ETF Tracker Newsletter For July 22, 2022

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ETF Tracker StatSheet          

You can view the latest version here.

SLOPPY AND CHOPPY BUT HIGHER ON THE WEEK

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Despite a choppy and sloppy trading session, which caused the major indexes to surrender some of their recent hard-fought gains, they ended the week in the plus with the S&P 500 advancing around 2.2%.

Volatility reigned supreme, as poor quarterly results from social media darling SnapChat cut the advances of the Nasdaq short. We can expect more roller coaster rides with upside earnings surprises supporting the bullish theme, while disappointments will put the bears back in charge.

Not helping matters were a slew of analyst downgrades, which predominantly affected the tech space. Verizon was the worst performer in the Dow and dropped more than 7% due cutting its full-year forecast.

Poor economic data did not improve sentiment, because the PMI index, which measures US Service and Manufacturing, crashed into contraction mode, while the Citi Economic Surprise index continued on its southerly path. As ZH put it, we are seeing “a worrying deterioration in the economy.”

This sent market expectations for rate-hikes down dramatically for the week, with the odds of a 100bps hike next week having dropped to only 9%, as per Zero Hedge. Subsequently, bond yields dropped sharply with the 10-year losing 12 bps to close the day at 2.76%.

As yields sank, so did the US Dollar, the short squeeze simply faded into oblivion and Gold finally recaptured its $1,700 level but lost for the week.   

As we’ve seen, market direction can change on a dime depending on the latest headline news, which means we will need to see much more consistent upward momentum, until our Trend Tracking Indexes (section 3) will give the go ahead to move back into equities.  

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 07/21/2022

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ETF Data updated through Thursday, July 21, 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 -6.54% and remains in “SELL” mode.  

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Tech Dominates

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Despite and early sell-off, the major indexes found some footing, wobbled all day yet managed to produce another green close for the second straight day.

It was a tug-of-war between those traders who were scouring the latest corporate earnings for indications that profits remain on an upward trend, which would support higher stock prices in the future.

On the other hand, worries persist that market sentiment may be in limbo, until we get more clarity on a variety of high-profile issues, like the outlook for the economy, future Central Bank interest rate policy and the ever-present political battles with all its uncertainties.

Even ugly housing data and demand destruction in the energy sector, as ZH described it, were not able to put a damper on equities which, with the help of a short squeeze, although with less conviction than yesterday, managed to provide the impetus for keep the rally going.

Bond yields inched up a tad and held the 10-year above its 3% level. Italy was in the limelight with their government collapsing, as their yields spiked to 3-week highs. The US Dollar rebounded a tad, after getting hammered over the past 7 days.

A big sell program in Europe did damage to Gold with the precious metal losing its $1,700 marker.

Uncertainty reigns, with Sam Stovall, chief investment strategist at CFRA Research, singing the same tune as I did yesterday:

History says, but does not guarantee, that yesterday was more likely a bear market bounce than the start of a new bull market.

Only time will tell.

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Gambling On A Market Bottom

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

After experiencing bobbing, weaving and some head fakes, traders finally stepped up to the plate and put some money on the betting table that markets might have finally found a bottom.

Bullish sentiment received some support from strong earnings, which appeared to show that companies are adapting to economic challenges better than feared after the horrific 2nd quarter.

The charge was led by news out of Europe that the Russian gas flows via the Nord Stream 1 pipeline are seen starting on Thursday, after its scheduled maintenance, but at less than its capacity. That is the exact opposite of yesterday’s news report, which said that no gas flows were planned in the immediate future. We’ll see if today’s news was nothing but a rumor.

Be that as it may, the markets benefited, at least for the day, and the rally continued unrelenting for a change. Even ugly housing data, showing single-family home starts and permits crash, as ZH reported, did not put a dent in today’s market ramp, as another degree of support came from a gigantic short squeeze.  

This Ramp-A-Thon knew no boundaries, as higher bond yields could not slow down the bullish effort either. And the 10-year conquering its 3% level and closing at 3.03% had no negative consequences on equities also.

The US Dollar slumped for the 3rd day in a row and closed at two-week lows, while gold ended the session slightly higher, and Crude Oil recaptured its $100 level.  

I think we’ll find out within the next couple of weeks, if we have a resumption of the bull market or of this was simply another dead-cat-bounce in an ongoing bear market.

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Head Fake!

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

After Friday’s rebound, the markets followed through to the upside this morning, as positive earnings by banking powerhouse Goldman Sachs supported the bullish mood. But as we’ve seen many times in the past, sentiment lost steam, and south we went.

Contributing to that sudden sour mood was a report from Apple that it plans to slow hiring and spending on growth next year to better deal with a possible economic downturn. That took the starch out of the rally with the Dow not only giving up an almost 400-point gain but sinking into the red.

Bond yields rose, but the 10-year failed to climb back above its 3% level. The US Dollar touched its March 2020 highs but retreated and closed lower. Gold ripped and dipped and ended up a tad in the green.  

Crude oil prices surged back over $100, despite the current administration’s attempt to persuade the Saudis to produce more oil which, based on today’s response, did not work out too well.

Earnings season will now accelerate, and surprises, up and down, are pretty much guaranteed with future market direction being depended on the headline of the day.

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ETFs On The Cutline – Updated Through 07/15/2022

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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 17 (last week 21) 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.