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 172 (last week 168) 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.
In case you are not familiar with some of the terminology used in the reports, please read the Glossary of Terms. If you missed the original post about the Cutline approach, you can read it here.
Other than during two strong up days, namely Tuesday and Wednesday, the markets meandered aimlessly and ended the week with a loss, although a modest one, with the S&P 500 surrendering 0.30%.
Despite expectations to the contrary, the earnings season for the big banks started on a negative, even though their stocks had been in rally mode during the past few weeks as interest rates rose. Earnings were simply underwhelming causing stock prices to give back some of the recent gains.
The major indexes were mixed, but the tech sector showed some signs of life after the recent drubbing, as the Nasdaq added 0.59% for the session. However, the YTD story is that all three of them are lower with the Nasdaq faring the worst. As ZH pointed out, in the last 30 years, only 2009 saw a worse start to the year for the tech arena.
The most shorted stocks were squeezed halfway through the session thereby contributing to the late day rebound attempt. Growth and Value resumed their tug-of-war with Value coming out ahead in this endless battle for supremacy.
Bond yields were in a world of their own, while the 30-year staged a rebound today to get back to where it started the week. The US Dollar did not follow suit and slipped the past five days, and even a late session attempt could not break the downward trend.
Gold finally showed some staying power and gained the last four weeks out of five and had its biggest week in 2 months, as ZH called it.
On the economic side, it was disappointing to learn that US Retail Sales plunged the most since February, while Industrial Production unexpectedly shrunk in December.
None of these numbers induce a warm and fuzzy feeling and, when combined with the Fed’s more hawkish approach to inflation, while we are in what I consider is a barely expanding economy, it’s no wonder that traders have more questions than answers. The result will be more volatility, as we work our way through this process of change.
The markets will be closed on Monday, Martin Luther King Holiday, so I will be back with the next commentary on Tuesday.
ETF Data updated through Thursday, January 13, 2022
Methodology/Use of this StatSheet:
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 12% 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. Here too, I recommend trailing sell stop of 12%, or less, 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 +5.33% and remains in “BUY” mode as posted.
An early pump ran into strong resistance with the major indexes suddenly reversing and even breaking their respective unchanged lines to the downside. Fortunately, dip buyers stepped in and saved the markets from closing in the red.
The much-anticipated Consumer Price Index (CPI) showed an amazing 7% YoY ramp, which was in line with expectations, despite it being the biggest jump since 1982. It also has the dubious distinction of representing its 19th straight monthly rise.
ZeroHedge drilled down a little further and reported that the Services inflation rose to 3.7%, it’s highest since January 2007, while Goods inflation soared 10.7% YoY, its highest since 1975. All this in the face of real hourly earnings falling (down 2.4% YoY) for the 9th straight month. Ouch!
Given the above, it came as a surprise to see bond yields slide a tad, as an opposite reaction would have been a more appropriate move, especially after the Fed’s main mouth piece went into hawkish mode:
Fed’s Bullard: Four Rate Rises in 2022 Now Appear Likely –WSJ
Bullard: 2021 Liquidity Can Be Removed With Likely Little Disruption –WSJ
Bullard: Early Start to Rate Hikes May Avoid More Hawkish Rate Path –WSJ
Bullard: March Rate Rise Is Very Likely Amid High Inflation –WSJ
The weakness in bond yields was followed by a dump in the US Dollar, both of which combined forces to keep the gold rally alive.
Earnings season is on deck and will start tomorrow with the big banks releasing their report cards. I’ll be back on Friday with the week-ending commentary.
The major indexes built on yesterday’s comeback rally with the Nasdaq again taking the lead by gaining 1.41%. Still, the markets are struggling to find some footing after the New Year’s sell-off.
Rising interest rates have been the culprit that brought the Santa Clause rally to a standstill and a subsequent reversal. For a change, the voracious rise in bond yields slowed down with the 1-year ending the day at 1.75% giving equities a reprieve.
Fed head Powell testified before a Senate committee this morning as part of his re-confirmation process. He expects supply chain issues to normalize, which should mitigate inflationary pressures this year, and that he would not be afraid to hike rates further than intended should inflation remain high.
The markets took that as a rally cry, because of what he did not say, namely that the words “accelerated changes in policy,” above and beyond of what they already had indicated, were missing.
As a result, the bulls roamed freely and turned a weak opening into a ramp-a-thon with broad gains across the entire spectrum. Both, “value” and “growth” rallied in unison with SmallCaps outperforming. Of course, a continued short squeeze did its part of lending bullish support.
Easing yields sent the US Dollar lower and gold higher, with the precious metal scoring a chest-pounding advance of 1.33% thereby ending solidly above the $1,800 level.
This tweet below made me laugh out loud because it sums up the relationship between the markets and the Fed:
A tip of the hat to ZH for pointing towards this bon mot.
Last week’s negative market theme continued this morning when the major indexes took another dive with the Dow being down over 500 points at one moment in time. Dip buyers made an appearance, as the indexes attempted to climb out of a deep hole.
Though they did not manage to crawl back to their respective unchanged lines, except for the Nasdaq, it was a valiant effort nonetheless with early losses being cut substantially.
Bond yields continued to soar with the 10-year breaking briefly through the 1.80% level but settling at 1.77%. We are now witnessing rising yields meeting a slowing economy with consumers, having spent all of their stimulus checks, taking advantage of their credit card availability and going on a record spending spree, as ZH reported.
The sell-off was broad with more than 70% of the S&P 500 stocks declining. The mid-day rebound had pure growth ETFs like RPG rally off their lows, along with the tech sector in general, and advance by 0.29% for the day.
The US Dollar index pumped and dumped but closed moderately higher. Surprisingly, Gold was not affected by the dollar’s strength, and the precious metal eked out a modest gain and reclaimed its $1,800 level.
Based on Bloomberg’s Financial Conditions Index, there is more downside on deck. However, I think much depends on how serious the Fed will be to fight inflation with much higher rates and less stimulus. After all, they are the elephant in the room.
