Introducing the KraneShares Tactical Emerging Markets Model  

The purpose of the KraneShares Tactical Emerging Markets Model is to identify major themes in emerging markets. The Model is designed to provide overweight exposure toward Chinese equities during periods of strength, while reducing or eliminating exposure toward Chinese equities during periods of weakness.

Go to the Models Page

Today's Weekly Analyst Rundown video has been separated into shorter, individual videos, in addition to the long-form video that is still found at the beginning of this report. Each asset class will be included at the top of the corresponding featured article today, and each sector that saw notable movement will have a video recording included in the US Sector Update or the Were You Aware. The Fund Score update will be included in tomorrow's Fund Score Overview article. The sections of the video that do not have a corresponding article or are covered in the Were You Aware are included below:

Weekly Momentum Update Video (3:27)

Weekly Size & Style Update Video (5:49)

Weekly Financials Update (6:16)

Earnings season has started in the usual fashion with banks at the forefront. So far, earnings have been generally positive for the big banks but not exceptional. Banks helped lead the broader financials sector higher at the end of 2023 but have since cooled off in recent months. Despite a fund score of 3.90, the SPDR S&P Bank ETF (KBE) is down 6.45% year-to-date. However, much of the weakness is due to KBE’s exposure to regional banks. Focusing more on regional banks, the SPDR S&P Regional Banking ETF (KRE) has a fund score of 2.03 and is down nearly 13% this year. KRE also entered a negative trend this month and is now sitting at 2024 lows.

Overall, the banking sector has weighed down the broader financial sector. On the Asset Class Group Scores page, Financials is one of the best-scoring sector groups with an average score of 3.89. On the other hand, the Financial-Banks group has an average score of 3.17. The two groups generally head in the same direction, as seen in the image below. Therefore, further deterioration in the banking space would likely not be a good sign for the wider sector. One of the drivers behind the fierce rally for banking stocks, particularly regional banks, was the prospect of multiple Fed rate cuts this year. However, these expectations have largely been tampered and only one to two rate cuts are projected this year. Recent price action seems to confirm that “higher for longer” is not good for banks. If these expectations were to begin reverting to those at the end of 2023, then banks could stand to benefit. Until that happens, exposure to the banking sector should be limited to those with only strong technical readings.

Weekly Crypto Update (1:55)

The crypto space pulled back notably over the last seven days. Within the Nasdaq Crypto Index (NCI), many coins fell more than 10%, following other risk-on assets lower as rate cut expectations shift following last week’s inflation print. Bitcoin ($BTC) remained somewhat insulated from the fall (only slipping roughly 8%), but the decline across the board does bring several interesting technical developments to the forefront. Bitcoin specifically moved back into O’s and is testing what has proved to be a key $60,000 mark ahead of its upcoming halving. A number of other notable coins, including Litecoin ($LTC) and Ethereum ($ETH) broke relevant support and returned to sell signals on their default charts. Recent crypto articles have discussed the importance (much like in the equity market) of participation outside of the “core” focus of Bitcoin, so declines outside of Bitcoin are concerning for the well-being of the space in general.

While it is heavily weighted towards Bitcoin, NCI does provide insight into this participation outside of $BTC alone. A quick look at the default chart reveals a notable break of a key support level at 3,300 - emphasizing the previously mentioned precarious situation the space finds itself in. From here, traditional support isn't seen until the positive trend line below at 2,600. A journey to this point would be a near 20% decline, and while a move in a single column to these levels is statistically unlikely, further deterioration from areas outside of Bitcoin could act as a headwind going forward. Regardless, keep a watchful eye here in the near term as further declines could suggest a pause in relative strength as we move through April into May.

Each week the analysts at NDW 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 continued to garner attention and tally signals within DALI over the past week, adding another 14 signals within DALI and the bulk of them came from Domestic and International Equities. As discussed last week, precious metals have been a big contributor in Commodities gaining positive RS and they continued to garner signals, but this time targeting notable relative leaders. In addition, base metals have begun to garner signals and broaden the commodity representatives showing positive RS. In total, Commodities snagged another 14 signals with three of them coming from domestic equities and seven coming from international equities. The recent underlying improvement within Commodities has been noted, but be sure to check out the International Equity Overview today as it will touch on the recent weakness within the international equity space.

The underlying changes among the individual asset class representatives within DALI have begun to broaden beyond small pockets within the asset classes and have affected relative strength relationships of proprietary broad asset class relationships. Below are the RS charts comparing the proprietary broad NDW Commodity Index against the proprietary broad NDW Domestic Equity Index and NDW International Equity Index on a 3.25% scale.

Following the hotter-than-expected CPI print last Wednesday, the RS chart comparing commodities to domestic equities reversed back into Xs to favor commodities in the near term, while the RS chart comparing commodities to international equities reversed back into Xs following Friday’s action. Bear in mind, both RS charts continue to remain on RS sell signals with domestic equities favored in the long-term since January of last year, while international equities have been favored since December 2023. Further positive RS would be needed from commodities to see the RS relationships flip to RS buy signals. With the likes of gold and silver trading at elevated levels, other areas of the commodity space could potentially be where signals may derive. As noted previously, base metals contributed to the recent pick up in positive RS as representatives for the space have shown positive RS against weaker relative assets. While domestic and international equities still maintain the first and second spots within the DALI asset class rankings, the gap between the top two asset classes and commodities has begun to narrow.

Precious metals have championed the narrowing between commodities and leading asset classes. The RS chart comparing the iShares Silver Trust SLV versus the Invesco S&P 500 Equal Weight ETF RSP on a 3.25% scale flipped back to an RS buy signal, favoring silver, after having been on an RS sell signal since just January of this year.  Among the more intriguing RS relationships that favor precious metals is the SPDR Gold Trust GLD chart versus the Invesco S&P 500 Equal Weight ETF RSP on a 3.25% scale. Earlier this month the RS chart reversed back into Xs to favor Gold in the near-term, and this week’s action brought the chart up to form a double top and shows a potential for a third consecutive RS buy signal. Remember, most RS charts comparing the commodity proxies against domestic equity proxies continue to favor domestic equities in the long term – with the GLD vs. RSP relationship being among the exceptions. GLD has maintained an RS buy signal against RSP since March of last year, and while it appeared that the chart may change in February of this year, action this month saw the chart return to Xs. In simpler terms, Gold has been favored over the average US large cap stock since March of last year, and all this remains even with the strong performance shown by large caps for much of 2024 already. Though much of that performance from the large cap space has been strong among the biggest names in the market, it has still yet to be enough to get the GLD vs. RSP to flip back to favoring RSP. All this is intriguing considering the recent uptick in inflation, which has provided a boost for precious metals and shown that gold continues to maintain positive RS over the average US large cap stock.

U.S. Sector Updates

The past week saw no significant technical developments in the Communication Services, Consumer Non-Cyclical, Healthcare or or Real Estate 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 Rundown Video (2:51)

International equities have seen broad pullbacks over the past month, leading to some near-term relative strength deterioration in our DALI asset class rankings. The broader International Equities asset class started off the month gaining an additional signal to arrive at 262 RS buy signals on April 1, marking its highest signal count since June 2018. Ironically, that improvement on April Fool’s Day turned out to be at least a near-term signal peak for the asset class, as we have since seen it drop 10 signals over the past two weeks to its current position at 252 RS buy signals. That still leaves it second in the DALI rankings, notably lower than Domestic Equities at 317 signals but ahead of Commodities at 233 signals. As covered in today’s Major Market and DALI article, Commodities has been on quite the run recently, which will be important to monitor as we progress through the second quarter.

Latin America has been responsible for most of the relative weakness we have seen in international equities over the past few weeks. This has been especially evident from Brazil, which has shown enhanced technical deterioration over the past few days. The iShares MSCI Brazil ETF EWZ moved lower to give a second consecutive sell signal at $31 before dropping to $30 in Tuesday’s trading. This caused the fund score of EWZ to drop over a full score point to its current position at 1.97 out of the possible 6 points. Keep in mind we began the year at a 5.65 fund score reading. Brazil has had difficulty maintaining a consistent trend, positive or negative, for the past two years. This leads it to be unfavorable for long-term investors. It is worth noting that the current -84% oversold reading is the most oversold we have seen the fund since the middle of 2022, increasing the likelihood of a near-term bounce. However, near-term would be the key word to remember if we do see mean reversion, at least until the price movement provides enough evidence that supply is no longer in control of this security. Initial support is close by at $29.50 with more notable support seen just below that level at $28.50. Should those levels be violated, further support is not really seen until the $25 level from March 2023. Overhead resistance can be found at $33, which is also the current location of the bullish support line.

Weekly Fixed Income Update Video (2:38)

US Treasury yields rose over the last week. The US Treasury 10-year Yield Index (TNX) returned to a positive trend on Monday when it hit 4.65% on Monday, its highest level since November. Further out on the yield curve, the 30-year yield index is now testing its bearish resistance line at 4.8%.

iShares US Core Bond ETF (AGG) violated its trend line in Monday’s trading. AGG now sits in heavily oversold territory, while yields sit in heavily overbought territory. As result, it’s possible we could see bonds bounce from somewhere near current levels. However, the core of the market has clearly deteriorated from already weak conditions.

In comments on Tuesday, Fed Chair Powell said that recent data show that progress on inflation has stalled, casting doubt on the Fed futures are now pricing in a first rate cut in September and are roughly evenly split between one and two cuts for the year. Current Fed futures pricing shows that investors still expect that the Fed will cut rates this year. However, if the market begins seriously the consider the possibility that the Fed’s next move could be a hike, could see long-term yields push even higher.

Inverse fixed income now sits in second place in the ACGS FI rankings, illustrating the further weakening of the market. Meanwhile, headcount in the red zone has grown as the recent rise in rates has further weakened the core market.

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 4/16/2024:

Broad Market Commodities Report

Portfolio View - Commodity Indices

Weekly Commodities Video (1:53)

Crude Oil (CL/) is still enjoying seasonal tailwinds and is now up almost 20% year-to-date (YTD). Although CL/ has shown some short-term signs of exhaustion, pulling back from the top of its ten-week trading band and nearly testing multi-year resistance, the technical picture is generally positive.

The same cannot be said for the rest of the energy commodities market. For example, Natural Gas (NG/) is currently down over 30% YTD and trades near multi-year lows. Over the past 250 trading days, crude oil is up 24.5% while natural gas is down 20.2% - that equates to a 45% spread in favor of crude oil.

The relative strength chart below plots CL/ vs NG/ on a 6.5% scale. In other words, each box represents 6.5% of relative performance and when this chart is moving higher it means crude is outperforming (when moving lower natural gas is outperforming). First, notice that the chart is currently matching its all-time highs from April 2012. Second, notice that this has historically been a mean reverting relationship. So, when it has gotten near multi-year highs it pulled back (i.e., natural gas would start outperforming) and vice versa. Although Crude Oil and Natural Gas are not necessarily substitutes, the price relationship is still nonetheless interesting.

That said, the relationship/trading range could change going forward. After all, from 2000 to 2009 crude oil steadily outperformed natural gas (not shown on the chart below). Said “technical change” has yet to transpire (a move past the April 2012 highs could count), so for now it still looks like a potential mean reversion.

Daily Option Ideas for April 17, 2024