Do you want to know which ETFs are hot and which ones are not? Then you need my High-Volume ETF Cutline report. It tells you how close or far each of the 311 ETFs I follow is from its long-term trend line (39-week SMA). These are the ETFs that trade more than $5 million a day, so they are not some obscure funds that nobody cares about.
The report is split into two parts: The winners that are above their trend line (%M/A), and the losers that are below it. The yellow line is the line of shame that separates them. You can see how many ETFs are in each group and how they have changed since the last report (162 vs. 115 current).
GOLD TOPS $3,000 AS MAJOR INDEXES SURGE DESPITE WEAK CONSUMER SENTIMENT
[Chart courtesy of MarketWatch.com]
Moving the market
After falling into correction territory, the S&P 500 and other major indexes bounced back solidly this morning.
Yesterday, I announced a “domestic Sell signal” but added that if there was a sharp rebound today, I would hold off for another day; otherwise, the “Sell” signal would be executed. As it turned out, bullish sentiment prevailed throughout the session, invalidating my signal.
Boosting the mood on Wall Street was the apparent avoidance of a government shutdown, as Chuck Schumer (D) stated he would not block a Republican government funding bill.
Despite this, the major indexes have rapidly moved from record highs to correction territory, with the S&P 500 achieving this in about three weeks. Tariff wars, consumer confidence, and economic growth concerns have been the main contributors to Wall Street’s weakness.
However, today, none of that mattered as the major indexes powered higher, coinciding with the end of the seasonally weakest period of the year and the day gold topped $3,000 for the first time. Traders also shrugged off weaker consumer sentiment.
Although volume was light and the major indexes still ended lower for the week, this could have been just a one-day outlier in a bearish trend that may gain more momentum.
Bond yields remained unchanged for the week, as stocks and bonds decoupled, and the dollar slipped to the low end of its trading range.
Bitcoin also dropped but found strong support at the $80k level and is poised to benefit from increased global liquidity.
I am pondering whether today’s rebound marks the beginning of a new trend, or was it just a temporary blip?
Out of the 1,800+ ETFs out there, I only pick the ones that trade over $5 million per day (HV ETFs), so you don’t get stuck with a lemon that nobody wants to buy or sell.
Trend Tracking Indexes (TTIs)
These are the main indicators that tell you when to buy or sell Domestic and International ETFs (section 1 and 2). They do that by comparing their position to their long-term M/A (Moving Average). If they cross above, and stay there, it’s a green light to buy. If they fall below, and keep going, it’s a red light to sell. And to make sure you don’t lose your shirt if things go south, I also use a 12% trailing stop loss on all positions in these categories.
All other investment areas don’t have a TTI and should be traded based on the position of each ETF relative to its own trend line (%M/A). That’s why I call them “Selective Buy.” In other words, if an ETF goes above its own trend line, you can buy it. But don’t forget to use a trailing sell stop of 12%, or less if you’re feeling nervous.
If some of these words sound like Greek to you, please check out the Glossary of Terms and new subscriber information in section 9.
DOMESTIC EQUITY ETFs: BUY— since 11/21/2023
Click on chart to enlarge
This is our main compass, the Domestic Trend Tracking Index (TTI-green line in the above chart). It has broken below its long-term trend line (red) by -3.34% and will change to “Sell” mode likely tomorrow.
Equities began the session slightly below their respective unchanged lines but accelerated to the downside late in the day, as market volatility continued. Traders focused on the latest tariff threats, with 200% import duties on all alcoholic products from EU countries in retaliation for the bloc’s 50% tariff on whiskey.
The Producer Price Index (PPI) was encouraging, showing its largest decline since April 2020, contrary to expectations of an increase. Combined with yesterday’s softer Consumer Price Index (CPI), traders’ concerns about the impact of tariffs have eased somewhat, but not enough to lift the major indexes out of their current slump.
The key question remains whether current import duties will have a greater impact on economic growth or prices. Traders generally believe that weaker growth is the overriding factor, leading to the pricing in of three rate cuts for 2025.
Despite the tariff-related struggles, the decline in equities this week has been gradual rather than a crash. This suggests that any easing of trade policy could lead to a sharp rebound, which is why I have been giving the TTI a bit more room to move.
However, as of today’s close, the domestic TTI has dropped 3.34% below its long-term trend line, signaling the end of the current “Buy” cycle that began on November 21, 2023.
Effective tomorrow, our “Sell” signal for broadly diversified domestic equity funds/ETFs will be in effect. In my advisory practice, I will liquidate our remaining domestic ETFs, which were well-hedged during the recent downturn, as our exposure to gold mitigated most of the equity drop.
If there is a sharp rebound tomorrow, I will hold off for another day; otherwise, the “Sell” signal will be executed.
Bond yields dipped slightly, but the overall uncertainty benefited gold, pushing the precious metal close to the $3,000 mark. Bitcoin, on the other hand, fell back towards $80,000, nearing a point that could signal a bullish move.
Today’s better-than-expected CPI report gave the major indexes a positive start, with all of them opening higher and maintaining that trajectory throughout the session.
The Consumer Price Index increased by 0.2% for the month, resulting in an annual inflation rate of 2.8%, which is lower than the estimated 0.3% monthly increase and 2.9% annual rate.
The Core CPI, which excludes food and energy prices, also rose by 0.2% for the month and 3.1% over the past 12 months, both figures coming in below expectations.
This data alleviated recent fears, at least temporarily, that Trump’s trade policies would lead to higher inflation and slower growth, potentially causing “stagflation.” Traders are now considering the possibility that this outcome might give the Federal Reserve some room to cut interest rates later this year.
Looking deeper, there is a notable divergence as the widely followed S&P 500 index is outperforming its equal-weight counterpart, indicating that today’s rally was not broad-based.
Bond yields edged higher, as did the dollar, but its weakness during afternoon trading pushed gold to near-record highs. Bitcoin remained rangebound and closed roughly unchanged.
Another divergence that could threaten equities is the S&P 500’s apparent disconnect from economic data points.
After a brief early bounce, the major indexes resumed their downward trend from yesterday. The S&P 500 made two attempts to reclaim its unchanged line but ultimately failed to hold on.
In a post, Trump announced that additional tariffs of 25% on Canada and Mexico would take effect on Wednesday, targeting steel and aluminum. When asked about a potential recession, he described the economy as going through a “period of transition.”
Traders were spooked, escalating fears of an economic recession, which would negatively impact equities. Consequently, Citigroup downgraded its rating on U.S. stocks from overweight to neutral.
Delta Airlines also slashed its earnings outlook due to weaker demand, causing their stock to drop by about 5%, further contributing to negative market sentiment.
An afternoon rebound helped equities recover from their worst levels, but the session still ended with a moderate decline.
Bond yields edged higher, the dollar slipped, while Bitcoin surged from yesterday’s $76k level to $83k today. Gold also rallied, reclaiming the $2,900 mark.
The markets remain on edge, teetering between further breakdown and recovery. Much will depend on the latest tariff headlines from Washington.
