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 224 (last week 171) 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.
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.
Earnings season started with a bang yesterday, after some better-than-expected results unleashed bullish sentiment and sent the major indexes higher. Eight members of the S&P 500 beat Wall Street’s expectations, which set the positive tone for Thursday.
That momentum carried through into today, with Goldman Sachs following the path of other stellar report cards from heavyweights like JPMorgan, BofA, Morgan Stanley and Citigroup, all of which painted a “strong and healthy” picture of the US consumer, as analysts like to call it.
As of today, 80% of the 41 S&P 500 companies that have reported third-quarter results have topped earnings-per-share expectations, according to FactSet.
Retail sales surprised to the upside by rising 0.7% vs. economists’ expectations of a 0.2% decline. Obviously, the supply chain interruptions have not put a dent into the retail level. However, fears abound that higher prices will eventually create a fall-off in demand.
That will be in the cards sooner or later, as the Producer Price Index (PPI) accelerated into record territory, as ZeroHedge reported, by jumping +0.5% MoM to a new record of +8.6% YoY. This was against higher expectations of +0.6% MoM and +8.7% YoY.
Today’s rally was broad based with SmallCaps being the exception, when that sector, after an early bounce, swan dived and closed in the red. Quite a divergence, as this chart demonstrates.
And, as we’ve seen all week, an early well-timed short squeeze contributed to get upward momentum started during the past four trading sessions, but eventually the short-squeezers ran out of ammo, as ZeroHedge called it.
The US Dollar, after plunging two days in a row, found some footing and managed a mid-day rebound, which ran out of steam near the close. Bond yields rose with the 10-year spiking to 1.575%, which took the starch out of gold’s rally and made the $1,800 a tough number to conquer resulting in the precious metal to give back its recent gains.
The not so funny part about this rally is that, despite the indexes racing back towards all-time highs, Consumer Sentiment showed its second lowest level in a decade, as Bloomberg via ZH demonstrates in this chart. Go figure…
ETF Data updated through Thursday, October 14, 2021
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 8% 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 8%-10% depending on your risk tolerance.
If you are unfamiliar with some of the terminology, please see Glossary of Termsand 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 +6.36% and remains in “BUY” mode as posted.
Two of the three major indexes found themselves in an early hole, but late session bullishness reversed the initial trend and assured a steady upward climb. The Dow reached its unchanged line, the S&P 500 ended up with moderate gains, but the Nasdaq bounced in the green all day and produced a solid advance of 0.73%.
The 3-day losing streak is now in the rearview mirror with some support coming from the widely analyzed FOMC report, which showed that the Central Bank could begin tapering its asset-purchase program as soon as by the middle of November:
Participants generally assessed that, provided that the economic recovery remained broadly on track, a gradual tapering process that concluded around the middle of next year would likely be appropriate,” the minutes said.
No surprises there, so traders focused on the CPI numbers. The index jumped 0.4% in September from the prior month and 5.4% year over year vs. expectations of 0.3% or an annualized rate of 5.3%. Of course, one analyst could not help himself by stating that most of these inflationary pressures are transitory. Yeah right.
The US Dollar dipped and ripped and then lost all momentum and closed down -0.51%, joined by 10-year bond yields, which also showed weakness. This combination, coupled with continued uncertainty, proved to be a boon for gold with the precious metal roaring towards its $1,800 level and gaining almost 2%.
Despite the rebound supported by dip buyers, there is one segment of the markets that still does not participate, as Bloomberg shows in this chart. Makes me wonder why…
It had to happen eventually, and today was the day when Atlanta Fed President Bostic finally broke away from the common theme, and confirmed what I have been saying all year:
Price surges caused by supply-chain disruptions, or the reopening of the services sector are likely to last, i.e., they are not transitory, and seem to be broadening to more parts of the economy, i.e., getting worse.
In other words, inflation will be with us and will not be of a transitory nature. While other Fed officials are singing a different tune, I would not be surprised if they adopt this type of narrative—eventually.
The markets continued to be affected by volatility, and the result was sloppy and choppy trading, with dip buyers finding no reason to step in and clean up this mess. With a key inflation reading (CPI) ahead of us, as well as retails sales numbers, and the earnings season on deck, the major indexes slid for the third straight session.
Adding to this uncertainty is Wednesday’s release of the minutes from September’s FOMC meeting, which will be dissected for any clues about the Central Bank’s plans to reduce easy monetary policy.
Headwinds abound, and traders are looking for directional guidance wherever they can find it, with slower economic growth ahead being a major threat.
During this session, the US Dollar ended up a tad, as 10-year bond yields slipped to 1.573%, which allowed Gold to edge higher by a moderate 0.32%. While this day was volatile, it was quiet with tight trading ranges prevailing across the indexes, but this will likely change given the variety of upcoming events.
An early broad rally bit the dust, with the major indexes losing all initial gains and not just sliding into the red but also closing at the lows of the session.
While the bond market was closed in the US, the Chinese probably wish theirs would have been too, but no such luck. They were fully open, and traders took advantage of it by focusing on one thing only, namely selling.
ZeroHedge called it this way:
In the aftermath of our viral post “”Catastrophic” Property Sales Mean China’s Worst-Case Scenario Is Now In Play”, China property firms bonds were hit with another wrecking ball on Monday as Evergrande was set to miss its third round of (offshore) bond payments in as many weeks and rival Modern Land became the latest scrambling to delay deadlines.
And then this:
“It’s a disastrous day,” Clarence Tam, fixed income PM at Avenue Asset Management in Hong Kong, told Reuters, highlighting how even some supposedly safer “investment grade” firms had now seen 20% wiped off their bonds. “We think it’s driven by global fund outflow….
As I mentioned before when the Evergrande story broke a weeks ago “there is never just one cockroach,” a theory that has proven correct with a host of other Chinese developers trying to find a way to avoid the unavoidable.
Adding to that uncertainty from the usual suspects like surging oil prices, ever increasing inflation, economic concerns with the impending third quarter earnings season on deck, and it came as no surprise that the markets shifted into retreat mode.
While at first rangebound, the US Dollar broke out to the upside and closed higher causing gold to pretty much tread water and go nowhere.
In the end, it seemed that traders and computer algos alike tried to grapple with these various events. As it turned out, at least for this session, the path of least resistance was to the downside.
