Daily Market Review Nov 1 2023 ( 10Y yield drop below 4.8, Broad based Market rally post Fed meeting)
Broad market rally further on Fed meeting day. Market were satisfied with both Treasury announcement and Fed Q&A session. This is in stark contrast to past Fed press conference post meeting, where market fell apart during/after Q&A session. Were market rallying because Powell wasn’t as hawkish as before/fall in 10Y yield/earnings-guidance optimism /Nov-Dec seasonality/MOVE retreat/shift in buy-sell flow, there’s no clear way to tell but we do have to respond according to market movement by adjusting our existing trade or making new trade. ( MOVE retreat does indeed help to boost market liquidity )
It’s feasible for market to bottom without exhaustion/selling climax signal ( bottom through selling subside ). Probability of Oct 27 low being the S&P500 bottom is increasing, but we still need SPX to close&stay above 200-Day MA.
The following conditions apply for reversal/start of new bull rally to be taken seriously,
The decisive trump card ( 10Y yield / 10Y note, Dollar index )
10Year treasury yield
10Y yield closed below 4.8 and market rally. But 10Y yield still need to get lower for sustained market rally.
Dollar index
DXY has a small shooting star pattern at the upper-end of 105.5 – 107 tight range, while VIX has fallen to 16-ish level and SPX rose for 3 days in arrow.
Still pending for DXY to break out of 105.50 – 107 in either direction, a fall in DXY can help market to rally further. But it’s not impossible for SPX to rally if DXY goes side way / goes higher ( market rallied regardless of what DXY did in the past)
Things which has improved ( but pending further progress)
Notable NYSE Advancer vs Decliner ratio on Nov 1(with heavy NYSE volume)
Monday Oct 30, 2.27 to 1 NYSE Advancer vs Decliner ratio
Tuesday Oct 31, 2.48 to 1 NYSE Advancer vs Decliner ratio
Wednesday Nov 1, 2.03 to 1 NYSE Advancer vs Decliner ratio (1943/954)
Oct-31&Nov-1 NYSE volume are higher than previous week, a positive development
MOVE index
Move index close lower at 120.55. ( High MOVE index increase bond haircut, causing a reduction in collateral value of bond, which leads to lower fund available for market making/investment/trading, thereby reducing market liquidity. )
% of SPX stock above 50days and 200 days MA
breadth is slowly improving,
percentage of SPX-Stock above 50days-MA, recover from Oct-27 low of 10.6 to 25.2% .
percentage of SPX-Stock above 200days-MA, recover from Oct-27 low of 24.6 to 34% .
Junk bond and 10-Year yield
10-year yield close below 4.8 , lowest close in past 10 sessions. Junk bond rally higher and is close to capturing 50Day-MA still need to monitor over next few days.
Homebuilder ETF (XHB)
Housing sector is 12% of US economy. XHB recaptured 200day-MA, now we need it to stay above 200D-MA consistently.
Offensive sector outperformance on 1week basis ( Oct 26 – Nov 1)
Offensive sector ( Technologies, Communications , Consumer discretionary) outperform Defensive sector (Utilities, consumer staples) from Oct 26 – Nov 1, but the top-ranking Real estate sector is an eye sore
Things which I still don’t like
Mid&Small cap, equal-weighted chart is still below 200Day MA
Mid & Small cap and equal-weighted SPX NDX Indices are still far below 200Day MA, and underlying breadth is still bad.
Transportation
Transport sector is closely watched because it is an important signal in Dow Theory to confirm the rise/fall in DJIA / XLI index&overall health of industrial sector. It has broken & closed below 200Day MA for many session, rally momentum is sorely needed to recapture 200day MA.
About Capital allocation decision
Some readers have asked me, how do I monitor the charts, assess the bullish/bearish evidence day-by-day to make appropriate capital allocation and investment decisions.
Essentially speaking, Capital allocation decision can be divided into Short-mid term tactical trading & Long term capital allocation
The following sections are illustrated as a general information& education purpose, ( disclaimer apply, use at your own risk )
Short-to-mid term tactical trading consideration.
In fact, I have taken an NDX trade @ Oct 31 for the following reasons
1) Near 200day-MA ( around 13940 )
2) OBV divergence, NYSE and Nasdaq McClellan Oscillator divergence
3) % of SPX stock above 50D-MA is near extreme level 10.6% (tendency to bounce in oversold condition, would prefer it to go down to single digit % , but real life situation hardly lines up perfectly)
Close enough to 200D-Ma that I can set stop loss of 1% /1 ATR below it to MINIMIZE RISK
Another consideration point, XLK, SMH, XLC are the only 1 propping up the entire market, and if they are gone, the entire market will be in bloodbath, so make-or-break distinction is using 200D-MA + 1 ATR (based on previous 14 days session ), acting as a stop loss target.
Assuming a starting capital of USD25,000, Risk = 5.5% of the capital = USD1,375
Entry : 14450
Stop loss target: 13800 (200DMA = 13940 – 1%)
TP : close 50% of position 15600, and leave remaining 50% open.
Position sizing : 2.1 contract
Candidate : 1x MICRO E-mini NQ, 2 x NDX CFD ( USD 1 ) or ETF such as 200xQQQM or 31xQQQ
Long-term capital allocation ( ETF - SPY )
For long term holding, the aim is similar, allocating capital by adhering to principal of minimum risk and good risk-reward ratio. As mentioned in previous entry, A good distinction of Secular bull-bear market for S&P 500 is 40months MA 4100 - 200week MA 3940.
Reasons for entering this long-term trade
1) NYSE McClellan Oscillator divergence
2) % of SPX stock above 50D-MA is near extreme level 10.6%
Assuming a starting capital of USD25,000, Risk = 20% of the capital = USD5,000
Candidate : SPY ( long term holding, with dividend given)
Entry : 421
Stop loss target: 390 (200week MA - 1%)**
Take Profit : TBD***
Position sizing : 160 x SPY
**As this is a long term Investment, draw down will be bigger and 200week MA = 390 was chosen stop loss target currently, in future stop loss will be updated according to 200week MA level.
***Holding duration is aimed at capturing the maximum upside potential of secular bull market. Therefore the TP target will be assessed by monitoring a different set of technical indicator input, to be reveal further in future entry.
Disclaimer : The information presented here are for research and education purpose only, and does not constitute investment advice, trading recommendation, author shall not liable for any action taken by any individual/company with regards to the information presented here or any part of the website - https://marketcycleedge.substack.com/