ETF Tracker Newsletter For October 20, 2023

Ulli ETF Tracker Contact

ETF Tracker StatSheet          

You can view the latest version here.

BOND YIELDS RISE TO 5%, STOCKS DROP TO NEW LOWS

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Stocks got another slap in the face Friday, as traders freaked out over the 10-year Treasury yield flirting with 5%, a level that spells trouble for the economy and the stock market.

Higher yields mean higher borrowing costs for consumers and businesses, and more competition for stocks from bonds. The 10-year yield hit 5% for the first time since 2007 on Thursday and closed at 4.922% today. That’s like seeing your ex at a party with someone new.

The stock market is giving the side-eye to the bond market and doesn’t like what it sees. Yields are rising, even though inflation is officially not that bad. This is the main reason why stocks are weak and may get weaker.

The S&P 500, after bouncing back from its third-quarter slump, failed to break above its 50-day moving average, which functioned as a glass ceiling. It reversed course and fell below its 200-day moving average today by a hair, a sign of long-term weakness. If this continues, we may see stocks go down the drain.

Regional banks also suffered in the session, with the regional banking ETF (KRE) dropping almost 2%. Adding insult to injury, Fed Chair Powell said yesterday that inflation is still too high, and the economy may need to slow down to tame it. Powell also said he thinks rates are not too high now.

We saw some crazy moves in bond yields this week, with the 2-year yield rising only slightly while the 30-year yield soared. This means that we are moving from an inverted yield curve, which usually comes before recessions, to a steepening yield curve, which means that the recession may be closer than we think. History may not repeat itself, but it often rhymes.

Also, financial conditions are getting tighter, as this chart shows, and this may drag down the economy.

None of this was good for stocks, and the major indexes plunged and closed at their lowest levels for the week. The Nasdaq took the biggest hit, losing 3%.

There were no signs of life from the short-squeeze crowd, and their hopes were dashed in October. Crude oil rallied all week but gave back some gains today.

Gold was the star of the week, surging and almost reaching its $2k level. Are investors finally waking up to the fact that in times of stress, uncertainty, debt and deficits, precious metals are the ultimate safe haven?

Read More

Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 10/19/2023

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, October 19, 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 9.

  1. DOMESTIC EQUITY ETFs: SELL— since 09/22/2023

Click on chart to enlarge

This is our main compass, the Domestic Trend Tracking Index (TTI-green line in the above chart). It has now broken below its long-term trend line (red) by -4.47% and has moved into “Sell” mode effectively 9/22/2023.

Read More

Market Loses Hope After Powell’s Speech: Inflation And Interest Rates Bite

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The stock market had a bad day on Thursday, thanks to Fed chair Powell’s party-pooper speech. He said that inflation was still too high for comfort, and that the economy might have to slow down a bit to cool it off. He basically said:

We’re doing a great job at creating jobs and keeping prices stable. But, by the way, inflation is still too high.

That was enough to scare away the investors who were hoping for some dovish signals from the Fed. The market reversed course and wiped out the gains from the midday rally. The major indexes ended up in the red, with some of them hitting new lows for the year.

Meanwhile, the bond market was also feeling the heat. The 10-year Treasury yield climbed to almost 5%, a level not seen since 2007. That raised doubts about how the Fed would handle the rising interest rates and their impact on the economy.

The economic data was mixed, as usual. On one hand, initial jobless claims were below 200,000, showing that the labor market was still strong. On the other hand, continuing claims rose to their highest level since July, suggesting that some workers were having trouble finding new jobs.

The earnings season also had its ups and downs. Tesla shares tanked more than 9% after the electric car maker missed Wall Street’s expectations on both earnings and revenue. Netflix shares soared more than 14% after the streaming service beat analysts’ estimates on both earnings and subscribers.

The oil market was on fire, literally and figuratively. Crude oil prices surged to new highs, as supply disruptions and geopolitical tensions kept the market on edge.

Gold and silver also gained, as investors sought safe havens from the market turmoil. The US dollar slipped, as confidence in the US economy waned. And the US Leading Indicator dropped for the 18th consecutive month. Ouch indeed!

So, what does all this mean for the market outlook? Well, as this chart shows, it’s not pretty. The market is caught between a rock and a hard place: inflation and interest rates on one side, and economic growth and earnings on the other.

The Fed and global events are adding to the uncertainty and volatility. The market is clearly in a bearish mood, but can it turn around? Or will it keep sliding down? That’s the million-dollar question.

Continue reading…

2. “Buy” Cycle (12/1/22 to 9/21/2023)

The current Domestic Buy cycle began on December 1, 2022, and concluded on September 21, 2023, at which time we liquidated our holdings in “broadly diversified domestic ETFs and mutual funds”.

Our International TTI has now dipped firmly below its long-term trend line, thereby signaling the end of its current Buy cycle effective 10/3/23.

We have kept some selected sector funds. To make informed investment decisions based on your risk tolerance, you can refer to my Thursday StatSheet and Saturday’s “ETFs on the Cutline” report.

Considering the current turbulent times, it is prudent for conservative investors to remain in money market funds—not bond funds—on the sidelines.

3. Trend Tracking Indexes (TTIs)

The market was optimistic that Fed chair Powell would signal a softer stance on interest rates in his speech at the Economic Club. This led to a brief surge in the middle of the day, but it quickly faded when Powell said that inflation was still too high. His words burst the market’s bubble and sent the major indexes plunging into the red.

Our TTI’s also took a hit and are now firmly in the bearish zone.

This is how we closed 10/19/2023:

Domestic TTI: -4.47% below its M/A (prior close –3.24%)—Sell signal effective 9/22/2023.

International TTI: -2.11% below its M/A (prior close -1.37%)—Sell signal effective 10/3/2023.

All linked charts above are courtesy of Bloomberg via ZeroHedge.

Gold Shines As Stocks Sink On Interest Rate Fears And Chip Woes

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The stock market had a rough day on Wednesday, after the S&P 500 got too close to its glass ceiling and bounced back down.

It was a busy day for earnings reports and rising interest rates, which made investors nervous and jittery. The 10-year bond yield jumped over 4.9%, the highest since 2007. That’s bad news for anyone who wants to buy a house, because the average 30-year mortgage rate just hit 8%, the highest since 2000. Ouch!

Earnings were a mixed bag, with only 10% of the S&P 500 companies reporting so far, according to FactSet. Most of them beat the low expectations, but that’s not saying much. The real question is what they expect for the future, and how the interest rates will affect their business.

Chip stocks like Nvidia and AMD had another bad day, as the U.S. government decided to limit their sales of AI chips to China. That’s a big blow to their growth prospects, and traders were quick to dump their shares.

The war between Israel and Hamas also weighed on the market, as investors flocked to gold as a safe haven. Gold prices soared again, along with energy and oil stocks. They were the only ones having a good time on Wednesday.

Banks were among the worst performers, especially Morgan Stanley, which dropped more than 6%. That was its worst day since June 2020. The short squeeze craze also fizzled out, as small-cap stocks took a nosedive.

With the AI sector in trouble, could we see a repeat of the Covid/Crypto boom and bust? Or is this just a temporary setback for the tech giants?

Read More

Markets Ride The Roller Coaster Of Rising Yields And Earnings

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The markets were like a roller coaster on Tuesday, as investors felt the heat from rising bond yields.

But they also got some relief from the third-quarter earnings season that kicked off with a bang. The 10-year U.S. Treasury yield soared to 4.84%, the highest since Oct. 6 — when it was a hair away from 4.9%. The reason? Retail sales data that came in hotter than a jalapeño, after plunging 5.4% in September.

Higher yields have been a thorn in the side of the market for weeks, as traders worry about the Fed tightening the screws for longer than expected. They also wonder how the Israel-Hamas war will affect the global economy.

It’s all about the bond market these days, as usual. The trend of higher yields, that started in July, is back with a vengeance after a brief pause. But there’s a silver lining: the 3rd quarter earnings season has been off to a good start, easing some of the traders’ fears. The question is: can that last, or will higher yields spoil the party?

Homebuilder Sentiment took another dive, hitting a 9-month low, while US Manufacturing Production shrank YoY for the 7th month in a row. The Service sector also tanked in October, reaching its lowest level since January.

These headlines confirm what traders already think: the economy is going downhill, and the Fed needs to cut rates to save the day. But what if they don’t?

Financial conditions have gotten worse, with rate hike expectations rising, which is bad news for stocks. But traders seem oblivious to that, even though they saw another bond sell-off due to soaring yields.

Just look at this: the 2-year yield hit 5.23% today, which is crazy considering the 2006 high was 5.275%. The last time it was higher than that was in December 2000, according to ZeroHedge.

The same thing happened with the 5-year yield, which reached 4.88%, the highest since July 2007. Ouch! No wonder mortgage rates are creeping up to the 8% mark, the highest in more than 23 years.

But thanks to another short squeeze, the S&P 500 managed to touch its resistance level, which matched its 50-day M/A. NVDA got hammered, the dollar ended flat, while gold moved sideways but closed slightly higher.

This makes me curious: how long can this gap between higher yields and rising stocks last? This chart has the answer, but we don’t know yet if it will be a snap down or a snap up.

Read More

Earnings Boost Stocks, Bond Yields And Middle East Woes Weigh

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Traders had a lot on their plate on Monday: a flood of corporate earnings reports, rising bond yields, and simmering tensions in the Middle East. But they chose to focus on the positive and pushed stocks higher.

The S&P 500 rose by about 1%, but it still faces a hurdle: the top of its downward trend channel that started in July. Could it break through this barrier and end the bear market rally? It needs another 0.75% boost to find out.

This week, 11% of the S&P 500 companies will report their earnings. Some big names include Johnson & Johnson, Bank of America, Netflix, and Tesla. Will they beat expectations or disappoint the market?

Wall Street traders are not relaxing yet. They know that volatility could spike by the end of the year, as bond yields and oil prices climb, inflation stays high, and conflict brews in the Middle East.

But they are also hopeful that earnings and the Fed will save the day. Powell will talk about interest rates and policy outlook on Thursday at the Economic Club in New York. Will he be dovish or hawkish? Will he taper its bond-buying program or keep it steady?

As for our Domestic Trend Tracking Index (TTI-section 3), it is still in bearish territory, meaning that the overall market trend is down. We are waiting for a signal to change our portfolio allocation.

In the meantime, trading in equities may be rangebound. The Middle East conflict is like a chess game that could turn violent at any moment. But earnings are like a ray of sunshine that could brighten up the market.

For now, traders are ignoring the dark clouds and enjoying the sunny day. They are driving equities higher, even as bond yields rise. As ZeroHedge showed in this chart, we have seen this movie before, and it did not have a happy ending.

The short squeeze strategy finally worked today, after failing for three days. The dollar fell, crude oil slid, and gold paused after soaring last week.

This week, we will also get some economic data on retail sales and housing. And we will hear from several Fed speakers, including Powell. Will they sing in harmony or discord?

Read More