Video Bulletin from Toronto: After NK Missile, Buy on the Dip?

08/29/2017 2:51 am EST

Focus: STRATEGIES

Ziad Jasani

Managing Director and Partner, Independent Investor Institute

Should you “buy on the dip” after another North Korean missile spurred overnight jitters in the KOSPI and Nikkei? Here are some parameters to play the dip and areas to consider, asserts Ziad Jasani in today’s video bulletin. Join Ziad at MoneyShow Toronto Sept. 8-9.


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At approximately 5:10 pm (EDT) August 28 North Korea fired a test-missile 2735 kilometers over Japan (without trajectory intention to attack).

Overnight “buy-the-dip” played out on the KOSPI (South Korea’s Market), and the Nikkei (Japan).

Currently (8:58 am EDT Tuesday, August 29)  the Eurozone is significantly underperforming North America, down -0.9% to -1.7% (DAX -1.8%, Euro Stoxx 50 -1.26%), but still well up off intra-session lows.

The overnight S&P 500 Futures market dropped to 2,421.3 higher than the intra-session low created on August 21 (2,420.80 or the cash index low 2,417).

Currently the SPY ETF is down -0.57% pre-market after hitting a low of -0.88% at 5 am (EDT); pre-market charts depict a clear up-trend “V” shaped bottom from 5 am (EDT) on the SPY = “buy the dip” is in progress – with such negative news it wouldn’t surprise if we re-test the 5 am (EDT) lows before the “buy-the-dip” bounce takes hold.

The casualty of this “war-in-testing” is the USD, and it couldn’t come at a worse time, after a dovish-Yellen and un-dovish Draghi at Jackson-Hole leaving the USD injured, coupled with markets in an illiquid “holiday-week” and Hurricane Harvey’s tragic onslaught.

The USD is down -0.42% as measured by UUP, and the EUR/USD currency pair is up +0.8% on a 24-hour basis while defensive assets are up: Gold +0.94% at $1,327, TLT +0.84%.

For the “buy the dip” equity behavior to be successful, we’d need to see profit-taking or selling down of defensive assets happening:
--Gold peaked at 4 am (EDT) at $1,331.
--TLT  seems to still be in the process of peaking, with a high being made at 8:30 am (EDT) and downward pressure since.

The question is whether we buy this dip or not?

Here are some parameters that would make it viable to play the dip:

  • S&P 500 implies a close today with a strong bullish reversal candle (already forming).
  • Defensive assets (Gold, Bonds) sell down into the close and present bearish reversal candles (already forming).
  • US Treasury yields present with bullish reversal candles.
  • Cyclical sectors climb the most off intra-day lows.
  • VIX presents a bearish reversal candle.
  • The S&P 500 is able to remain above the Aug 21st intra-day lows of (2,420.8).
  • The TSX is able to remain above support of 15,025-14,950.

Which areas would we be looking at playing the dip? 
QQQ, IYW, XLK, SPY, IWM, DIA, XIC-T, XIU-T, XPH, XBI, XLY, XLI, KBE, XFN-T, ZEB-T

What do we anticipate into the open?
The S&P 500 is projecting an open ~2,430 just below support of 2,440-2,435; it must regain this support on a bullish reversal candle for us to look long with short-term capital in the above-mentioned spaces.

The Nasdaq and Russell 2000 are underperforming (QQQ -0.81%, IWM -0.64%, while SPY -0.57%). We see underperformance form key cyclical sectors to start the day Financials (XLF -1.1%), Technology (XLK -0.7%, IYW -0.46%), Healthcare (XBI -0.72%, XPH), Discretionaries (XLY -0.58%). And outperformance from Gold Producers (GDX +1.85%), and out-performance in Energy (XLE -0.33%) by moving down at a slower rate.

The Defensive interest rate sensitive spaces are also out-performing into the open (XLU +0.27%).

With respect to the TSX, Oil is toggling around flat +/-0.3% and Gold is up +0.94%, hence Energy (XEG-T) and Materials (XMA-T) are likely outperformers.

Couple that with “great” results from Scotiabank and our Financials (XFN-T) are likely in a tug of war between buyers and sellers on yield compression Tuesday morning.

The TSX technically has a better chance to outperform the S&P 500 in today’s trade and hold above support of 15,025-14,950; with a potential poke below, but less likely to break said support.  

What do we anticipate into the close? Review the video below.

video

Recorded: 8:58 am (EDT) Tuesday, August 29

View the Independent Investor Institute trading ideas and strategies video here

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