Apple’s “Appulus” Fails To Impress As Market Turns Sour

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[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The market rally fizzled out on Monday as the major indexes gave up their early gains and closed nearly flat or lower. The Dow was the biggest loser, while the S&P 500 and Nasdaq barely stayed above water. According to Bespoke Investment Group, the S&P 500 is now more overbought than any time since July 2021. Yikes!

It was a slow day for traders, who had little to cheer about after last week’s debt ceiling drama and the bizarre jobs report that raised more questions than answers. Some analysts wondered if the rally was too narrow and too fragile, relying on a few stocks to prop up the market.

The economic news was not encouraging either. US factory orders grew by a measly 0.4% in April, half of what was expected, and the previous month’s figure was revised down. The services sector also disappointed, showing signs of slowing down. How can anyone still claim that the economy is doing fine and there is no risk of a recession?

The bond market seemed to agree, as yields dropped sharply, and the 2-year note fell below 4.5% again. The dollar was flat, but gold shone brighter and moved closer to $2k.

Apple briefly hit a new record high after announcing its futuristic VR/AR headset “Appulus”, which costs an arm and a leg and won’t be available until 2024. But investors quickly realized that they were buying a dream and sold off the stock, dragging the rest of the market with it.

Bank stocks also suffered, especially the regional ones, as the index KRE took a dive. The big picture looked grim, as analyst Mathew Piepenburg pointed out that the S&P 500 futures market is now more bearish than ever since 2011 and almost as bad as late 2007.

We all know what happened next in 2008.

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ETFs On The Cutline – Updated Through 06/02/2023

Ulli ETFs on the Cutline Contact

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 312 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.

Take a peek:

The HV ETF Master Cutline Report

If you are confused by some of the terms we use, don’t panic. I have a helpful Glossary of Terms for you.

If you want to learn more about the Cutline method and how it can make you rich (or at least less poor), read my original post here.

ETF Tracker Newsletter For June 2, 2023

Ulli ETF Tracker Contact

ETF Tracker StatSheet          

You can view the latest version here.

Bulls Run Wild After Senate Unleashes Money Printing: How Long Can It Last?

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The market soared today after the Senate cleared the way for more money printing by suspending the debt ceiling until 2025. This means the Fed and the politicians can create trillions of new dollars out of thin air, which will eventually lead to runaway inflation. Ouch!

Some of this new money will flow into the stock market, boosting the bullish mood. But there is a catch: the US Treasury is broke and needs to borrow at least $1 trillion in the next few months, sucking out liquidity from the market. That is a big bearish risk.

The bulls also cheered the strong May jobs report, which showed a huge jump in payrolls and a slight increase in unemployment. Usually, this would be bad news for the market, as it would signal a tighter Fed policy. But today, the market shrugged off that possibility and focused on the positive side of a robust labor market.

But how reliable are these numbers? Economist Nick Bunker questioned the quality of the payroll data:

The unemployment rate rose for all the wrong reasons. More employed people moving into unemployment and fewer unemployed workers finding jobs.”

ZeroHedge pointed out a possible source of distortion:

The birth death model “added” 231K jobs in March. These are not actual jobs, but merely an assumption by the BLS as to how many new businesses were created and hired workers based on statistical assumptions. Again, these are not actual jobs.

Today’s rally was broad based, with our Domestic Trend Tracking Index (TTI-section 3), finally outperforming the S&P 500. That had not been the case for most of 2023, as only a small segment of the market drove the gains.

These drivers were, and still are, Artificial Intelligence (AI) and General Productivity Tools (GPT).

Without them, the rest of the market would be in negative territory for the year. It is debatable whether this is a bubble, or a genuine technological breakthrough based on fundamentals.

Of course, no rally is complete without a short squeeze. That happened today when yesterday’s squeeze continued in two stages. Regional bank stocks, as represented by KRE, rose for the third week in a row, despite losing deposits.

Bond yields climbed, the US dollar fell this week, despite a bounce today, and gold retreated after touching $2k mid-week.

On Wall Street, none of these worries mattered as optimism prevailed. Some traders called this a “Goldilocks” scenario, where inflation is cooling down and the Fed is easing up, creating a soft landing for the economy.

I wouldn’t bet on it.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 06/01/2023

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ETF Data updated through Thursday, June 1, 2023

How to use this StatSheet:

  1. 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.
  1. 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.

  1. 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 8.

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

Click on chart to enlarge

This is our main compass, the Domestic Trend Tracking Index (TTI-green line in the above chart). It just dipped below its long-term trend line (red) by -0.74%, but it’s still in “Buy” mode for now.

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Congress Clears Debt Hurdle, Traders Cheer And Fear

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

After weeks of political drama, Congress finally passed the debt ceiling bill last night, much to the relief of the traders who celebrated with a rally. The bill is now heading to the Senate, where it is expected to sail through smoothly. Sources say the Senate won’t rest until Biden signs it into law.

This is a big win for the traders, who can breathe easier without the looming threat of a default. But they shouldn’t get too comfortable, because another challenge awaits them in a few weeks: the Fed’s decision on whether to raise interest rates again.

The Fed has a tough choice to make, as the economic data is sending mixed signals. On one hand, jobless claims rose slightly from last week, staying near 18-month highs. On the other hand, ADP reported stronger than expected job gains, which would be great if not for the sluggish wage growth. So, what will the Fed do? My guess is they will go for a modest 0.25% hike.

Today’s rally was not a one-man show, but a team effort with most sectors joining in. Even the regional banking sector ETF KRE bounced back from yesterday’s losses. Bond yields fell back, but the US dollar took a bigger hit, dropping to its lowest level since January, as ZeroHedge noted. That gave Gold a chance to shine, as it flirted with the $2k mark but couldn’t seal the deal.

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Market Dips As Debt Deal Hangs In Balance And Fed Sends Mixed Signals

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Wall Street was in a gloomy mood today as the debt ceiling deal faced uncertainty and opposition in Congress. The House Rules Committee approved the deal, but the final vote will take place tonight at 8:30pm EST. The major indexes stayed in the red all day, despite a late rally that trimmed some losses.

Investors are wondering if the deal will pass in time to avoid a default, or if more negotiations and delays are ahead. Some lawmakers have expressed their dissent, which could jeopardize the whole process.

The month of May was a mixed bag for the market. The S&P 500 barely gained +0.26%, the Dow lost over 3%, but the Nasdaq soared by 6%. However, this performance was driven by a few tech giants, like Nvidia, which surged 40% in May but fell 10% yesterday.

The market’s strength was too narrow and uneven. The top five S&P stocks averaged a whopping 50% mean return this year, while the rest of the 495 stocks were flat. This does not reflect a healthy bull market, but rather a bear market rally.

Adding to the bearish sentiment were some conflicting signals from the Fed officials. Some of them hinted at raising rates sooner to curb inflation, while others suggested pausing or skipping rate hikes to see more data. The Fed’s stance was as clear as mud.

On the economic front, we saw a sharp drop in the Chicago PMI, but a strong increase in job openings in April. The Citi Economic Surprise index bounced back in May.

Some notable stocks that suffered in May were Budweiser and Target. Bond yields and the US dollar rose, while gold slipped below $2k but held above its March lows.

The market is facing a divergence between commodities, real yields, and the dollar on one hand, and the tech frenzy fueled by AI on the other. How long can this gap last?

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