Breaking Out—To The Downside

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

I was pondering yesterday if, in the absence of a bullish driver, the markets might take the path of least resistance, which would be down. That was the case today, as the major indexes opened in the red, with the bears taking over and manhandling any bullish sentiment with utter ease, thereby assuring a red close.

First Republic Bank’s (FRC) latest earnings set the negative mood and spiked concerns about a broadening of the banking crisis, something that I have posted about since the SVB breakdown.

Shares of FRC got clobbered at the rate of over 49%, after deposits dropped 40% but allegedly have now stabilized. Promises of trimming expenses and slashing headcount did nothing to stem the tide, because investors remained concerned that FRC would experience a similar destiny as Silicon Valley Bank.

Other earnings reports were mixed, but all eyes are now on the report cards of the big boys like Microsoft and Alphabet, which are due out after the close today. Maybe they can restore some bullish sentiment.

Economic news did nothing to relieve traders of uncertainty, as the Fed’s Services Index dumped to its weakest since Covid, while the Confidence index slumped, and the US Home Growth popped a tad but remained at its slowest in a decade. The combined effect was a further drag on the Citi Surprise Index.  

Bond yields plunged with the 2-year again dropping below its 4% level. The US Dollar rebounded despite lower bond yields, and gold made two attempts to reclaim its $2k level but failed. Still, the precious metal gained 0.36% on the session.    

I think the markets are too complacent about the upcoming debt ceiling debacle. After all, we are stuck in the middle of an ongoing banking crisis and a deteriorating economy.

Hmm…

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Stuck In A Holding Pattern

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

In a repeat of last week’s activity, the major indexes spent most of the session vacillating near their respective unchanged lines but managed to slightly close in the green, with the Nasdaq being the exception.

Earnings season, economic data, upcoming Central Bank actions, and geopolitical tensions kept traders and algos on edge causing the indexes again to tread water, as uncertainty reigned supreme. Regarding economic data, manufacturing slumped to post-Covid lows, as the 12th straight month of contraction became a reality.

Data provider FactSet announced that, through this morning, 76% of S&P 500 companies beat sharply reduced earnings estimates, while Refinitiv added that S&P 500 companies overall are projected to decline 5.2% for this past quarter.

The fact that a technical debt default is a real possibility, according to this chart, has been largely ignored by the financial markets, even though this CDS (Credit Default Swap) has now risen to its highest level ever. Go figure…

Mid-April’s short squeeze has lost its upward momentum, and the “most shorted” stocks are now acting like they are supposed to, namely drift lower.  

Bond yields retreated from Friday’s high, but May’s rate-hike odds moved higher and are now signaling a 92% chance of a 0.25% hike next week.

The US Dollar weakened after an early bounce and closed at 4-day lows. That helped gold to rebound, but it was not enough for the precious metal to crack its $2k level.  

Observing this directionless behavior over the past week, I am wondering if the next breakout will be to the downside, which appears to be the path of least resistance.

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ETFs On The Cutline – Updated Through 04/21/2023

Ulli ETFs on the Cutline Contact

Below, you can evaluate 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 210 (last report: 222) 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.

Take a look:                                                                   

The HV ETF Master Cutline Report

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.      

ETF Tracker Newsletter For April 21, 2023

Ulli ETF Tracker Contact

ETF Tracker StatSheet          

You can view the latest version here.

TREADING WATER

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Today’s activity pretty much resembled how the markets fared during this entire week. It was a snooze fest with neither buyers nor sellers being motivated to act, with the result that the S&P 500 lost 4 points, or 0.1%.

Yesterday, we confronted a host of poor economic data points: The US Leading Indicator tumbled, the debt ceiling fears pulled down the Economic Surprise Index, the Philly Fed Business Survey slumped, the number of Americans claiming jobless benefits hit a 17-monht high, but US Manufacturing was the only green shoot and unexpectedly soared in April, as ZeroHedge reported.

The tug-of-war between bulls and bears ended in a draw this week, with direction lacking. That may continue until it becomes clear if the restrictive Fed monetary policy can overwhelm the case made by many that the economy is more resilient due to stronger-than-expected corporate earnings, which were achievable only due to a much-lowered bar.

For sure, the markets appear stressed in view of the upcoming debt-ceiling debate. Both sides have hardened their views, and just because in the past common ground was found eventually, this time may be different, hence the lack of activity.

The current high USA risk is reflected by Credit Default Swaps (CDS) hitting their highest in 15 years and surpassing past crisis events.

Bond yields rode a roller coaster and ended the week a tad higher, while rate hike expectations continued to rise, with the odds now being 92% that the Fed will hike by 0.25% at the beginning of May.

The US Dollar closed out a volatile week to the upside, which caused Gold to lose its $2k level.  

Besides 42% of the S&P’s market cap reporting earnings next week, the debt ceiling battle will likely be the focus point for traders and algos alike.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 04/20/2023

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, April 20, 2023

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 a 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 Terms and new subscriber information in section 9.     

1. DOMESTIC EQUITY ETFs: BUY — since 12/01/2022

Click on chart to enlarge

Our main directional indicator, the Domestic Trend Tracking Index (TTI-green line in the above chart) has reclaimed its long-term trend line (red) by +2.11% and remains in “Buy” mode for the time being.

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Watching Grass Grow

Ulli Uncategorized Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Today’s session had all the excitement that I usually experience when I watch grass grow or paint dry, as the major indexes meandered without conviction and ended up around their respective unchanged lines—again.

Despite another loaded earnings day kicking into full swing, as MarketWatch called it, traders simply found something wrong with the results. The lack of forecasts from major companies kept Wall Street mired in uncertainty, while the outlook for the Fed executing another 0.25% rate hike at the beginning of May did nothing to inspire bullish sentiment.    

Considering that the S&P 500 has only moved 4 points higher this week clearly demonstrates that a new driver is needed to pull the markets out of their current ho-hum environment.

Even the most shorted stocks did nothing but roundtrip, but the KRE banking index showed signs of life by bouncing to two-week highs, but it has a long way to go to make up recent losses.

Bond yields were mixed, but the 2-year recaptured the 4% level, the US Dollar roundtripped yet gained for the session, while gold slipped but stayed above its $2k level.     

I expect this choppiness to continue until a sudden possibly unforeseen event wakes up bulls and bears, and the race will be on, but in which direction?

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