but price action looks a bit overextended to the downside. If one thinks the commodity rally will continue I would consider entering a long position in the UNG ETF as countertrend “catch up” trade.
UNG – United States Natural Gas Fund LPSource: Bloomberg
Source: Bloomberg
3. SPY vs EEM (the S&P 500 vs Emerging Markets)
As highlighted above in the ETF Flow section, the last two weeks Emerging Markets have started to outperform and have seen sizable inflows. Given the interest, I think it makes sense to look at a longer term trend to see that Emerging Markets have heavily underperformed. Just in the last year, EEM has trailed SPY by ~15%. I like going long the EEM Sep 33.5 / 37 call spread @ $1.20 and selling the SPY 215 / 220 calls spread @ $1.19 to take advantage of a possible convergence.
SPY vs EEM 5 yr chart
Source: Bloomberg
Stocks to Watch (from Pat Harris @pharris667)
1.WWAV (WhiteWave Foods Company)
The WhiteWave Foods Company, a consumer packaged food and beverage company, manufactures, markets, distributes, and sells branded plant-based foods and beverages, salads, fruits and vegetables, coffee creamers and beverages, and dairy products and organic produce in North America and Europe. Three companies initiated moves this week plus new rumors out here-But those have been around forever.
Source: Think or Swim
2. AOS (A.O. Smith Corporation)
A. O. Smith Corporation manufactures and markets water heaters and boilers to the residential and commercial end markets primarily in the United States, Canada, China, Europe, India, and the Middle East. Like the company and the stock-doesn’t seem to have the wild moves just nice and trending.
Source: Think or Swim
3. ROCK (Gibraltar Industries Inc)
Gibraltar Industries, Inc. manufactures and distributes building products. The company operates in two segments, Residential Products, and Industrial and Infrastructure Products. This keeps popping up in every screener I ran this morning. Rated very bullish..
Source: Think or Swim
4. DD (E. I. du Pont de Nemours and Company)
I. du Pont de Nemours and Company operates as a science and technology based company. News out after hours of new suitors making an offer.
Source: Think or Swim
5. TSLA (Tesla Motors)
My Man Elon the Master of Manipulation sent out invites to a new Model 3 Event in California with no date mentioned. Citron came after him in the past week and it lasted all of one day.
Source: Think or Swim
6. SWHC (Smith & Wesson Holding Corporation)
Smith & Wesson Holding Corporation manufactures and sells firearm products in the United States and internationally. The company operates in two segments, firearms and accessories. In my opinion, Movement here isn’t done one of the few Buy and hold stocks out there.
Source: Think or Swim
7. HA (Hawaiian Holdings)
Hawaiian Holdings, Inc., through its subsidiary, Hawaiian Airlines, Inc., engages in the scheduled air transportation of passengers and cargo. What can I say Up over 20% this year
Source: Think or Swim