Vaccine News + Short Squeeze = Higher Stocks

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The futures markets pointed to higher equity prices, as AstraZeneca became the latest competitor in the Covid-19 vaccine creation fest saying its product would be 90% effective.

News over the weekend that the first vaccine could be available within weeks after the anticipated FDA approval in mid-December helped the market continue its northerly path during the regular session.

A mid-day sell-off was the result of suggestions from the Biden administration that there would be no compromise on stimulus, which caused the US Dollar to spike and gold getting hammered. I expect this condition to be ephemeral in nature and look for a reversal by sometime next week.

The main beneficiary of today’s vaccine news was Small Caps, which soared to a record high, as the result of a gigantic short-squeeze and a bulletin that Biden’s primary pick for Treasury Secretary would be stimulus-hungry Janet Yellen.   

In the end, the Dow lead the major indexes, with the Nasdaq lagging, as Apple got clobbered and lost some 3%, in the process breaking below its 50-day M/A.

ZH noted that hard (real economy) and soft (survey) data have massively decoupled on nothing but a sea of hope:

Sooner or later, I expect a recoupling to occur.

Could it be the forced selling of up to $310 billion by year-end due to the upcoming pension rebalancing of their 60/40 equity/bonds split, as JP Morgan claims?

We will have to wait to find out…

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ETFs On The Cutline – Updated Through 11/20/2020

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 285 (last week 282) 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 November 20, 2020

Ulli ETF Tracker Contact

ETF Tracker StatSheet          

You can view the latest version here.

BARFING INTO THE CLOSE

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

An early rally in the Nasdaq ran out of steam late in the session with the index following the Dow and S&P 500 via a sudden swan dive into the red.

The usual culprits contributed to the lackluster day, namely rising Covid cases along with worries about a worsening of the economic slowdown. The new kid on the block of concerns was a split, or rather lack of coordination between the Fed and the Treasury with the latter asking the former about the allocation of some $455 billion for the CARES act to be made available to Congress to reallocate:

The Fed was instantly triggered, issuing a counter statement saying the “full suite” of measures needs to be maintained and although the programs were not used extensively, Fed officials felt their presence reassured financial markets and investors that credit would remain available to help businesses through the pandemic.

While the spat continues, it left traders in a sour mood, which did not help the indexes, as the Dow and S&P scored their first weekly decline in three weeks.

Gold managed to eke out a gain in the face of not only equity weakness but also a sliding dollar and slipping bond yields.

Given the ever increasing monetary and fiscal stimulus packages, which show no signs of slowing down, my view is that anyone should make gold a core holding in their portfolio.

Analyst/money manager Peter Schiff has a similar view and describes the current environment this way:

People weren’t buying gold because of COVID. They were buying gold because of the monetary and fiscal policy that was a response to COVID. Well, since those policies are not going to go away — in fact, they’re going to get worse, we’re going to have even more monetary and fiscal stimulus, even if these vaccines work than we had before. So, there’s no reason to be selling gold based on a COVID vaccine. You should be buying gold based on the reality that it doesn’t matter what happens to COVID. We’re going to keep printing money and we’re going to keep interest rates artificially low.”

Wise words indeed.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 11/19/2020

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, November 19, 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 +18.76% and remains in “BUY” mode as posted.

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Tech Sector Stages Revival

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The tech sector, which had been lagging the major indexes for a few weeks, staged a comeback today, as traders suddenly considered it to be some sort of safety play in the face of mounting Covid-19 incidents. As a result, the Nasdaq outperformed the Dow and S&P 500 by a substantial margin.

For most of the session, the S&P 500 trod water, but a sudden shift in sentiment caused by a headline pointing to a resumption of negotiations by Democrats and Republicans, was labeled by Politico’s Sherman as follows:

“Republicans are describing the meeting this afternoon as being about government spending ahead of the Dec. 11 deadline while “Democrats are describing the meeting as being about Covid relief/government spending.”

While these are pretty meaningless statements, there apparently was enough meet on the bone to send the algos into overdrive with the indexes suddenly showing signs of life. Though this took the US Dollar down, it was not enough to pump gold back into the green.

Economic data were mixed with Existing Home Sales soaring to its highest in 15 years, but a re-acceleration of Initial Jobless Claims showing that “only” 742,000 Americans filed for first time unemployment claims last week, offset that news. This broke a 4-week streak of drops, according to ZH, causing fears of more fallout from the second-wave lockdown to become evident.

John Hussman talked about the valuations in US Stocks, which has never been more extreme, even at the 1929 and 2000 market peaks:

He continues to expect the S&P 500 Index to lose two-thirds of its value over the completion of the current market cycle. That loss would not even breach historical valuation norms, but it would at least bring estimates of long-term expected S&P 500 returns closer to their historical average…

As I pointed out yesterday, never become complacent.

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Losing Support And Dumping Into The Red—No Time For Complacency

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The tug-of-war between vaccine giants Pfizer and Moderna shifted into overdrive with the former now besting the latter by pointing to its final analysis, which verified a 95% effective rate vs. Moderna’s previous 92%. I am sure that we have not heard the last of it.

The news of that advancement was offset by rising Covid-19 cases and coast-to-coast lockdowns and restrictions, some of which are worrisome due to their open-ended nature.

For sure, the markets had gotten ahead of themselves after the initial vaccine news with the question now being “when” regarding availability. Still, some of the long-term uncertainty has been removed.  

An early rally bit the dust, and the bears took the opportunity to drive the indexes into the red, in the process losing all their week’s gains, and closing at the day’s lows.

Chimed in BofAs CIO Michael Hartnett:

“It’s time to turn bearish for the near-term and “sell the vaccine” because Wall Street has gone “full bull.”

With the election outcome still undecided, ZeroHedge dug in a little deeper into Wall Street’s admission that “Civil Unrest” could crash markets:

… what we found remarkable is that after “tech bubble” in 2nd place in the list of biggest tail risks, “Civil Unrest” suddenly popped into 3rd place, after not being cited as a notable risk in any of the previous BofA surveys.

What that means is that despite reckless money printing and creation of liquidity coupled with the lowest interest rates ever, a Black Swan event could appear out of nowhere and take the markets down—big time.

Hence my continuous and unending insistence that you never expose yourself to equities without an adequate exit strategy that addresses your risk tolerance. Complacency and hope are not viable investment approaches.

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