ETF Tracker Newsletter For March 10, 2023

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ETF Tracker StatSheet          

You can view the latest version here.

CHAOS IN THE MARKETS

[Chart courtesy of MarketWatch.com]
  1. Moving the markets

February payrolls came in hotter than expected, which put the markets under pressure after the opening bell rang. 311k jobs were created, well above the consensus of 225k and higher than the hoped-for whisper number of 250k.

Offsetting the idea that good economic news is bad news for the markets was the fact that wage gains were smaller than anticipated, which created hope that the Fed might rethink its aggressive stance on rate hikes. At least that’s what the markets now expect with the terminal rate tumbling 40bps today.

However, the payroll report was quickly pushed to the back burner, as far more pressing events permeated the markets. Yesterday’s troubles at Silicon Valley Bank (SVIB) accelerated, and the FDIC shuttered the bank and appointed a receiver, after depositors had frantically pulled out their money.

ZeroHedge highlighted the events like this:

  • *FDIC: SVB BANK CLOSED BY CALIFORNIA REGULATOR
  • *FDIC: SVB BANK IS FIRST INSURED INSTITUTION TO FAIL THIS YEAR
  • *FDIC CREATES A DEPOSIT INSURANCE NATIONAL BANK OF SANTA CLARA
  • *FDIC: NAMED FEDERAL DEPOSIT INSURANCE FDIC AS RECEIVER
  • *FDIC CREATES A DEPOSIT INSURANCE NATIONAL BANK OF SANTA CLARA
  • *SILICON VALLEY BANK INSURED DEPOSITORS TO HAVE ACCESS MONDAY

The FDIC also noted that SVIB had $175 billion in deposits and pointed out that some $151 billion of those are uninsured. So, if you left our funds in there, you are out of luck and will likely receive zero. Ouch!

The question on traders’ minds is “who’s next?” After all, there is never only one cockroach in a house…

Regional banks tumbled with the banking ETF dropping more 18% this week, while some bank stocks were repeated halted during Friday’s session.

Bond yields dropped sharply, when the flight out of risk assets to the alleged safety of bonds accelerated. Midday, the 2year yield had plunged an amazing 50bps from yesterday’s close, which was the biggest 2-day drop since September 2008.

To no surprise, the biggest winner of the day was Gold, as the precious metal gained 2.14% for the day.

In the end, this was the worst week for stocks in 2023 with the major indexes surrendering over 4%, while SmallCaps took top billing by collapsing 9%.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 03/09/2023

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ETF Data updated through Thursday, March 9, 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 +1.40% and remains in “Buy” mode for the time being.

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Getting Hammered

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[Chart courtesy of MarketWatch.com]

  1. Moving the markets

After a brief sprint above their respective unchanged lines, the major indexes reversed and hit the skids, with the Dow dumping over 500 points for the second time this week, as traders braced for tomorrow’s payroll report.

Remember that good news is bad news, which means a better-than-expected payroll print directly translates into the Fed pursuing their hawkish monetary policy, and that will result in lower equity prices.

Jobless claims for the week rose more than expected, a sign that the Labor market may be slowing, but yesterday’s ADP payroll report and JOLTS data painted a picture of economic strength. Some traders expect that this tie could be broken with tomorrow’s payroll numbers.

Negative bank headlines spooked the markets with KBW banking index plunging over 7% to a level last seen early 2021, as the Silicone Valley financial group SIVB collapsed around 60%. JP Morgan also got taken to barn and spanked over 5%, while realty trust Vornado, which already had been in a downswing, touched its lowest point since 1996.

Bond yields retreated, as the 10-year again pierced the 4% level yet slipped later in the session to close at 3.91%.

Despite the chaotic moves in the market, the US Dollar dipped, which allowed Gold to stage a nice rebound of almost 1%, with bank stresses being a main contributor to the precious metals’ bullishness.

Of course, all the above could reverse with lightning speed in an instant tomorrow, should the payroll report be a disaster, which would send equities on an ascending trajectory. Remember that bad economic news is good news for the markets.

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Treading Water

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Despite a last hour attempt to prevent another session in the red, after yesterday’s slam, the major indexes managed to climb back to their respective unchanged lines, as dip buyers were conspicuously absent. However, a late Market on Close (MOC) program propelled stocks off their lows.

Economic data points were solid due to persistently strong job openings beating expectations, despite a plunging number of quits. As ZeroHedge pointed out, this was the fifth consecutive beat of expectations, which was disappointing for the ever-present dovish “pause or pivot crowd.”

February’s ADP private payroll report confirmed that the economy stands on firm ground, at least for the time being. That sent rate hike expectations surging towards the 5.70% marker, while the odds of A 50bps hike in March sprinted to 70%.  

In the absence of a short squeeze, the “most shorted stocks” limped lower for the third consecutive day thereby aiding bearish momentum.

Bond yields dipped early on but headed higher late in the session, with the 10-year breaching its 4% level to the upside, but again it was not able to close above it.

The US Dollar bobbed and weaved and closed unchanged, as did Gold, with the precious metal surrendering its early gains.  

While Industrial and Survey data have been plunging, the Labor Market has shown surprising strength, which makes me wonder if some of these numbers are out of whack?

Will that alligator snout snap shut one of these sessions?

Hmm…

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Is The Market Finally Buying What The Fed Is Selling?

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Today, it was Powell himself singing from the same hymn sheet that his mouthpieces have used for months, namely rates may need to go “higher for longer,” a theme I have pounded on ad nauseum.

Maybe today, market participants are finally buying what Powell is selling, which caused havoc in all asset classes, since there was no place to hide other than in cash. The fear now on Wall Street is that the expected 25bps interest hike at the next Fed meeting will give way to a more hawkish move of 50bps. That number had not been priced in at all, but its odds have now risen to above 60%.

Powell’s expressed his hawkish warning like this, as ZeroHedge pointed out:

…. If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes… The historical record cautions strongly against prematurely loosening policy. We will stay the course until the job is done.

Even though the above was nothing new, the markets were rudely awakened from their dream state of imagining “pause or pivot” soon. That type of wishful thinking was crushed for the time being, as Terminal Rate Expectations propelled to the 5.65% level.

Bond yields were mixed with the short end exploding higher, as the 10-year crossed above 4% again, but it was not able to hold that level, stalled and “only” closed up 12bps at 3.98%.

As a result, the US Dollar surged +1.21%, as higher rates make the currency more attractive, Crude Oil crashed about 4%, and Gold was clubbed for a variety of reasons, like fraud by the Perth Mint, a strong dollar and Powell’s hawkish speech. The precious metal managed to successfully defend its $1,800 level.

The markets are now facing an onslaught of economic data ranging from tomorrow’s ADP and JOLTS reports, Friday’s non-farm payrolls, and next week’s CPI, PPI and retail sales.

While the directional outcome is uncertain, the fact that more volatility is on deck will keep the ongoing tug-of-war between bulls and bear alive.  

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Directionless Meandering

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Equities tried to build on last week’s bullish momentum with an early bounce, which coincided with sliding bond yields, as the 10-year slipped towards its 3.9% level.

However, a sudden spike in yields put the bears in charge, as the 10-year ripped off its lows and climbed back towards the 4% marker. That pulled the major indexes off their lofty levels and towards their respective unchanged lines.

In the end, not much was gained or lost. Upcoming events, like Fed head Powell’s congressional testimony on inflation and interest rates, as well as Friday’s jobs report, may have had a negative influence on traders’ and algos’ willingness to commit.   

The short squeeze, which usually accompanies early upward momentum, faded fast, as interest rates spiked. The US Dollar went sideways, while Gold slipped a tad after an early bounce.

Clearly, Wall Street was mired in uncertainty, and new directional impetus is needed, as the tug-of-war between bulls and bears continues.  

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