Below, please find the latest High-Volume ETF Cutline report, which shows how far above or below their respective long-term trend lines (39-week SMA) my currently tracked ETFs are positioned.
This report covers the HV ETF Master List from Thursday’s StatSheet and includes 312 High Volume ETFs, defined as those with an average daily volume of more than $5 million, of which currently 260 (last week 260) are hovering in bullish territory. The yellow line separates those ETFs that are positioned above their trend line (%M/A) from those that have dropped below it.
Disappointment about Amazon’s unsatisfactory earnings report, after Thursday’s close, dented any remaining optimism and the kept the major indexes in the red throughout today’s session. To no surprise, the Nasdaq suffered the most but came off its worst intra-day level, as Amazon slid over 7%.
In the end, the losses were minor but broad with equities being manhandled across the board. Other than a few sector funds, there was no place to hide as Small Caps and “value” were equally hit with “value” faring worse.
The month of July had its rollercoaster moments with the S&P 500 at one point sinking into the red. This proved to be short-lived, however, and the index managed to score its sixth positive month by adding some +2.2%.
Weaker than expected economic readings influenced market direction as well with the GDP “only” accelerating 6.5% on an annual basis vs. predictions of 8.4%. Adding insult to injury were the latest weekly jobless claims numbers, which came in higher than anticipated.
Of course, as I have pointed out many times, traders see weak econ numbers as a positive in their twisted thinking that bad news is good news, as it won’t motivate the Fed to cut down on propping up the markets via their monthly purchases of $120 billion of bonds and other QE programs.
The US Dollar index recovered from yesterday’s drubbing, while bond yields weakened with the 10-year breaking below the 1.23% level. Gold tried to maintain yesterday’s rally, but was not able to due to a stronger dollar, which caused the precious metal to give back -0.80%.
We are now entering a seasonally weak period, and it remains to be seen if the bullish trend, along with the always needed Fed assist, can prevail.
1. From the universe of over 1,800 ETFs, I have selected only those with a trading volume of over $5 million per day (HV ETFs), so that liquidity and a small bid/ask spread are assured.
2. Trend Tracking Indexes (TTIs)
Buy or Sell decisions for Domestic and International ETFs (section 1 and 2), are made based on the respective TTI and its position either above or below its long-term M/A (Moving Average). A crossing of the trend line from below accompanied by some staying power above constitutes a “Buy” signal. Conversely, a clear break below the line constitutes a “Sell” signal. Additionally, I use an 8% trailing stop loss on all positions in these categories to control downside risk.
3. All other investment arenas do not have a TTI and should be traded based on the position of the individual ETF relative to its own respective trend line (%M/A). That’s why those signals are referred to as a “Selective Buy.” In other words, if an ETF crosses its own trendline to the upside, a “Buy” signal is generated. Since these areas tend to be more volatile, I recommend a wider trailing sell stop of 8%-10% depending on your risk tolerance.
If you are unfamiliar with some of the terminology, please see Glossary of Termsand new subscriber information in section 9.
1. DOMESTIC EQUITY ETFs: BUY— since 07/22/2020
Click on chart to enlarge
Our main directional indicator, the Domestic Trend Tracking Index (TTI-green line in the above chart) has now rallied above its long-term trend line (red) by +10.56% and remains in “BUY” mode as posted.
Despite an initial jump after the Fed’s dovish FOMC statement, during which Fed head Powell hinted that “substantial further progress” would be necessary before any type of tapering, hiking, or tightening would occur, markets slumped. He was referring to stronger job numbers and advances towards maximum employment. Strangely enough, the Fed did not appear to be worried about soaring inflation. Go figure…
The markets ripped while the US dollar dipped after the announcement, but apparently the bullish impact proved to be ephemeral, with the major indexes giving up their gains and ending just about unchanged. The exception was the Nasdaq, which held on to its advances.
The tech assist came from Alphabet, which posted good quarterly results with especially its advertising revenue jumping 69%. Also helping the tech sector was a rebound in the Chinese markets after 3 days of relentless pounding.
A short squeeze aided traders as well, but in the end only a select few managed to post green numbers. Small Caps (VBK) took the lead with a 1.42% gain, while “value” just about broke even.
Bond yields popped and dropped with the 10-year ending the session unchanged, when the Fed’s early hawkish interpretation turning into a dovish one thereby sending bonds on another roller coaster ride.
Finally, the collapsing US Dollar, and a sideways trending bond market, pushed Gold higher and back above its $1,800 level via a 0.50% gain for the GLD ETF.
And, if Bloomberg’s post-FOMC pump pattern, as presented by Zero Hedge, remains true, we are in for a correction followed by another run higher, as this chart demonstrates. Unless, of course, seasonal weakness sets in.
A couple of forces combined to slap the major indexes around until, late in the session, the markets found some footing and managed to reduce the early losses.
Leading the charge to the downside was what appeared to be the bursting of the tech bubble in China, with its Hang Seng Tech index having been sliding down a slippery slope since early this year (-43%).
When charted vs. the Nasdaq, similarities emerge making the already nervous Wall Street traders wondering whether this current disconnect is an advance warning of things to come here in the US.
While the answer is unknown, it was enough of an uncertainty to rattle the markets. Not helping matters, and accelerating weakness, was the latest in “science” after ‘Delta’ Masking headlines appeared and shrugging off all that had been settled before.
That proved to be unsettling for stocks, which made intra-day lows and contributed to the Nasdaq’s biggest daily drop since early May, as ZeroHedge reported. Small Caps were trounced at the rated of -1.14% (VBK) with the ETF faring far worse than its value cousin (RPV), which only bled -0.11%.
Not to be outdone, the US Dollar index dove in unison with bond yields, with the 10-year heading towards the 1.22% level. Gold worked both sides of its unchanged line and managed a meager yet green close (+0.18%).
On the earnings front, the tech heavyweights Alphabet, Microsoft, and Apple all are reporting this afternoon.
On deck tomorrow will be the result of the Fed’s latest two-day meeting, but expectations are for no earth-shaking announcements but more of the same rhetoric we hear every month.