Wednesday turned into a volatile day after Fitch announced it had downgraded the rating on US debt from AAA to AA+ on Tuesday evening. This may be the biggest news story this week but there are still big earnings coming up on Thursday. Apple (AAPL) and Amazon (AMZN) will drop their earnings report after market close on August 3rd. Big tech earnings have received mixed receptions from investors. Netflix (NFLX) and Tesla (TSLA) took a beating after their earnings announcements while other names in the space had more positive reactions. Apple’s importance can’t be understated since it’s the largest stock in the world. That’s not to undersell Amazon either, it’s a top five market cap name as well. Out of the two reporting Thursday, Apple has the stronger technical picture. AAPL is a perfect 5 for 5’er, trades on five consecutive buy signals, and reached a new all-time high this year. Amazon has had an exceptional 2023 so far with a year-to-date return of 56% and has put together a string of five consecutive buy signals. However, AMZN remains a 3 for 5’er as it’s been unable to return to a buy signal on its relative strength charts versus the market and its peer group. Outside of Nvidia (NVDA) which reports on August 23rd, this week will wrap up earnings for most of the mega cap names. 

The broad crypto space was mostly positive for the last seven days, however, there is an emerging theme of a distinct lack of pronounced upside/downside action for many coins within the Nasdaq Crypto Index which will be discussed later. Before we jump into the main part of today’s report, it should be noted the last seven days saw a lack of technical action for many coins on their default chart. Sellar coin ($XLM) has been a star throughout the last 30 days, sitting on a string of three consecutive buy signals and forming a large triangle pattern at current levels. Saying as triangles are typically a “follow through” pattern, the path of least resistance seems higher.

The main side of today’s report will look into the claim that the broad crypto space seems to be acting in a less volatile manner than at other points in history. We have touched on the growing correlation between equity markets and the overall crypto space, with the pair acting more in sync as time passes. Today’s report will aim to uncover a different layer of such an idea- the historically low levels of realized volatility for crypto king Bitcoin ($BTC). By taking a rolling 90-day standard deviation of returns for the last 12 years, we can see such “low” levels (classified as readings below 2%), are infrequent at best. Excluding 3-month clusters, such readings have only occurred a total of 6 times before this July. The next logical question for any investor to ask is “What next?” By isolating such instances and calculating forward returns for each period, one finds overwhelmingly positive results. Taking the median (not the mean to avoid one data point having too much impact) returns across the board are strong. The one standout is 2018, which saw poor results for all timeframes besides the one-year mark. What does this mean? Just because the standard deviation of returns is historically low at the time of this writing, that certainly isn't to say strong results can’t be in store going forward. 

Each week the analysts at DWA review and comment on all major asset classes in the global markets. Shown below is the summary or snapshot of the primary technical indicators we follow for multiple areas. Should there be changes mid-week we will certainly bring these to your attention via the report.

Commodities have tumbled throughout the course of the year. This has come mostly at the expense of 2022’s darling energy, which has fallen within our broad rankings throughout 2023. Despite this, there have been recent signs of life for the area. Today’s report will aim to travel outside of just DALI and create a more complete picture of where energy (both equity and commodities) stands as we roll into August. As this is the DALI piece, we can start our analysis there. Energy-focused names have picked up a total of 50 buy signals across both their Commodities and Sector rankings since the beginning of July. This gain has coincided with a rise in the rankings, seeing the energy sector rise from 10th to 7th in the sector rankings and last to first within the commodity rankings. A brief aside from the main theme of today’s report, it is worth noting the renewed coordination of movement between energy-focused groups across the broad asset classes. 2022 saw energy equities surge forwards in the face of slumps for energy-based commodities, a somewhat puzzling divergence. Nonetheless, while energy-based equities still sit a ways away from where they entered the year, the magnitude of upside participation for the group does warrant a watchful eye.

DALI isn't the only space on the platform that is signaling recent strength for the energy space. Crude oil (CL/) and the SPDR Select Fund XLE have similar-looking technical pictures, sitting on consecutive buy signals with localized support just above the middle of their 10-week trading band. Furthermore, both names have bases of support offered at the lows for the year, marked on the charts below, and have recently journeyed back into a positive trend. XLE has recently seen a nice pickup in its fund score, sitting at 4.28 at the time of this writing. This has come mostly throughout July, seeing the fund outperform SPX by just over 4.5%. XLE also returned to a column of X’s on its 3.25% chart against our cash proxy MNYMKT, adding to the weight of the evidence in favor of the sector. Both Crude Oil and XLE sit near resistance on their charts, so short-term pullbacks could be in store.

The final part of the report today will journey over to the Asset Class Group Scores page. Especially for swift moves off relative lows, it can be useful to look across the platform’s broad focused areas for confirmation of action from one reading to the next. By graphing the score for an average energy fund against that of both cash and the broad market, one can see a recent pickup for the energy space. Most notably, the recent advances have seen the group diverge from cash, similar to other points made throughout this analysis.

The point being- despite still sitting a ways off of 2022 highs, a number of areas are suggesting energy may have found some sort of relative bottom. With these advances, it may be prudent to pick up focused exposure to technically acceptable stocks within the group. To create a shopping list, remember that you can use the security screener to find strong candidates within the sector. 

U.S. Sector Updates

The past week saw no significant technical developments in the Technology, Industrial, Basic Materials, Consumer Cyclical, Consumer Non-Cyclical, Healthcare or Energy Sectors. Those that saw noteworthy movement are included below, in order of their relative strength ranking in the DALI domestic equity sector rankings. Sector designations are based on DALI sector rankings and are as follows: 1 - 3 overweight, 4 - 7 equal-weight, and 8 - 11 underweight.

International equity markets pulled back this week following risk-off movement on the heels of the US credit downgrade. This comes after most areas in the international equity space saw notable improvement in July, especially within emerging markets, as the iShares MSCI Emerging Markets ETF EEM gained 4.70% from June 30 through August 1. The iShares MSCI EAFE ETF EFA rose 1.42% over the same period, continuing to climb steadily higher but not showing the same level of near-term strength as the emerging space. Even though most broad representatives are pulling back this week, price consolidation after periods of sharp improvement can be a healthy sign for continued strengthening of the long-term technical picture.

One area that has not contributed to the near-term pullbacks has been Turkey, which was one of the biggest risers in the NDW Country Index Matrix over the past month. Most of that improvement came in the past week, as the country representative ticked up into the 19^th position out of the 42 countries examined from the 27^th position on Thursday, July 27. This price appreciation came after the Turkish central bank only raised interest rates by 250 basis points to 17.50%, significantly less than the 500 basis points that were expected (source: Financial Times).

That equity improvement can also be seen in the iShares MSCI Turkey ETF TUR, which moved higher over the past week to give a buy signal at $32 before advancing to the current chart position at $34. This ends a streak of four consecutive sell signals for TUR that had been ongoing since March. That decline also brought the fund down to test its bullish support line at $28 before reversing higher last month. That maintenance of the LT technical picture paired with the near-term improvement makes Turkey a space to monitor as we head into August. TUR also has a 3.71% yield, highlighting a potential income opportunity. The fund carries a strong 4.33 fund score posting paired with a 2.18 score direction, providing further indication of the recent strength. However, TUR did move into an overbought position with this appreciation at an intraday weekly overbought/oversold level of 86.57% at the time of this writing on Wednesday. Those looking to add exposure may consider easing in or waiting for some normalization in the trading band. Initial support may be seen at $30, with further support at $29, the current location of the bullish support line. Further overhead resistance may be seen at $35 and $37.

US Treasury yields moved higher over the last week. The US Treasury 10-year Yield Index (TNX) reached a new 2023 high on Wednesday when it broke a spread triple top at 4.10%, its third consecutive buy signal.

TNX’s breakout comes on the heels of Fitch downgrading the US’s credit rating, citing the national deficit and the debt ceiling fight. The rise in Treasury yields seen on Wednesday is what one would intuitively expect following a credit downgrade as investors demand a higher return for greater credit risk. However, historically, this has not always been the case. The chart below shows the US Treasury yield curve before and after S&P downgraded the US’s credit rating on August 5, 2011.

As you can see, Treasury yields were lower on September 6, 2011, roughly one month after the downgrade, and fell further by the end of the year. This is not to say that yields will fall following this downgrade as there are a myriad of factors affecting the level of Treasury yields, but the limited historical data there is suggests that a credit downgrade doesn’t necessarily beget higher Treasury yields.

The fixed income rankings in the Asset Class Group Scores look largely the same as they have for the last few weeks. Most of the strength remains in segments outside the core market – like non-US fixed income, convertibles, and high yield bonds. One notable development is the rise of inverse fixed income, which now ranks third among all fixed income groups. Many core groups, like US Treasuries and investment grade corporates, remain in the “red zone” with scores below 2.5 and Wednesday’s action will likely serve to further weaken these groups.

Remember, these are technical comments only. Just as you must be aware of fundamental data for the stocks we recommend based on technical criteria in the report, so too must you be aware of important data regarding delivery, market moving government releases, and other factors that may influence commodity pricing. We try to limit our technical comments to the most actively traded contracts in advance of delivery, but some contracts trade actively right up to delivery while others taper off well in advance. Be sure you check your dates before trading these contracts. For questions regarding this section or additional coverage of commodities email will.gibson@nasdaq.com.

Data represented in the table below is through 8/1/2023:

Broad Market Commodities Report

Portfolio View - Commodity Indices

Crude Oil (CL/) had another productive week, gaining over 2% in the past seven days. When we last focused on crude (in this report) three weeks ago, we discussed the possibility of a rally toward the low $80s. Today, the commodity sits in the low $80s yet faces a more decisive test of resistance.

Since December of 2022, crude has been unable to remain above the $82 level. We saw a retest of this resistance in January, March/April, and now again in August. The longer-term 2-point chart highlights this battleground quite clearly, as shown below. Note that if crude breaks above the $82 level there is no resistance in sight until the low $90s, highs from November 2022, which means it would have some space to run. However, another failed breakout at $82 may add further evidence of a near-term price ceiling. 

Telegraphing these types of moves with conviction is difficult, to say the least, but with a lofty overbought (OBOS) reading and clearly established resistance nearby, an immediate breakthrough appears unlikely at this time. A more promising challenge could come after a higher bottom is put in place.

In addition to the final points above, seasonal headwinds are also against higher crude prices. As seen in the table below from FactSet, crude prices have historically contracted from August through November. In fact, crude oil has closed negative in August for five of the last six years, which is about 83% of the time. However, things that rarely happen seem to happen all the time. Take for example crude’s 16% July rally; the month of July has historically been the second weakest month of the year for prices. So, while acknowledging the possibility of an outlier scenario (perhaps attributable to lingering geopolitical tensions), we would not necessarily be planning for that just yet.