ETF Tracker Newsletter For January 27, 2023

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  1. Moving the markets

Yesterday’s Q4 GDP report, which showed a rise of 2.9%, better than the consensus 2.6%, yet a cooldown from Q3’s 3.2%, was interpreted as bullish, and the major indexes continued to ramp higher totally ignoring that such strength will encourage the Fed to keep up its rate hiking policies for longer.

Nothing seemed to disturb that upward momentum, not even New Home Sales, which suffered their biggest annual drop since October 2021, as a revision from the November data set converted a massive surge of 5.8% into meager 0.7%. Not helping matters was the fact that cancellations are running at a higher rate than the peak of the 2008 financial crisis.

The latest batch of corporate earnings came in above expectations and kept traders focused on a potentially soft landing, with hope reigning supreme that a mild recession will not throw us into a deeper bear market. Will see about that.

Tesla stock, after having been spanked over the past year, kept its 6-day winning streak alive, and jumped some 11% after announcing record revenue and solid earnings. Beaten up technology firms like Microsoft, Nvidia, Amazon and Alphabet bounced back as well.

Also helping the bullish meme was a sudden upside move by the Surprise US Macro index, which combined forces with today’s short squeeze (+7%), the biggest one since November 10th, thereby giving the bears no chance for a comeback.   

Bond yields moved moderately higher, the US Dollar slipped, as Gold notched its 6th straight week of gains.

In the end, the markets gained on traders continued stubborn belief that there will be no “hard landing” and frontrunning the Fed’s potential for a “pivot” simply represents profits chiseled in stone, while their “higher for longer” jawboning will not come to pass.

If traders got this wrong, there will be a very rude awakening.  

2. “Buy” Cycle Suggestions

For the current Buy cycle, which started on 12/1/2022, I suggested you reference my most 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 headed a tad further north, as the bulls oversaw market direction.

This is how we closed 01/27/2023:

Domestic TTI: +7.14% above its M/A (prior close +7.05%)—Buy signal effective 12/1/2022.

International TTI: +10.59% above its M/A (prior close +10.45%)—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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