ETF Tracker Newsletter For February 18, 2022

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ETF Tracker StatSheet          

You can view the latest version here.

CHOPPING AND DROPPING

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Despite several attempts to reclaim their respective unchanged lines, the major indexes failed and, after chopping around aimlessly all week, succumbed to selling pressure. The S&P 500 surrendered 1.6% over the past 5 trading days, while the indexes scored their second consecutive losing week.

Though options expirations, about $2.2 trillion, influenced some of the erratic market behavior, it was predominantly the continued MSM saga about the Russia-Ukraine conflict that put investors and algos on edge. The latest “attack” headline had no longer a date and time attached to it but was merely referring to an upcoming “event” in a few days.

Headlines in general created much confusion ahead of the 3-day weekend with ZH featuring some of the major ones:

  • 0809ET *DONBAS SEPARATISTS SAY WOMEN, CHILDREN TO LEAVE FOR RUSSIA: IFX
  • 0838ET *PUTIN: RUSSIA ISN’T AGAINST TALKS ON U.S. SECURITY PROPOSALS
  • 0845ET Russia creating ‘false provocations’ in Ukraine in past 24-48 hours: Blinken
  • 1040ET *FED’S EVANS: POLICY WRONG-FOOTED, NEEDS SUBSTANTIAL ADJUSTMENT
  • 1049ET *ECB OFFICIALS EDGE TOWARD 2022 RATE HIKE TO STEM INFLATION
  • 1100ET ITAR-TASS: Powerful explosion rocks downtown Donetsk — Donetsk News Agency
  • 1107ET *BIDEN CALL WITH TRANSATLANTIC LEADERS SET FOR 2:30PM ET
  • 1240ET *WILLIAMS: HAVE ROOM TO TRIM BAL SHEET MORE QUICKLY THAN BEFORE, SEES FED MOVING TO NORMAL RATES QUICKER THAN ’16, ’17
  • 1256ET *DRAGHI: DISCUSSED WITH PUTIN INCREASING GAS SUPPLIES TO ITALY (just made us laugh)
  • 1448ET *BELIEVE RUSSIA BEHIND CYBERATTACKS ON UKRAINE BANKS: NEUBERGER
  • 1510ET *BRAINARD: I BELIEVE WE WILL TURN NEXT TO BALANCE SHEET RUNOFF
  • 1515ET *U.S. BELIEVES RUSSIA POSITIONED FOR UKRAINE ATTACK: PSAKI
  • 1555ET *SUBSTANTIAL PROGRESS BEING MADE IN IRAN NUCLEAR TALKS: PSAKI   

Despite the Fed having called an emergency meeting last Monday, nothing was revealed nor reported on. Rumor on the Street has it that the Fed is way behind the curve and committed a policy error.

One analyst described the Fed’s dilemma like this:

The Fed is trapped. It can do two things and only two. It can keep it all going, print money and embrace the growing inflation or it can raise interest rates, stop the money printing, and crash the economy and all the markets.  In an election year with a failing Administration, what do you think they will do? 

Bond yields eased with the 10-year attempting to crawl above the 2% level but failed during this session. The US Dollar advanced today but slipped for the week. Gold, while pulling back a fraction today, had a profitable 5 trading days by rising over 3%.

Our Domestic TTI (section 3) remained below its dividing line between bullish and bearish territory for the second day in a row—but enough to call an end to this current “Buy” cycle. However, that could change in a hurry.

At times, I look at other leading indicators, which can cast a light on future direction. High yield credit compared to the S&P can offer some valuable insight:

Given the fact that my Domestic TTI has dropped into bearish territory and High Yield credit has sharply decoupled from the S&P 500, I wonder if this is an indication of things to come?

Hmmm…

Read More

Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 02/17/2022

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, February 17, 2022

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 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 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 just dipped below its long-term trend line (red) by a scant -0.19% and still teeters on the edge of losing its “BUY” mode.

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On The Cusp Of A Sell Signal

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

If you think recent market behavior was downright nutty, nonsensical, and non-directional, you are not only correct, but you are also not alone.

After Tuesday’s relief bounce, and yesterday’s comeback, traders were disappointed today that there was no follow-through buying, but also that the bears emerged full force and slammed the major indexes back to a level last seen the end of January.

The alleged conflict between Russia and Ukraine was pushed hard by MSM, with no evidence provided, as tension at their border impacted market sentiment and pushed our main directional indicator (TTI-section 3 below) back into the red—though by only a fraction of a percent.  

I think that other geopolitical issues like Canada’s freezing of bank accounts, the US economy slowing (higher jobless claims and tumbling housing starts) and the potential of hyperinflation contributed considerably to today’s market spanking.

It turned out to be the worst day of the year for equities with all sectors puking evenly, however, SmallCaps took the lead and dumped -3.27%. Bond yields were down again, with the 10-year dropping back below its 2% level.

The shining star of the day was gold, which added a solid +1.54% to reclaim its $1,900 level by a tad and reached a point last seen in June 2021.

The market behavior of the recent past, pushing our Trend Tracking Index (TTI) in and out of bullish territory, is a sign to me that we are nearing an inflection point, meaning a major change in direction (bearish) has become a distinct possibility. Even ZH pointed to this bon mot, which seems to support my thoughts:

As Bloomberg’s Ven Ram noted, the Warren Buffett indicator – Total stock market capitalization divided by GDP – suggests that the recent frenzy that drove stock valuations to astronomical highs is yet to deflate fully.

Exactly.

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Diving And Thriving

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The major indexes took another opening dive and hovered at their low points for most of the day. Traders were anxiously waiting for the release of the latest FOMC minutes (January), which showed the Fed’s plan to accelerate interest rate hikes but without providing details about its Quantitative Tightening (QT) intentions. This lack of clarity was quickly interpreted as a positive and equities jumped and erased almost all early losses.

Endless articles appeared dissecting the Fed’s motives and reasoning, but suffice it to say that the released minutes did not show any information the markets were not aware of, which stoked the bullish crowd. Even the lack of explanation as to whether the rate liftoff would be via 0.25% or 0.5% did not affect the afternoon rebound.

On the economic front, we learned that “US Retail Sales exploded higher in January,” as ZH put it, which is its biggest MoM surge since March 2021. However, reading this data should be done with a word of caution:

All the retail sales data is nominal, and thus with CPI and PPI soaring near record highs, disseminating the real demand pull from the inflation push is all but impossible in deciding whether the consumer is ‘healthy’ and spending again.

Bond yields pulled back slightly, but the 10-remainded above its 2% level. The US Dollar continued yesterday’s slide, and gold recovered from Tuesday’s pullback and gained 0.84%.  

In the end, it was breakeven day with not much gained and not much lost.

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Relief Bounce

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

After three days of pain for the markets, the major indexes finally found some reason to dig themselves out of a deep hole, as the MSM fearmongering about the alleged Russia-Ukraine conflict lost some credibility.

From my viewpoint, this was nothing but a constructed crisis, which ran out of steam today, when the Russian Defense Ministry started returning some troops to their bases after finishing their training exercises.

The ensuing relief rally, with an assist by the usual short squeeze, pushed the major indexes up solidly with the Nasdaq leading the recovery via a 2.53% advance. Even the beaten-down SmallCap sector found some life and rallied 1.9%.

Also helping the bullish mood was news that US Covid cases were down 80% from their January peak, which could be an encouraging signal that the reopening of the economy will pick up speed.

With the focus being on Russia-Ukraine theater, today’s horrific US Producer Price Index (PPI) showed that inflation “unexpectedly remained near record highs in January,” as ZH described it.

The PPI came in twice as bad as expected and printed a 1% MoM gain, which represents its 21st straight month of MoM rises. That translates to a 9.7% YoY figure, more than the expected 9.1% YoY.

While bonds were mixed, it’s noteworthy that that 10-year yield finally exploded above its psychologically important 2% level and settled at 2.055%. However, thanks to the focus on Russia, the markets were not influenced by the spike in yields.

The US Dollar chopped around but dipped into the close losing 0.38%. Gold gave back some of its recent gains as the “invasion premium” became less important, so the precious metal dropped 0.86%.

After our Trend Tracking Index (section 3 below) dropped into bearish territory yesterday, today’s action reversed that process, and we’re back on the bullish side of the trend line—at least for the time being.  

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Digging A Hole And Scrambling Out Of It—Twice

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

As the chart above shows, Thursday’s and Friday’s dump-a-thon continued into today’s session, with the major indexes plunging in the red, staging a recovery, plunging again, and falling short in their last hour attempt to crawl above their respective unchanged lines.

Relentless headline news fear mongering about increasing tensions between Russia and Ukraine had the markets jumping like a rubber ball in a trampoline factory. Adding to the uncertainty was the Fed’s plan for interest rate hikes.

Fed mouthpiece Bullard suggested that the Central Bank needs to fight inflation more aggressively, which simply confirmed his comments made last week, which wreaked mayhem on the markets:

“I do think we need to front-load more of our planned removal of accommodation than we would have previously. We’ve been surprised to the upside on inflation. This is a lot of inflation.”  

Rate hike expectations moved higher, as the major indexes zig-zagged through the session leaving the question wide open as to how the tug-of-war between bulls and bears might end. Bond yields followed the same pattern with the 10-year pumping and dumping but closing higher.    

That move caused the US dollar to rally off Friday’s lows and reclaiming its 50-day M/A. The only area of stability was gold, which ripped higher to reach it’s 3 months high, according to ZH.

Leaving this topsy turvy world with a sense of lightheartedness, this tweet made me chuckle:

Continue reading…

2. ETFs in the Spotlight

In case you missed the announcement and description of this section, you can read it here again.

It features some of the 10 broadly diversified domestic and sector ETFs from my HighVolume list as posted every Saturday. Furthermore, they are screened for the lowest MaxDD% number meaning they have been showing better resistance to temporary sell offs than all others over the past year.

The below table simply demonstrates the magnitude with which these ETFs are fluctuating above or below their respective individual trend lines (%+/-M/A). A break below, represented by a negative number, shows weakness, while a break above, represented by a positive percentage, shows strength.

For hundreds of ETF choices, be sure to reference Thursday’s StatSheet.

For this current domestic “Buy” cycle, here’s how some of our candidates have fared:

Click image to enlarge.

Again, the %+/-M/A column above shows the position of the various ETFs in relation to their respective long-term trend lines, while the trailing sell stops are being tracked in the “Off High” column. The “Action” column will signal a “Sell” once the -12% point has been taken out in the “Off High” column, which has replaced the prior -8% to -10% limits.

3. Trend Tracking Indexes (TTIs)

Our TTIs continued to slip as market weakness persisted. Please note that the Domestic TTI dropped a tad below its long-term trend line. However, as I keep saying, we need to see more staying power, to avoid a whip-saw signal, before calling this current Buy cycle to be over.  

This is how we closed 02/14/2022:

Domestic TTI: -0.23% below its M/A (prior close +0.58%)—Buy signal effective 07/22/2020.

International TTI: +2.78% above its M/A (prior close +4.22%)—Buy signal effective 07/22/2020.

Disclosure: I am obliged to inform you that I, as well as my advisory clients, own some of the ETFs listed in the above table. Furthermore, they do not represent a specific investment recommendation for you, they merely show which ETFs from the universe I track are falling within the specified guidelines.

All linked charts above are courtesy of Bloomberg via ZeroHedge.