Trading Places with Tom Bowley

Dollar Climbs To 7 Month High; Gold Mining Shares Tank

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Market Recap for Tuesday, November 17, 2015

The U.S. dollar index ($USD) neared 100 for the first time since the second week of April and that sent shock waves throughout commodities once again.  Gold, in particular, was hit very hard as GLD broke to fresh lows beneath four month support.  Gold mining shares ($DJUSPM) fell more than 4% on Tuesday and closed near September lows.  The first chart below illustrates the effect the rising dollar is having on gold, while the second shows the DJUSPM attempting to hang onto support:


USD/GLD:

DJUSPM:

On the former chart, the green shaded areas show a couple of parabolic rises in the U.S. dollar.  During those periods, the GLD collapsed.  Yet when the dollar suffered through bouts of profit taking, the climb in GLD wasn't always a given.  It just goes to show us how out of favor gold and gold-related shares are right now.  Continue to avoid this area of commodities, especially with the dollar on a major upswing again after breaking out of a bullish wedge pattern on its weekly chart recently.

Biotechs ($DJUSBT) led healthcare to outsized gains on Tuesday and I'm featuring this industry group in the Sector/Industry Watch section below.

Pre-Market Action

U.S. futures are strong this morning despite a rather weak housing starts number for October.  The actual number of 1,060,000 came in nearly 10% below forecasts and that could put pressure on home construction stocks ($DJUSHB) today.  This group nearly reached two month highs at 600 on Tuesday before backing off in the afternoon.  Five month support resides in the 550-560 area as shown below:

Earnings reports from a few retailers this morning mostly matched estimates so hopefully that will aid this group in its continuing effort to recover from last week's big losses.

Current Outlook

Volatility ($VIX) is currently under control and that's perhaps the most important thing for the balance of this week.  The market was teetering and on the brink of a much bigger impulsive selloff with the VIX closing just above 20 on Friday.  But that increase in volatility, combined with the terrorist attacks in Paris late on Friday, were unable to generate the necessary increase in fear to thwart the bulls.   In fact, the VIX has managed to post lower lows the past two trading sessions and its ability to continue printing fresh daily lows will go a long way towards determining what kind of market we have to trade in the near-term.  Here's a quick reminder on where we currently stand:

A move back through 20 resistance would clearly favor the bears and open the market up to the possibility of significant losses.  Failure to do so, however, leaves the door open for the bulls to continue its advance off late September lows and march towards all-time highs, especially with a very favorable seasonal period set to begin next week.

Sector/Industry Watch

Biotechnology ($DJUSBT) is a highly volatile industry group and has enjoyed years of strength.  Recently, however, the group has come under technical attack.  Volume trends of late have been quite strong on their attempted rebound, but the group hasn't yet been able to clear key 20 week EMA resistance.  Check out the latest here:

Technically, the biggest issue for the bulls is that after the long-term negative divergence printed, the DJUSBT lost 50 week SMA support and subsequent rally attempts have failed twice at declining 20 day EMA resistance.  Furthermore, we've seen a death cross as the 20 week EMA has now moved below the 50 week SMA.  The first sign of technical repair will be a weekly close back above the 20 week EMA.  Until that occurs, be very careful with this group.  Key price support appears to reside close to 1600 and that's nearly 15% lower than current price.

Historical Tendencies

Since 1950, November has produced annualized returns of 18.11% on the S&P 500, doubling the average annual return of approximately 9%.  November trails only December (+20.10%) in terms of historical monthly strength.

Key Earnings Reports

(actual vs estimate):

LOW:  .80 vs .78

SPLS:  .35 vs .35

TGT:  .86 vs .86

(reports after today's close, estimate provided):

CRM:  .05

CTRP:  .07

GMCR:  .70

NTAP:  .40

Key Economic Reports

October housing starts released at 8:30am EST:  1,060,000 (actual) vs. 1,162,000 (estimate)

October building permits released at 8:30am EST:  1,150,000 (actual) vs. 1,150,000 (estimate)

Happy trading!

Tom

Tom Bowley
About the author: co-founded Invested Central and served as the site's Chief Market Strategist for more than 10 years. His unique trading style combines both his fundamental and technical strategies to systematically manage risk while trading. A regular contributor to StockCharts.com's bi-weekly ChartWatchers newsletter since 2006, Tom's role at StockCharts has expanded significantly since he joined the company as a full-time Senior Technical Analyst in March of 2015. Learn More
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