- Moving the markets
Only thing mattered today, and that was the announcement by the Fed on interest rates. Traders and algos alike engaged in the usual front running, and today they were not disappointed, as the Fed did not surprise with an unexpected hike of 1% but satisfied expectations of 0.75 increase.
Late in the session, markets were even more encouraged after Fed head Powell left the door open, about the size of the Central Bank’s rate move at the next meeting in September, while noting that he would eventually slow down the magnitude of future rate hikes:
“As the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases while we assess how our cumulative policy adjustments are affecting the economy and inflation.”
That was music to the ears of traders and upward momentum accelerated making this a celebratory day for the bulls, especially after Powell opined that, against all evidence, he does not think the U.S economy is currently in a recession. He also added that he “takes the first estimate for Q2 GDP (due out tomorrow) with a grain of salt.”
Hmm, that goes along with his insistence during 2021 that inflation is “transitory.” Rate hike expectations tumbled—at least for today when “bad news was good news” again.”
Be that as it may, ZeroHedge noted that the largest buy program since March 2021 contributed to today’s Ramp-A-Thon, most likely due to Powell’s indication of slowing the pace of hikes in the nebulous future.
Short-term Bond yields plunged, as the US Dollar was spanked, and gold rallied.
The issue remains whether the Fed will really pivot to lower rates as the markets now expect, which would be seen as “green light” or an “all clear” for equities. Strategist Ajay Rajadhyaksha at Barclays called it this way:
Policy officials would try to avoid the mistake they made in April. That month, central bankers talked down the size of rate hikes that would be ultimately needed, prompting bond traders to question the Fed’s commitment to its inflation target. Treasury yields spiked, spurring losses across assets. The S&P 500 dropped almost 9% for the worst month since the pandemic crash.
He then concluded:
The Fed has seen what happens when it prematurely declares victory over inflation and is unlikely to repeat that mistake.
Stocks and bonds are both hoping that the Fed will pivot away from its commitment to overtightening. It’s a hope that is likely to be dashed this week.
While today was a “feel good” session, it remains to be seen whether this turns out to be just another head fake.
2. ETFs in the Spotlight
In case you missed the announcement and description of this section, you can read it here again.
It features some of the 10 broadly diversified domestic and sector ETFs from my HighVolume list as posted every Saturday. Furthermore, they are screened for the lowest MaxDD% number meaning they have been showing better resistance to temporary sell offs than all others over the past year.
The below table simply demonstrates the magnitude with which these ETFs are fluctuating above or below their respective individual trend lines (%+/-M/A). A break below, represented by a negative number, shows weakness, while a break above, represented by a positive percentage, shows strength.
For hundreds of ETF choices, be sure to reference Thursday’s StatSheet.
For this closed-out domestic “Buy” cycle (2/24/2022), here’s how some of our candidates have fared. Keep in mind that our Domestic Trend Tracking Index (TTI) signaled a “Sell” on that date, which overrode the existing “Buys” shown for SPY and IYM:
Click image to enlarge.
Again, the %+/-M/A column above shows the position of the various ETFs in relation to their respective long-term trend lines, while the trailing sell stops are being tracked in the “Off High” column. The “Action” column will signal a “Sell” once the -12% point has been taken out in the “Off High” column, which has replaced the prior -8% to -10% limits.
3. Trend Tracking Indexes (TTIs)
Our TTIs advanced by a solid margin, as the Fed did everything possible to please the bulls.
This is how we closed 07/27/2022:
Domestic TTI: -5.52% below its M/A (prior close -7.32%)—Sell signal effective 02/24/2022.
International TTI: -9.38% below its M/A (prior close -10.54%)—Sell signal effective 03/08/2022.
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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