Dow Dominates Markets

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[Chart courtesy of MarketWatch.com]

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It was another sloppy and choppy session with the Dow being the leader, while the Nasdaq was unable to climb out of an early hole, but it trimmed some of its initial losses. The S&P struggled all day but closed in the green, while gold came off its early highs but hung on to some modest gains.

Commented MarketWatch:

Investors monitored signs that a long-awaited rotation on Wall Street into more economically sensitive cyclical stocks could be brewing, but at the expense of their highflying counterparts.

However, more attention was given to Trump’s signing of executive orders extending some of the coronavirus relief benefits. Maybe that will push the warring parties back to the negotiating table for a reasonable solution to the current crisis, while abandoning irrelevant pork that has nothing to do with the Covid-19 disaster.

While the torrid advances of gold and silver have slowed a bit during the past couple of trading days, the bull run is far from being over.

Analyst Graham Summers noted in his latest mailing:

The reality is that the only way the Fed could stop gold’s rise would be to begin tightening monetary policy via interest rate hikes and reducing its Quantitative Easing (QE) program.

The Fed cannot do this without triggering a market crash. As I’ve noted on these pages before, the ONLY thing that stopped the March meltdown was the Fed going nuclear with monetary easing, providing over $3 trillion in liquidity.

Indeed, today the Fed continues to spend over $125 BILLION per month in QE a full three months AFTER the crisis. And the Fed has stated it will continue to do this until there is a full recovery (the Fed believes this will come at the end of 2021).

Put another way, the Fed is trapped. It can either tighten monetary policy and crash the markets, or it can let inflation run wild and gold will go parabolic.

In the meantime, the saber rattling continued between the US and China with new sanctions against politicians and organizations being considered. Then we learned that Chinese jet fighters crossed the midline of the Taiwan Strait, just as a senior US official was visiting the island.

All these developments increase uncertainties, which to me means gold should be an important component in anyone’s portfolio.

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ETFs On The Cutline – Updated Through 08/07/2020

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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 227 (last week 198) 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 August 7, 2020

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ETF Tracker StatSheet          

You can view the latest version here.

DOLLAR POPS AND GOLD DROPS

[Chart courtesy of MarketWatch.com]

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The declining US dollar finally showed some signs of life and rebounded causing gold, after its torrid run, to give back some of its outsized gains.

It was a choppy and sloppy day in the markets with the Dow and S&P 500 regaining all of their mid-day losses, while the tech sector and gold were not able to and stumbled into the weekend with moderate losses.

All three major indexes started the session on the downside, despite the US adding 1.76 million jobs in July, but hiring slowed after the latest coronavirus outbreak. Despite the unemployment rate falling for the third straight month to 10.2% from 11.1%, it became clear that this alleged recovery is very fragile in nature and can reverse or even bite the dust at any time.

That is why market reaction was muted with various asset classes selling off, in addition to the fact that no matter how bullish momentum may be, nothing ever goes up in a straight line. Given the strong gains earlier in the week, today was a day of pausing and profit taking with the mixed jobs report providing the perfect excuse.

Analyst Jim Bianco saw it this way:

Talks on passing the latest stimulus package are stalled. This is stimulus checks and additions to unemployment insurance.

Does anyone doubt if the stock market tanked 10% to 20%, they would pass this bill immediately?

But it does not tank because the Fed and their “unlimited printing press” stand ready to halt any “unpleasantness” in markets.

So, the better the “wealthy” do (stockholders) the less the urgency to help the “not wealthy” (non-stockholders).

The worst inequality ever?

Not helping matters was that the biggest weekly short squeeze in two months simply ran out of steam today, as Bloomberg’s chart shows.  

In the bigger scheme of things, today’s pull-back was minor, especially when considering that for the week, the S&P 500 gained +2.45%, while the Nasdaq added +2.47%.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 08/06/2020

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ETF Data updated through Thursday, August 8, 2020

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 a 7.5% 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. Since these areas tend to be more volatile, I recommend a wider trailing sell stop of 7.5% -10% 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: BUY — since 07/22/2020

Click on chart to enlarge

Our main directional indicator, the Domestic Trend Tracking Index (TTI-green line in the above chart) has now rallied above its long-term trend line (red) by +4.96% and remains in “BUY” mode as posted.

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Chopping Around The Unchanged Line, Then Leaping Into The Close

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[Chart courtesy of MarketWatch.com]

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The major indexes meandered around their respective unchanged lines for most of the morning, when news that the State Department had lifted its global travel advisory from 4 months ago hit the wires. That was like poring gasoline on a fire, and the indexes rocketed higher for the remainder of the session and never looked back.

The gains were solid across the board with the Nasdaq faring the best out of the 3 indexes, but the tech sector was not able to catch gold’s performance with the yellow metal closing +1.25% at $2,075, now having been up 14 out of the past 15 days.

The early update on initial/continuing jobless claims offered a “positive” surprise, as they fell slightly after having risen for two weeks in a row. I don’t see the optimism, because still 1.186 million new Americans signed up for jobless claims for the first time. Ouch!

That new layoffs are well under way, is further confirmed by this study summarizing it like this:

Of workers who were placed back on payrolls after being initially laid off/furloughed as a result of the COVID-19 Pandemic Crisis, 31% report that they have been laid off a second time, and another 26% of those placed back on payrolls report being told by their employer that they may be laid off again.

Again, none of the above matters to the markets, until one day when it does. In the meantime, all eyes are on tomorrow’s jobs report, and it will be interesting to see how it will be spun in a positive light to keep the market levitation intact.

ZH summed up the insanity in the current market environment like this:

As Bloomberg notes, the pause in the leadership of the mega-cap technology stocks is over, as evidenced by their dominance today. Nearly all of the S&P 500’s 18-point gain can be explained by five stocks: Apple, Facebook, Microsoft, Amazon and Alphabet. That’s how the index can rise even though 54% of its stocks are down at the moment. Among the group on pace for all-time closing highs: Apple, Amazon and Facebook.

However even AAPL’s stunning move pales in comparison to the 150% surge in silver from its March lows.

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Nasdaq Sets Record—Gold Hits New All-Time High

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[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The Dow raced ahead and ended just short of a 400-point gain, but gold again outperformed with another solid +1.53% showing. The S&P closed within 1.7% of its all-time high.

The mood was upbeat, not because of facts, but merely hope of further stimulus from the government to assist the out-of-work Americans. However, concerns surfaced that Friday’s widely anticipated payroll report may show that the rise in Covid-19 infections could have stalled the recent revival of business activity.

Added MarketWatch:

Payroll provider Automatic Data Processing Inc. ADP, also said only 167,000 private-sector jobs were created in July, far short of the 1.88 million forecast by economists polled by Econoday. However, a reading of services from the Institute for Supply Management service sector index jumped to a reading of 58.1 in July, beating expectations and signaling stronger economic growth.

While tech trailed the other 2 indexes today, the Nasdaq nevertheless has now closed higher in six straight sessions and has been outperforming the Dow and S&P 500 YTD, but it is still lagging gold, which again roared into record territory.

This word of caution came from ZH:

A body in motion will remain in motion.

And while tech bulls will pounds the table and vow that the current tech bubble is far less dangerous than the dot com bubble of 2000, the reality is that that fwd multiples are now exponential and it is only a matter of time before this particular law of Newton encounters a sufficient painful “external force” that will burst the current tech bubble too.

In the meantime, as you would expect from gold’s surge, the negatively affected asset class is the US Dollar, which, thanks to the reckless money printers at the Fed, continues its path of least resistance—down.

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