Congress Clears Debt Hurdle, Traders Cheer And Fear

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  1. Moving the markets

After weeks of political drama, Congress finally passed the debt ceiling bill last night, much to the relief of the traders who celebrated with a rally. The bill is now heading to the Senate, where it is expected to sail through smoothly. Sources say the Senate won’t rest until Biden signs it into law.

This is a big win for the traders, who can breathe easier without the looming threat of a default. But they shouldn’t get too comfortable, because another challenge awaits them in a few weeks: the Fed’s decision on whether to raise interest rates again.

The Fed has a tough choice to make, as the economic data is sending mixed signals. On one hand, jobless claims rose slightly from last week, staying near 18-month highs. On the other hand, ADP reported stronger than expected job gains, which would be great if not for the sluggish wage growth. So, what will the Fed do? My guess is they will go for a modest 0.25% hike.

Today’s rally was not a one-man show, but a team effort with most sectors joining in. Even the regional banking sector ETF KRE bounced back from yesterday’s losses. Bond yields fell back, but the US dollar took a bigger hit, dropping to its lowest level since January, as ZeroHedge noted. That gave Gold a chance to shine, as it flirted with the $2k mark but couldn’t seal the deal.

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Market Dips As Debt Deal Hangs In Balance And Fed Sends Mixed Signals

Ulli Market Commentary Contact

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  1. Moving the markets

Wall Street was in a gloomy mood today as the debt ceiling deal faced uncertainty and opposition in Congress. The House Rules Committee approved the deal, but the final vote will take place tonight at 8:30pm EST. The major indexes stayed in the red all day, despite a late rally that trimmed some losses.

Investors are wondering if the deal will pass in time to avoid a default, or if more negotiations and delays are ahead. Some lawmakers have expressed their dissent, which could jeopardize the whole process.

The month of May was a mixed bag for the market. The S&P 500 barely gained +0.26%, the Dow lost over 3%, but the Nasdaq soared by 6%. However, this performance was driven by a few tech giants, like Nvidia, which surged 40% in May but fell 10% yesterday.

The market’s strength was too narrow and uneven. The top five S&P stocks averaged a whopping 50% mean return this year, while the rest of the 495 stocks were flat. This does not reflect a healthy bull market, but rather a bear market rally.

Adding to the bearish sentiment were some conflicting signals from the Fed officials. Some of them hinted at raising rates sooner to curb inflation, while others suggested pausing or skipping rate hikes to see more data. The Fed’s stance was as clear as mud.

On the economic front, we saw a sharp drop in the Chicago PMI, but a strong increase in job openings in April. The Citi Economic Surprise index bounced back in May.

Some notable stocks that suffered in May were Budweiser and Target. Bond yields and the US dollar rose, while gold slipped below $2k but held above its March lows.

The market is facing a divergence between commodities, real yields, and the dollar on one hand, and the tech frenzy fueled by AI on the other. How long can this gap last?

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Debt Ceiling Deal in Doubt, Markets Waver

Ulli Market Commentary Contact

[Chart courtesy of]

  1. Moving the markets

The debt ceiling drama is far from over. Even though the two parties have reached a tentative deal, they still need to pass it in Congress by tomorrow. But many lawmakers are not in town, and some Republicans are not on board. This could spell trouble for the compromise bill.

The markets were optimistic at first, but then reality kicked in. Traders realized that the deal is not a done deal, and that the Fed is still looming large. The Fed’s Barkin admitted that inflation is not going away anytime soon, which raised fears of more rate hikes in June.

The economic data did not help either. The Dallas Fed Manufacturing Survey shrank for the 13th month in a row, consumer confidence fell to its lowest level since 2022, and home prices dropped for the first time in nine years. These are not signs of a strong economy.

The only bright spot was the tech sector, especially the artificial intelligence (AI) stocks. Nvidia became the seventh company to join the $1 trillion club, thanks to its booming chip business.

Bond yields fell, while the dollar wobbled. Gold finally got some love.

So, what’s next for the markets? It all depends on whether the debt ceiling deal gets done, and what the Fed does next. All investors should brace for more volatility and uncertainty in the coming days. Stay tuned for more updates.

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ETFs On The Cutline – Updated Through 05/26/2023

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Below, you can evaluate 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 138 (last report: 173) 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 May 26, 2023

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ETF Tracker StatSheet          

You can view the latest version here.


[Chart courtesy of]

  1. Moving the markets

The markets were in a cheerful mood for the second day in a row, as hopes rose for a debt ceiling deal that would prevent a default. The S&P 500 recovered from its early-week slump and gained 0.4%.

McCarthy said that negotiators made some headway last night and were close to agreeing on a two-year debt limit increase, but he didn’t spill the beans on the details. The Debt Ceiling Fear-o-Meter dropped a few notches as a result.

However, some analysts warned that the Fed might spoil the party by keeping its foot on the brake until the end of summer and then slamming on the gas next year with bigger rate cuts. Remember when they said inflation was just a passing phase?

The Fed’s favorite inflation gauge, the PCE Deflator, didn’t help their case either. It came in hotter than expected and pushed the annual inflation rate higher. The only silver lining was that real income, adjusted for CPI, edged up slightly in April. But don’t get too excited, it might change later.

US economic data beat expectations this week, as ZeroHedge noted, probably because some inflation indicators showed signs of cooling off.

The Nasdaq enjoyed the tech stock rally, especially Nvidia, and left Small Caps in the dust. It outperformed them by a factor of eight. The last time this happened, it didn’t end well.

Regional banks bounced back earlier in the week but lost steam by the close, ahead of tonight’s crucial deposit data. This could reveal the next banking bug that needs to be squashed.

Bond yields climbed higher today, after falling all week, and broke up with tech stocks. They used to move together, but now they’re going their separate ways. How long can this last?

The US Dollar had a good week and rose for the third time in a row, but it faced some resistance towards the end. Gold had a bad week and dipped lower, but it managed to end on a positive note today.

This reminds me of the summer of 2011, when a debt ceiling deal was hanging by a thread. Let’s hope history doesn’t repeat itself.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 05/25/2023

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, May 25, 2023

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 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: BUY — since 12/01/2022

Click on chart to enlarge

Our main directional indicator, the Domestic Trend Tracking Index (TTI-green line in the above chart) has just slipped back below its long-term trend line (red) by -1.28% but remains in “Buy” mode for the time being.

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