Creeping Higher

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

While the major indexes were hugging their respective unchanged lines for most of the session, a last hour breakout allowed equities to close moderately in the green after the thrashing of last week.

It was aimless meandering for the most part with the Dow trading in a range from -260 points to +180 points. Rising bond yields, ahead of the Fed’s decision on interest rates this Wednesday, pushed the 10-year to 3.51%, it’s highest in 11 years. However, it faded back into the close.

Traders pretty much have accepted an upcoming hike of 75 bps, as the Fed appears to be determined to snuff out inflation, with some analysts even expecting a 100bps increase. It seems that the reality has finally set in that Fed chief Powell will not pivot (to lower rates) as had been hoped for during the summer.

In economic news, we learned that homebuilder sentiment in the US tumbled for the 9th straight month, which is its longest losing streak since 1985, as ZeroHedge reported. That looks to be another nail in the real estate coffin, as mortgage rates have now hit 6%.

The US Dollar range traded, Crude Oil dumped and pumped, while Gold followed suit.     

Added a Bespoke strategist:

The S&P has now traded below its key 200DMA for 110 straight days – the longest streak since the bear markets of 2008-2009 and 2000-2002. It’s going to be hard to get too excited until the S&P moves back above its 200-day moving average.”

That goes along with my thinking that you should be invested only during major uptrends and avoid the choppy and sloppy bear markets rallies and their subsequent breakdowns.  

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ETFs On The Cutline – Updated Through 09/16/2022

Ulli ETFs on the Cutline Contact

Below, please find the latest High-Volume ETF Cutline report, which shows how far above or below their respective long-term trend lines (39-week SMA) my currently tracked ETFs are positioned.

This report covers the HV ETF Master List from Thursday’s StatSheet and includes 312 High Volume ETFs, defined as those with an average daily volume of more than $5 million, of which currently 25 (last week 38) are hovering in bullish territory. The yellow line separates those ETFs that are positioned above their trend line (%M/A) from those that have dropped below it.

Take a look:                                                                   

The HV ETF Master Cutline Report

In case you are not familiar with some of the terminology used in the reports, please read the Glossary of Terms. If you missed the original post about the Cutline approach, you can read it here.      

ETF Tracker Newsletter For September 16, 2022

Ulli ETF Tracker Contact

ETF Tracker StatSheet          

You can view the latest version here.

FedEx WHACKS MARKETS

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

After yesterday’s thrashing, the markets continued to vacillate in red territory throughout the entire session, but the major indexes managed to rebound a bit to close off the lows for the day. Still, it was a week that most traders were relieved to see come to an end, as the losses were broad with the S&P 500 dropping 4.8%. Ouch!

Not helping matters was FedEx, after it withdrew its full-year guidance and said it will implement cost cutting initiatives, as the global economy has drastically worsened. The stock got clobbered and ended down some -24%. Transports tend to be the canary in the coalmine, so we can expect more negative announcements in that area.

The major indexes have now scored their fourth losing week out of five, which gives even more credence to the idea that any rebound is merely a dead-cat-bounce, as my indicators are confirming via their position below their respective trend lines (section 3).

Bond yields rose this week, the US Dollar surged, which meant Gold could not hold on to some of its gains, and the precious metal closed lower despite today’s bounce.   

Added ZeroHedge:

In a scenario where the Fed has to keep pushing against growth until the unemployment rate reaches 5%, we see S&P 500 down-side to 3400.

And in a scenario where unemployment hits 6%, the S&P 500 may dip below 2900. In other words, there may be a lot more downside to markets if stagflation persists.

Updating and extending the financial crises analog to 2008-2009, this picture is worth a thousand words.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 09/15/2022

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, September 15, 2022

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 an 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: SELL — since 02/24/2022

Click on chart to enlarge

Our main directional indicator, the Domestic Trend Tracking Index (TTI-green line in the above chart) has broken below its long-term trend line (red) by -5.76% and remains in “SELL” mode.

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Struggling For Direction

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

After yesterday’s bloodbath, it came as no surprise that dip buyers surfaced and nibbled hoping to catch the market equivalent of a falling knife. The major indexes vacillated above and below their respective unchanged lines but managed to eke out some small gains, thanks to a last hour rebound.

Trying to find some footing during this choppy and sloppy session was the goal, after the indexes notched their biggest one-day drop in more than two years. The Dow was the weakling and barely reached its unchanged line after an early 200-point drop.

Traders are now pondering the uneasy question as to whether equities will head back to their June lows, or even break through that marker and fall much further, as the certainty, that the Fed is serious about fighting inflation, has everyone on edge.

However, in the end, equities could face a double whammy, or a “death blow,” as ZeroHedge called it, when higher rates and lower earnings (from the upcoming economic slowdown) combine forces to push stocks to much lower levels.

After all, when lower rates and a growing economy support higher stock valuations, the opposite also holds true—and that looks to be the direction we are headed.

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Markets Puke After CPI Data

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The wishful thinking of traders and algos alike, that peak inflation was behind us, came to a screeching halt today, when the latest CPI number showed a worse than expected reading of 8.3, and that a Fed pivot to lower rates is now nowhere on the horizon.

For months, I have commented ad nauseam that inflation is only in the beginning stages, even though last month’s CPI dropped a tad from the prior one, as if one lower reading represents a trend.

And just like that, the eager front runners, who pushed this market higher, starting after Labor Day, ran into the buzz saw of reality and surrendered all profits in one session. In other words, the dead-cat-bounce has died on the vine, as the Fed will now for sure hike rates at least 75bps next week—or even 100bps.

The major indexes tanked in unison, as not only the Fed’s hopeful pivot disappeared but also the odds of wishful soft landing. The Fed and his staff had made it abundantly clear over the past few weeks that fighting the inflation monster would be their main priority, a theme that was simply dismissed by traders and algos alike, so today, the piper had to be paid for that ignorance.

There was no place to hide in this ocean of red, and even Apple, after having its best day since May yesterday, suffered its worst day since May, as ZeroHedge pointed out. That’s the kind of idiotic market environment we’ve been in for a while, with the much talked about short squeeze abruptly coming to an end.

Bond yields screamed higher, as bond prices got slammed with the 10-year rallying 10bps to close at 3.42%. Rate hike expectations surged, while the US Dollar shifted in reverse and rallied thereby taking Gold back down, but the precious metal defended its $1,700 level.

As ZH pointed out with this chart, it’s catch-down time for stocks, and with a $3.2 trillion options expirations day lurking on Friday, will the 2008-2009 analog hold?

As Trend followers, we are out of equities and will watch the show from the safety of the sidelines.

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