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 (63 vs. 69 current).
STOCKS FALL ON FRIDAY AS INFLATION FEARS SPOOK INVESTORS: IS THE FED STUCK BETWEEN A ROCK AND A HARD PLACE?
[Chart courtesy of MarketWatch.com]
Moving the markets
The markets had a roller coaster ride on Friday, as oil prices soared, and inflation fears spooked investors. Wall Street closed a turbulent week with losses across the board, but the major indexes eked out a gain.
Big banks like JPMorgan Chase and Wells Fargo reported strong earnings for the third quarter, thanks to a generous bailout from Uncle Sam earlier this year (1st Republic Bank). But that didn’t impress the market much, and stocks only got a brief lift from lower Treasury yields.
The 10-year yield dropped to 4.598%, while the 2-year yield dipped to 5.02%. The Fed tried to calm the nerves of traders, as Philly Fed President Patrick Harker said he sees no need to hike rates anytime soon.
But the market wasn’t buying it, as consumer sentiment plunged in October and inflation expectations surged to the highest level since May. The one-year inflation outlook jumped from 3.2% to 3.8%, dragging down the US Macro data index.
The S&P 500 hit rock bottom midday, as oil prices spiked over 6% amid fears of a wider conflict in the Middle East.
The Israel-Hamas war rattled the oil market, sending WTI crude up more than 4% for the week, its best performance since Sept. 1. Gold also shined, jumping over 3% on Friday and over 5% for the week, its biggest weekly gain since March.
Investors flocked to “war hedges” like gold and oil, as bond yields slipped but remained above 5%.
The Nasdaq was flat for the week, while the S&P and Dow eked out small gains despite some nasty swings. Small Caps got hammered, losing over 3% for the week, their worst performance since March.
Airlines also took a beating, as higher oil prices hurt their bottom line. The Regional Bank Index (KRE) fell, even though bank earnings were solid. The most shorted stocks continued their downward spiral, falling for the ninth time in eleven weeks. The dollar had a wild ride, ending slightly higher for the week.
It was a crazy week on Wall Street, but nothing seems to shake the Fed’s resolve to keep printing money like there’s no tomorrow. But how long can they keep this up?
They have two choices: either raise rates and kill inflation along with the economy and the markets or keep printing money and kill the dollar in your pocket.
ETF Data updated through Thursday, October 12, 2023
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: 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 -3.30% and has moved into “Sell” mode effectively 9/22/2023.
U.S. stocks ended lower on Thursday, snapping a four-day winning streak, as investors digested the latest inflation data and a dismal bond auction.
The consumer price index (CPI), a key measure of inflation, rose by 0.4% in September and 3.7% year-over-year, beating the consensus estimates of 0.3% and 3.6%, respectively.
The core CPI, which excludes volatile food and energy prices, matched the expectations of 0.3% monthly and 4.1% annual increases. The inflation data followed a stronger-than-expected producer price index for September, which showed a stronger-than-expected producer price index for September.
The inflation numbers spooked the bond market, sending the yields on the 10-year Treasury note soaring by more than 14 basis points to 4.705%, near its intraday high. The catalyst for the yield spike was a terrible 30-year bond auction, which had the highest yield since 2011.
The bond market rout dragged down the stock market, as higher yields make equities less attractive and raise borrowing costs for companies and consumers.
Crude oil prices were flat, despite the ongoing conflict between Israel and Hamas, which raised fears of a supply disruption in the Middle East.
The dollar rallied on the back of rising yields, while gold prices gave up their earlier gains. Financial conditions eased, despite the Fed’s recent announcement that it was happy with the market’s tightening response.
Will the Fed change its course if inflation persists, and bond yields continue to surge? How will the stock market react to the Fed’s next move? These are the questions that traders will be asking themselves in the coming days.
Stocks went up on Wednesday as investors shrugged off the latest inflation scare and celebrated a big deal in the oil industry (Exxon swallowed Pioneer Natural Resources).
Treasury yields kept falling from the 16-year peaks they hit last week, which gave stocks a boost after a midday slump. Another factor that helped stocks bounce back was the easing of financial conditions in the past few days, as the Middle East turmoil sent investors running for the safety of bonds.
I wonder if some hawkish Fed officials will show up soon and talk rates back up again. The producer price index (PPI) climbed 0.5% in September, beating the forecast of 0.3%. This pushed the headline number up by 2.2% year-over-year. That’s the highest annual increase since April 2023 and the third month in a row, as food prices soared to levels not seen since November 2022.
The 10-year Treasury yield dropped even after the hotter-than-expected inflation data, reaching its lowest point since Sept. 29. The 10-year shed more than 9 basis points to 4.569%.
If bond yields keep going down despite rising inflation, I think that will be the main reason for a decent recovery in the stock market. But it all depends on how bad the inflation numbers get.
Tomorrow’s CPI may give us a better idea of where we’re headed. Yesterday’s short squeeze was nowhere to be seen today, the dollar was steady, crude oil cooled off, and gold kept climbing to hit two-week highs.
Minutes from the Fed’s latest meeting due later today will reveal more about the central bank’s plans for raising interest rates after it decided to skip a hike last month.
And tomorrow, it will be all about the CPI which, if worse than expected, could wake bond yields from their dovish nap.
Will inflation keep spooking the markets or will bond yields come to the rescue?
U.S. stocks went up on Tuesday, thanks to lower Treasury yields and a short squeeze.
Wall Street was busy assessing the geopolitical risks of the Israel-Hamas war, which has been going on for longer than some Netflix shows.
The 10-year Treasury yield ended down 15 basis points to 4.65%, as investors flocked to the safe haven of bonds amid the conflict. The bond market was closed on Monday for Columbus Day, so this was its first chance to react to the war.
The drop in yields gave stocks a boost, as Wall Street was worried about the recent spike in interest rates. Investors may also be ignoring the geopolitical risks caused by the conflict, helped by Friday’s allegedly strong September jobs report and optimism ahead of a bunch of earnings this week.
However, there was a buzzkill in the form of Paul Tudor Jones, the legendary hedge fund manager who said that he doesn’t like stocks right now. He prefers bitcoin and gold, as he thinks the US Treasury can’t protect investors like it used to.
I agree with him, and our Trend Tracking Indexes (TTIs) confirm the uncertainty and instability we are in. The bear market rally of the last few days has only helped investors recover some of their losses, which they suffered after our Sell signal on 9/22/23.
As I write this, I think the market may go up another 1-1.25% before hitting resistance and reversing. The inflation reports tomorrow, and Thursday (PPI and CPI), will likely affect market direction.
The dollar continued to slide, oil prices were slightly lower, and gold was flat but holding on to its gains.
Looking at this chart, it seems that financial conditions are too tight for stocks to be this high. Or is this just a preview of what’s coming soon?
