iShares Switzerland Capped ETF (EWL) & VanEck Vectors Steel Index ETF (SLX.I)
The recent rebound in equity markets continues to gain traction, particularly in Europe, where several major markets have broken out to the upside this month. In North America, major indices remain on the rebound but have not been able to break through highs reached earlier this year. In terms of sectors, Technology/Communications remain relatively strong, with Energy and Materials starting to pick up as well. Financials are mixed at the moment with Insurance starting to bounce back, but the other areas continuing to struggle.
The recovery in Bitcoin continues to accelerate with it retaking $30,000 this week. Gold continues to trade above $2,000/oz while emerging markets and US small caps like the Russell 2000 Index continue to struggle. This suggests that demand for alternative currencies remains high while the appetite for more aggressive positioning in equities remains soft.
The biggest news of the week has been the US Consumer Price Index dropping to 5.0% in March for the first time since May of 2021, from 6.0% the previous month. Meanwhile, the Bank of Canada suggested that inflation could drop toward 3.0% by mid year from near 5.0% currently, but that it could take to the end of 2024 to get back closer to its 2.0% target.
This significant easing in inflation pressures also means that after a year of monetary tightening, Fed Funds (which started at zero in early 2022) and CPI (which peaked at 9.1% in June of 2022) have finally essentially met in the middle. With this, the path to a pause tor the Fed at any time, has become clearer with the probability growing that the US central bank may only have one maybe two hikes left in the current program. The Bank of Canada and the Bank of Korea both kept interest rates on hold this week, giving the Fed scope to pause at any time as well.
Corporate confession season has been very quiet so far, setting the stage for US earnings season with starts Friday with big banks and other big caps reporting results including Citigroup, JP Morgan Chase, Wells Fargo, UnitedHealth, Blackrock and others. Earnings season ramps up over the coming week with results on the way from senior companies across several sectors including banks, brokerages, credit card lenders, personal products producers, airlines, railroads, homebuilders, miners, steelmakers and others. Headliners include: Netflix and Goldman Sachs on Tuesday, Tesla Motors and IBM on Wednesday and Union Pacific, and American Express on Thursday.
In this week’s issue of Equity Leaders Weekly, we look at recent index action in Europe and preview earnings season through a loot at the Steel sector.
iShares Switzerland Capped ETF (EWL)
Through the market turbulence of the last month, International Equity has remained in top spot in the SIA Charts Asset Class Rankings, while US Equity and CAD Equity have dropped in the rankings. Developed markets, particularly in Europe, have remained relatively strong and several country ETFs have broken out to the upside this month including the UK (EWU), Japan (EWJ), Italy (EWI), Spain (EWP), France (EWQ) and Greece (GREK).Of particular interest is the recent rebound in Switzerland, a country that was rocked last month by its own banking crisis that saw Credit Suisse stumble, forcing the Swiss National Bank to step in and UBS to take it over. These moves appear to have restored confidence as EWL has turned back upward after only a 3-box correction and this month, it has completed both a bullish Double Top and a Bullish Catapult.
While this action does suggest the potential for confidence in US banks to improve in the coming weeks, particularly as earnings roll out, any hiccups or flareups in US banking news could still potentially impact Switzerland as well.
Upside resistance appears in the $50.00 to $52.00 area where previous peaks, a round number and vertical/horizontal counts converge. Initial support appears near $44.80 based on
Van Eck Vectors Steel Index ETF (SLX.I)
Banks may hog the spotlight in the first couple of days of earnings season with investors watching closely for signs of what the impact of the recent US banking crisis was on bank earnings.
As the week progresses, however, focus may turn to questions of whether the banking blowup or rising interest rates have had on the broader economy. One of the potential bellweather sectors both in terms of their actual results/forecasts and how the market reacts to them is the steel sector. Although considered part of Materials, the underlying demand for steel comes mainly from the Industrials sector, so the steelmakers’ performance may potentially be seen as a reflection of the broader economy.
The Van Eck Vectors Steel Index ETF (SLX.I) started the year of strong with a Bullish Catapult in January building on a Fall 2022 rebound. As sentiment soured toward equities in March, however, the sector staged a significant correction and SLX.I is currently on a High Pole Warning. Although SLX.I did bottom at a higher low and has rolled back up into a column of Xs, it has only bounced 3 rows so far, and it only has a bearish SMAX score of 5.
Potential upside resistance tests on trend appear at previous column highs near $67.30 and $70.75, followed by $72.85 based on a horizontal count. Initial support appears near $61.50 based on a 3-box reversal.
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