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 (270 vs. 277 current).
WALL STREET CELEBRATES POWELL’S AMBIGUOUS RATE CUT SIGNAL
[Chart courtesy of MarketWatch.com]
Moving the market
The major indexes surged higher following Fed Chair Powell’s commentary, which hinted at upcoming interest rate cuts.
Although Powell was vague about the specifics, his statement that “the time has come for policy to adjust” resonated strongly, despite his caution that “the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”
In essence, Powell left his options open, but traders focused on the potential for lower rates, propelling the markets upward. Tech stocks, which stand to benefit from lower rates, led the charge with Nvidia and Tesla both jumping 4%, while Small Caps followed closely behind.
While Powell’s comments were anticipated, the excitement on Wall Street was palpable, as hopes for lower rates seemed to be realized. However, few consider that a rate cut is more about supporting a struggling economy than a significant improvement in inflation. This policy shift could fuel further inflation, a consequence that might later be seen as inevitable.
ZeroHedge took it a step further, suggesting that ending the Fed’s tightening cycle with stocks at all-time highs is unprecedented. They argued that unless the current expansion ends in a severe recession, the S&P 500 could enter a bubble, which might burst spectacularly, forcing the Fed to revert to zero or even negative interest rates and resume quantitative easing.
For now, however, Wall Street celebrated another winning session, with equities soaring and rate-cut expectations rising. A short squeeze added to the upward momentum, while the dollar fell to 2024 lows, and bond yields plunged. Bitcoin surged towards the $64k mark, with gold and crude oil also climbing.
Enthusiasm dominated the day, but can it sustain the markets?
Historically, five of Powell’s six Jackson Hole speeches have been followed by an average 7.5% drop in the S&P 500 over the next three months.
ETF Data updated through Thursday, August 22, 2024
How to use this StatSheet:
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 above its long-term trend line (red) by +6.68% and is in “Buy” mode as posted.
As we approach the conclusion of the Jackson Hole symposium, the major indexes have been experiencing volatility ahead of Fed Chair Powell’s anticipated commentary. Historically, Powell’s speeches at Jackson Hole have often boosted equities, but when they haven’t, sharp declines have followed.
Currently, the S&P 500 is within 1.25% of its all-time intraday high set in July. If Powell’s speech aligns with traders’ expectations regarding interest rate policy, we might see the index reaching a new record high.
The odds of a decrease in borrowing costs stand at 100%, but the extent of the cut remains uncertain, leading to much speculation. Traders are already pricing in a rate cut, reflecting their confidence in this outcome.
On the economic front, home sales ended a four-month losing streak in July, rising by 1.3% month-over-month. However, despite this modest improvement, sales remain sluggish.
This negative sentiment is also evident in the ECO US Surprise Index, which has dropped to levels last seen in 2015. The rise in bond yields, coupled with falling rate-cut expectations, highlights the market’s confusion over whether we will experience a hard or soft landing.
Equities took a hit, with even the MAG7 basket retreating. However, the dollar rebounded due to higher yields, pulling gold back below the $2,500 level. Crude oil prices saw a slight recovery, while Bitcoin faded but found support at the $60k level.
ZH reminds us that the past few years have seen a “sell the news” event following the Jackson Hole symposium.
In anticipation of the minutes from the latest Federal Reserve policy meeting, traders pushed the major indexes higher, as sentiment turned bullish following yesterday’s pause.
The latest retail earnings presented a mixed picture, with Target rallying 15% while Macy’s stock dropped more than 12%.
While the Central Bank maintained its stance and left rates unchanged at the last meeting, the released minutes indicated that a decrease in borrowing costs during the September meeting was increasingly likely. Most participants agreed that “loosening monetary policy would be appropriate if data continued to come in as expected.”
As a result, the odds of a rate cut rose to 100%, and the current conversation focused on the magnitude of the potential reduction in rates. Along with today’s release of the July minutes, upcoming commentary on Friday by Fed head Powell at the Jackson Hole symposium could provide Wall Street with more clues about what’s in store.
With all eyes focused on the Fed minutes, the shocking admission by the Philadelphia Fed that US jobs were revised down by 818,000, the second worst revision in US history, was simply pushed to the back burner. Ouch!
In other words, this was another nail in the coffin of an economy that has rolled over and is in dire need of resuscitation via lower interest rates—inflation be damned.
Of course, traders and algorithms only react to current headline news, which was focused on a possible rate cut in September, and that was immediately reflected in surging rate-cut expectations.
Equities slipped early on, as bullish sentiment faltered slightly after the consistent recovery over the past week, with the S&P 500 registering eight straight winning sessions. Reduced volatility was the main contributor after the disastrous start to August.
Earnings reports were mixed, with Palo Alto Networks jumping while home retailer Lowe’s dropped after poor revenue and a negative outlook based on expectations of slowing consumer spending.
The latter contrasts with recent reports of strong retail sales data, which will likely be adjusted again, and softer CPI/PPI reports. A weak jobs report and an interest rate hike in Japan have been pushed to the back burner and out of traders’ minds.
This week, the focus is on the Jackson Hole symposium, where the Fed is expected to be clearer about a potential rate cut in September. Traders are convinced that such a cut will happen, so their current discussion focuses mainly on whether it will be 0.25% or 0.5%.
After all, the economy is rolling over, as I pointed out yesterday with the Leading Economic Indicators being down for the 29th month.
Today, we learned that the Philly Fed General Business Activity Index crashed to -25.1 in August, its weakest level since the Covid lockdowns. As ZH mentioned, on a non-seasonally adjusted basis, it was an even bigger collapse. Ouch!
At the same time, the Economic Growth data index dropped back to multiyear lows, also confirming that the Fed may no longer have the luxury to refer to this weakness as “transitory.”
The dollar continued its southerly route, thereby helping gold surge to another record high, a move also supported by plunging bond yields, as the 2-year dropped back below its 4% level.
Crude oil headed lower and took out its $74 level, while Bitcoin surged overnight in Asia and Europe but was pulled back down during the US session.
This makes me ponder how such discrepancies could exist. Could it possibly be market manipulation?
