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 260 (last week 252) 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.
After Monday’s dump, which by now has long been forgotten, the bulls stepped up to the plate with the major indexes scoring four winning days in a row along with record closes.
The overpowering economic concerns from earlier in the week gave way to unbridled optimism, as bond yields rose from a five-month low of 1.13% for the 10-year to a current 1.285%. Traders took that as sign that things were overblown, and that inflation does not appear to be as much of a threat as it had been in the 70’s and 80’s, a viewpoint that I disagree with.
Be that as it may, right now the bulls are in charge with additional support coming from strong earnings in the tech sector with 88% of all S&P 500 members having reported a positive surprise. That is the highest percentage since 2008, if that figure holds throughout this earning season, according to FactSet.
The short squeeze of the first three trading days faded and had no effect over the past two sessions. Bond yields meandered on the day with the 10-year creeping above the 1.30% marker but failed to hold that level. Gold slipped a tad but managed to hang on to the $1,800 level, while the US Dollar Index trod water.
Given the horrific start of the major indexes to this week, ending up with +1.95% for the S&P 500, +2.8% for the Nasdaq and +1% for the Dow is a recovery worth remembering.
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 +10.44% and remains in “BUY” mode as posted.
The rebound continued into its second day with Monday’s losses now having been completely recaptured by all three major indexes. Better-than-expected earnings helped power the revival with Coca-Cola and Johnsen & Johnsen stoking the bullish attitude.
The bounce-back was broad based with Small Caps (VBK) adding another +1.31%, but they were slightly outgunned by “value” (RPV), which rallied +1.62%. If the commodities index (DBC) is any indication, inflation is still alive and with us, as this index jumped +2.00% on the session.
The financials (XLF) participated as well and raced ahead by +1.70% propelled by rising bond yields with the 10-year touching the 1.30% level before pulling back. The US Dollar slipped, but climbing yields were too much of a hurdle to overcome for Gold, so the precious metal gave back -0.39% and is now only barely hanging on to its $1,800 level.
Again, the markets will have to deal with a split in direction between the S&P 500 and the 10-year bond yield, as Bloomberg shows in this chart.
Right now, it’s anyone’s guess how this relationship will normalize.
The futures markets last night already indicated positive numbers, a trend which continued into the regular session. The major indexes opened higher and never looked back, which resulted in a solid bounce back after yesterday’s thrashing.
Most of Monday’s losses were recovered, as dip buyers stepped in to take advantage of the Dow’s worst day in some eight months. Prior concerns, that a Covid revival would slow down the economic rebound, was alleviated by rising bond yields, with the 10-year crawling back above its 1.20% level, thereby indicating expansion rather than contraction.
Of course, as fickle as the markets are, this merely represents just one moment in time, and opinions could change in a hurry. However, right now on this Tuesday, traders viewed events through rose-colored glasses.
The rebound was broad based with financials staging a nice comeback, as XLF stormed back and scored a +2.53% gain. That was closely followed by RPV (value), which added +2.44%. Small Caps (VBK) stole the limelight with a resurgence of +2.67%.
And, as usually is the case during sharp rebounds, a monster short-squeeze contributed to today’s advances. The US Dollar index ended only slightly higher due to a sell-off into the close.
The precious metals played in opposite ballparks. Gold managed to eke out a small gain and remain above its $1,800 level, while Silver was taken out behind the barn and spanked into oblivion.
Right now, it looks liked the bulls have gained the upper hand again, or could this graph be describing the situation more accurately?