ETF Tracker Newsletter For January 20, 2023

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  1. Moving the markets

After getting hammered three days in a row, the major indexes finally found some bullish support, despite today’s activity being dominated by options expirations. Hope reigns supreme that equity weakness early in the week was only of a temporary nature.

Helping the ascent to higher prices was the recently abandoned short squeeze, which returned after having been absent last Tuesday. The S&P rallied back to its 200-day M/A, which again caused the index to stall—again.  

Also assisting the bulls was Netflix, whose shares gained 7% after posting more subscribers than expected, while Alphabet missed quarterly earnings, but its shares rose 5% due to the company’s announcement that 12,000 employees will be laid off.

With 10s of thousands of layoffs having been announced, along with horrific economic data points, JPM’s strategist Lakos-Bujas, was the only one assessing the current market scenario with a sense of reality:

Lately, equities have been shrugging off bad economic news and rising on weaker [economic] data and lower yields. However, we don’t see this relationship persisting and expect weaker guidance to put downward pressure on equities.

The big banks’ earnings picture was very mixed, as ZeroHedge pointed out, because Morgan Stanley led the pack to the upside, while Goldman Sachs was the downside leader.

Bond yields dumped midweek but managed to recover to end the week just about unchanged. The US Dollar continued to ride the range, despite a couple of breakout/breakdown attempts, as Gold closed the week at its highest since April last year, with the $1,900 level now being a support point.

Will this week-ending upward momentum be enough to not only carry over into next week but also propel the S&P 500 above its 200-day M/A to continue the bullish theme?

We will find out next week.

2. “Buy” Cycle Suggestions

For the current Buy cycle, which started on 12/1/2022, I suggested you reference my most recent StatSheet for ETFs selections. However, if you came on board later, you may want to look at the most current version, which is published and posted every Thursday at 6:30 pm PST.

I also recommend for you to consider your risk tolerance when making your selections by dropping down more towards the middle of the M-Index rankings, should you tend to be more risk adverse. Likewise, a partial initial exposure to the markets, say 33% to start with, will reduce your risk in case of a sudden directional turnaround.

We are living in times of great uncertainty, with economic fundamentals steadily deteriorating, which will eventually affect earnings negatively and, by association, stock prices. I can see this current Buy signal to be short lived, say to the end of the year, and would not be surprised if it ends at some point in January.

In my advisor practice, we are therefore looking for limited exposure in value, some growth and dividend ETFs. Of course, gold has been a core holding for a long time.

With all investments, I recommend the use of a trailing sell stop in the range of 8-12% to limit your downside risk.

3. Trend Tracking Indexes (TTIs)

Our TTIs jumped with the major indexes, which managed to recover some of the losses sustained early in the week.

This is how we closed 01/20/2023:

Domestic TTI: +4.87% above its M/A (prior close +3.01%)—Buy signal effective 12/1/2022.

International TTI: +8.62% above its M/A (prior close +7.44%)—Buy signal effective 12/1/2022.

Disclosure: I am obliged to inform you that I, as well as my advisory clients, own some of the ETFs listed in the above table. Furthermore, they do not represent a specific investment recommendation for you, they merely show which ETFs from the universe I track are falling within the specified guidelines.

All linked charts above are courtesy of Bloomberg via ZeroHedge.



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