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Value Stocks Outperform Momentum, Tech Lags

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S&P 500 Price Forecast:

  • With the original technical pattern now called into question, buyers will need to appear quickly to prevent further losses
  • The momentum ETF (MTUM) saw its largest 2-day underperformance compared to the value ETF (VLUE) since 2013 when the funds were conceived
  • Dow Jones, Nasdaq 100, DAX 30, FTSE 100 Forecasts for the Week

S&P 500 Price Outlook: Value Stocks Outperform Momentum, Tech Lags

As I highlighted in my Nasdaq outlook on Monday, US Indices witnessed a bullish pop above their recent ranges, which initially seemed to signal appetite for a continuation higher. Contributing to the bullish outlook, equity gains were met with corresponding weakness in typical haven assets like gold, silver and treasury yields which effectively signaled a wider shift in sentiment. That said, Tuesday has delivered a different kind of risk aversion – one solely within the equity sphere.

S&P 500 Price Chart: Daily Time Frame (January 2017 – September 2019) (Chart 1)

S&P 500 price chart

Chart created with TradingView. 1-day rate of change in blue.

Is Value the New Momentum?

The shift in risk appetite can be viewed in the disparity between the Momentum ETF (MTUM) and the Value ETF (VLUE). The former provides exposure to large and mid-cap stocks exhibiting relatively higher price momentum and the latter offers access to large and mid-cap shares with lower valuations based on fundamentals. The funds represent two popular, but fundamentally different, styles of investing and consequently – different risk and return profiles. Since their inception in 2013, the MTUM ETF has returned 149% compared to the 86% gain in the VLUE ETF.

Broadly speaking, the VLUE fund is the “safer” of the two ETFs and it is their relative performances in the last two days that has signaled a shift in attitude among some investors. Suffering the largest one and two-day underperformance relative to the VLUE ETF, MTUM has taken a notable blow as investors rotate into other areas of the market. The rotation can also be seen by the bearish price action on some of the street’s most overbought names like Roku (ROKU), Switch (SWCH) and Shopify (SHOP).

S&P 500 Price Chart: Daily Time Frame (January – September) (Chart 2)

S&P 500 price chart

Chart created with TradingView.

General apprehensiveness to these high-flying and somewhat unproven stocks further signifies a subtle shift in the equity market. While the market in aggregate has traded only slightly lower, over-bought or extended stocks have taken the largest hit – despite their prior immunity in August. Similarly, some of the stocks responsible for large swathes of the price gains in the current bull market have also lagged – namely Microsoft (MSFT) and the broader QQQ ETF. While it is unsurprising to see relatively high-beta stocks underperform the broader market in times of turbulence, it is the rotation out of the entire momentum fund that makes the price action notable and potentially concerning.

S&P 500 Price Chart: Daily Time Frame (January – September) (Chart 3)

XLK etf and S&P 500 chart

Chart created with TradingView. Technology ETF = XLK

In turn, recent bearishness has seen the S&P 500 threaten to break back into its recent range. A break beneath the upper bound around 2,940 could scuttle the technical pattern offered in early September and allow for the Index to plummet down to the lower bound once again. Teetering on trendline support from the fourth quarter of 2018, bulls will look to keep the S&P 500 above 2,961 and 2,940 in pursuit of a continuation higher.

S&P 500 Price Chart: 4 – Hour Time Frame (July – September) (Chart 4)

S&P 500 technical chart forecast

Chart created with TradingView.

To the benefit of bulls, Chinese news media released an announcement stating the nation is willing to “sweeten a deal” by buying American goods. The statement saw the S&P 500 climb from support as trade relations look to improve. Thus, the Index looks to maintain its footing above support, but downside risks remain as Wall Street looks to ditch some of the best performing stocks in the year-to-date.

–Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

Read more:Dow Jones, Nasdaq 100, DAX 30, FTSE 100 Forecasts for the Week



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UK Markets Wait For Supreme Court Ruling, Brexit Update

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Sterling (GBP) News, Charts and Analysis – Webinar

  • UK Supreme Court ruling due shortly
  • UK PM Johnson to meet EU leaders on the sidelines at the United Nations

Q3 2019 GBP Forecasts and Top Trading Opportunities

UK asset markets are flat to slightly lower at the start of the week with traders waiting for the UK Supreme Courts ruling on whether PM Johnson’s recent shuttering of Parliament was legal or not. The judgement is expected early this week and will have a direct influence on UK assets one way or another.

This week PM Johnson will meet with European leaders at the United Nations General Assembly meeting to discuss the latest Irish backstop developments. Recent positive commentary has boosted the value of the British Pound until a report this weekend that European Commission President Jean-Claude Juncker sees a return to a hard border in Ireland pushed GBP lower.

There is a lack of front-line UK economic data this week to influence trading but speaches from BoE governor Mark Carney and other UK central bank officials should be followed closely.

GBPUSD has drifted lower through the session but has not threatened the recent 1.1959 low made earlier this month.

DailyFX Economic Calendar

GBPUSD Price Daily Chart (January – September 23, 2019)

UK Markets Wait For Supreme Court Ruling, Brexit Update - Webinar

Brexit Glossary: Brexit Jargon and Terms Explained

The IG Client Sentiment Indicator shows retail traders are 65.0% net-long, a bearish contrarian bias.

Traders may be interested in two of our trading guides – Traits of Successful Traders and Top Trading Lessons – while technical analysts are likely to be interested in our latest Elliott Wave Guide.

What is your view on Sterling – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author at nicholas.cawley@ig.comor via Twitter @nickcawley1.



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EUR/USD Price Slumps as Germany PMI Data Points to Recession

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EURUSD Price Charts and Analysis:

  • EURUSD may sink further as 1.1000 gives way again.
  • Germany is expected to be in recession in Q3.

Q3 2019 EUR and USD Forecasts and Top Trading Opportunities

EURUSD Sinks as German Economic Woes Continue

The German economy is likely to fall into recession in the third-quarter of 2019, ‘as the downturn in manufacturing deepened and service sector growth lost momentum’, according to data provider IHS Markit. The composite index hit its lowest level since October 2012, while the manufacturing numbers are ‘simply awful’ according to the data provider. Germany is expected to enter an official recession in Q3 and may not see any growth this year.

According to Phil Smith, principal economist at IHS Markit, “The manufacturing numbers are simply awful. All the uncertainty around trade wars, the outlook for the car industry and Brexit are paralyzing order books, with September seeing the worst performance from the sector since the depths of the financial crisis in 2009. “With job creation across Germany stalling, the domestic-oriented service sector has lost one of its main pillars of growth. A first fall in services new business for over four-and-a-half years provides evidence that demand across Germany is already starting to deteriorate.”

EUR/USD Price Slumps as Germany PMI Data Points to Recession

EURUSD continues to point lower and may re-test the two recent low prints around 1.0925 made earlier this month. Below here there is very little in the way of strong support. There is a gap in April 2017 on the weekly chart between 1.0777 and 1.0821 which is likely to be filled in the short-term, before the January 2017 low at 1.0340 comes into play. In the current environment is looks very unlikely that EURUSD will break back above the cluster of lows/highs around 1.1100 and 1.1120.

EURSUD Price Daily Chart (January – September 23, 2019)

EUR/USD Price Slumps as Germany PMI Data Points to Recession

The IG Client Sentiment Indicator shows retail traders are 65.0% net-long of EURUSD, a bearish contrarian bias.

Traders may be interested in two of our trading guides – Traits of Successful Traders and Top Trading Lessons – while technical analysts are likely to be interested in our latest Elliott Wave Guide.

What is your view on the Euro – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author at nicholas.cawley@ig.comor via Twitter @nickcawley1.



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US Dollar ASEAN Outlook Bullish, Trade Deal Hopes Fade, PHP at Risk

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ASEAN Fundamental Outlook

  • US Dollar remained in persistent consolidation mode against ASEAN FX
  • Drop in US-China trade deal hopes to fuel USD gains on haven demand
  • Philippine Peso also eyeing central bank rate decision, SGD to CPI data

Trade all the major global economic data live and interactive at the DailyFX Webinars. We’d love to have you along.

US Dollar and ASEAN FX Weekly Recap

At first glance, the US Dollar seemed to outperform against its major counterparts when using an equally-weighted index this past week. But the reality is that from a technical standpoint, the Greenback is still in a persistent consolidative mode since the end of July. Its lack of commitment also spread into against some of its ASEAN and Southeast-Asia fiat counterparts.

A couple of notable exclusions this past week were the Singapore Dollar and Indonesian Rupiah – see chart below. The former tends to closely trace the Greenback. The IDR saw most of its decline during the front-half of the week, when an attack on Saudi Arabian energy infrastructure caused an oil shock that triggered risk aversion. The commodity has since partially subsided as markets turned to the Fed and US-China trade talks.

The US central bank delivered its second interest rate cut, keeping the door open to “extensive cuts” should they be needed. Meanwhile, the Bank of Indonesia delivered a third reduction in benchmark lending rates this year. But the Rupiah was left unchanged as the central bank reiterated efforts to guard their currency. Prior to Friday’s close, ASEAN currencies suffered as Chinese delegation teams canceled trips to US farms.

Check out my Singapore Dollar currency profile to get acquainted with its unique character in markets!

US Dollar ASEAN Outlook Bullish, Trade Deal Hopes Fade, PHP at Risk

US-China Trade Deal Hopes Once Again Diminish

Once top-tier economic event risk passed last week, it was clear how important US-China trade talks were to financial markets. As mentioned earlier, once reports crossed the wires that Chinese officials canceled trips to farms in Montana and Nebraska, aggressive risk aversion kicked in. The MSCI Emerging Market index covered its upside gap from the onset of Friday’s session as US government bond yields tumbled.

The actions from Chinese officials were in response to comments from US President Donald Trump, who mentioned that he would not accept a partial deal, adding that ending the trade war by 2020 is not his priority. Taking a look at the next chart below, prospects of the two nations agreeing to an outcome has helped to drive capital flowing back into emerging markets since late August.

Emerging Market Capital Flows Amid Trade Wars

His lack of interest in wanting an interim deal diminished prospects of an agreement, which can be viewed by the reaction in financial markets on Friday. Talks between the two nations restarted this past week ahead of a high-level meeting anticipated between the economic powerhouses in the middle of October. This is why the US delayed imposing additional $250b in tariffs on China by two weeks to around the same time.

With trade wars still are a persistent threat to global economic health, this bodes ill for risk capital and will likely adversely impact currencies such as the Philippine Peso, Malaysian Ringgit, Singapore Dollar and Indian Rupee. Meanwhile, the highly-liquid US Dollar – still increasing its dominance as the world’s most widely-traded currency – is likely to benefit against them.

ASEAN Economic Event Risk

Focusing on ASEAN regional economic event risk in the week ahead, a top-tier item will be the Philippine central bank interest rate announcement. Much like the easing that we have seen from central banks in the world, the BSP is anticipated to continue the trend. The benchmark lending rate is widely expected to be lowered from 4.25 percent to 4.00 on Thursday.

As such, its surprise factor is diminished, with the central bank governor also hinting at further reductions in reserve requirement ratios. This does mean however that the Philippine Peso will continue to lose its yield advantage (alongside MYR, IDR) which is a long run threat for the currency. Inflation data will also be eyed out of Singapore and Malaysia.

For timely updates on ASEAN and Southeast Asia currencies, make sure to follow me on Twitter here @ddubrovskyFX

FX Trading Resources

— Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter



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