Tech Stocks Bounce Back As Nvidia Shines, But Bond Yields Threaten To Spoil The Party

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[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The tech sector finally got some relief, as the Nasdaq snapped a five-day losing streak and outperformed the other major indices. The S&P 500 also ended in the green, but the Dow barely budged.

The star of the show was Nvidia, which soared 8% ahead of its earnings report on Wednesday. The chipmaker received three more bullish upgrades, making its Boom/Bust chart look like this.

The tech rally was surprising, given that bond yields continued to climb to multi-year highs. The 10-year Treasury yield hit 4.34%, its highest level since November 2007, and closed there.

If the 10-year yield keeps rising, it could spell trouble for the stock market, as higher borrowing costs and lower valuations could dampen investor sentiment. The market already showed signs of weakness last week, when the S&P 500 and Nasdaq fell for a third consecutive week, and the Dow had its worst week since March.

Despite Monday’s bounce, I think the market is due for more correction. The bond market is offering attractive yields to investors who are skeptical about the earnings growth prospects of the S&P 500, which has been stagnant for about two years.

The dollar was flat, oil prices slipped but held above $80, and gold edged up +0.37%.

This week, all eyes will be on Federal Reserve Chair Jerome Powell, who will deliver a speech on Friday morning at the central bank’s annual symposium at Jackson Hole, Wyoming. Investors will be looking for clues about the Fed’s tapering plans and inflation outlook.

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ETFs On The Cutline – Updated Through 08/18/2023

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 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 (199 vs. 128 current).

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 August 18, 2023

Ulli ETF Tracker Contact

ETF Tracker StatSheet          

You can view the latest version here.

THE FED VS NVIDIA: WHO WILL WIN THE MARKET BATTLE?

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

It was a boring day on Wall Street, as the major indexes barely moved from their opening levels. They started the day in the red, but slowly crawled out of their holes like zombies. Options expirations did not make things more exciting, but they may have helped the indexes to break even, as August continues to be a tough month for stocks.

The week was not much better, as the Dow had its worst performance since March, the S&P lost ground for the third week in a row, which has not happened since February, and the Nasdaq joined the losing streak for the first time since December.

July’s bullish optimism seems to have faded away, as traders are no longer hoping for a soft landing in the economy. Instead, they are wondering how high the Fed will raise interest rates, as inflation worries persist. Yesterday, the 10-year bond yield reached its highest level since last October, but it eased up a bit today by a measly 3.5 basis points to end the week at 4.25%.

Interestingly, this week’s US macro data was better than expected, both in terms of hard numbers and soft surveys. But this did not help stocks, as the Fed’s hawkish minutes raised the odds of a rate hike sooner rather than later, while also lowering the chances of a rate cut next year.

This was a double whammy for traders, who shifted into risk-off mode with Small Caps being the biggest losers of the week. Regional bank stocks also suffered for the third week in a row, and bond yields rose across the board. The 2-year yield briefly touched 5% but could not hold on to it.

Given the rise in yields, it was no surprise that the dollar rallied and broke above its 200-day moving average. Gold bounced back today and managed to stay above $1,900.

Next week, all eyes will be on Nvidia’s earnings guidance on Wednesday and Fed Chair Powell’s speech at Jackson Hole on Friday.

If this chart is anything to go by, Nvidia may disappoint investors with its outlook. And then there is this…  

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 08/17/2023

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ETF Data updated through Thursday, August 17, 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: 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 has now broken above its long-term trend line (red) by +1.14% and remains in “Buy” mode.

The link below shows all High Volume (HV) Domestic Equity ETFs. They are ranked by M-Index, which is my secret sauce for measuring momentum. Prices in all linked tables below are updated through 08/17/2023, unless otherwise noted. Price data not yet available at publication is indicated with 00.00% or -100.00%. Please note that distributions are not included in the current momentum numbers.

If the TTI is above the trend line, you can use the tables in the link below to pick your winners:

http://www.successful-investment.com/SSTables/HVDomETFs081723.pdf

  1. INTERNATIONAL ETFs: BUY — since 12/01/2022

Click on chart to enlarge

This is our global guide, the International Trend Tracking Index (green). It has moved +2.81% above its long-term trend line (red) and is now in “Buy” mode as posted.

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Market In Turmoil: Stocks And Bonds Fall Together As Traders Lose Hope In Fed

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The Fed’s July meeting minutes have caused quite a stir in the market today. Traders are struggling to swallow the bitter pill of rising rates, along with a mixed bag of earnings and economic data.

The 10-year bond yield jumped to its highest level since last October, and rates across the board (including globally) are climbing higher. The Fed’s latest words confirmed that they are still worried about inflation getting out of hand.

Even Walmart couldn’t save the day, despite beating earnings and revenue expectations and raising its full-year guidance. The stock fell by 2%.

It’s been a rough August so far, as the major indexes are on track for another losing week. The S&P 500 has given up -4.8% month to date. It seems that sentiment has changed, and traders have switched from “Buy the dip” to “Sell the rip,” a rare phenomenon in the market.

Of course, this shouldn’t be a surprise, considering that the gains of the first half of 2023 came mostly from the AI related rally, as well as the hope that the Fed would change its mind from hawkish to neutral or even dovish. But that hope may have been a mirage, hence the change in sentiment.

Sure, this could be just a minor setback and eventually turn out to be a buying opportunity on the way to another bull run, but that won’t happen without the Fed’s help.

If nothing else works, the bulls can always try another short squeeze, but that hasn’t worked either. The most shorted stocks have declined 12 of the last 13 days.

The dollar was flat, and gold continued its downward trend, while crude oil reclaimed its $80 level.

Surprisingly, stocks and bonds sank together, which means, if this continues, the S&P 500 has some 800 points to go before it catches up with HYG, as this chart shows.

Ouch! You better have your exit strategy ready, as we are approaching a possible domestic “Sell” signal (section 3).

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Fed Minutes Crush Traders’ Hopes Of Rate Pause

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The Fed’s July meeting summary was a wake-up call for those traders who were dreaming of a pause in the rate hikes. The summary was as blunt as a hammer:

Inflation is way too high, the labor market is too tight, and we see more risks of inflation going up, so we might have to tighten the monetary policy even more.

The Fed minutes also said that the economy needs to cool down a bit, so that people don’t spend too much. But the recent data on retail sales and GDP show that people are still spending like there’s no tomorrow, so they’ll probably keep raising the rates until we see some signs of a recession.

All the US stock indexes took a dive, with the Nasdaq and Small Caps leading the plunge. The Nasdaq 100 fell below 15,000 for the first time since June, while the S&P, Nasdaq, and Russell 2000 all closed below their 50-day moving averages.

Regional bank stocks also suffered, as bond yields kept climbing higher and higher. The 30-year yield reached its highest level since last October, and the 2-year yield was close to breaking its 5% resistance level.

The dollar was on a roll, gaining for the fifth day in a row, while crude oil dropped below $80, and gold fell below $1,900 to its lowest level since March.

NVDA bounced back as expected and seemed to follow the same pattern as the Covid/Crypto boom/bust cycle, while the S&P 500 vs. High Yield credit HYG showed a similar bearish outlook.

Will the S&P catch up with HYG, or will HYG catch down with the S&P?

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