[Chart courtesy of MarketWatch.com]

1. Moving the markets

The market mantra of the past few weeks of “digging a hole and climbing out of it” failed miserably today, as dip buyers remained conspicuously absent thereby handing the directional baton to the bears.

A host of factors combined forces to pull the markets down, including Delta troubles, Fed taper talk, the upcoming debt ceiling battle, seasonality in that the second half of September has been historically one of the worst periods for stocks, inflation fears, and the fact that we are way overdue for a correction if not the bursting of the bubble.

The latter only needed a pin prick, and that may have just occurred via the collapse of the Evergrande empire, a massive Chinese property developer with worldwide projects, which has become insolvent because of $300 billion in bad loans. Their stock plunged 80% YTD.

This story has been developing over the past week or so, with fears increasing that the cockroach theory may play out again in that there is never just one. While we don’t know the other names yet, contagion has already begun as a variety of Chinese construction/real estate ventures are collapsing and developers and industrial producers getting punished.

Some analysts have referred to Evergrande as being the next Lehman Brothers, the demise of which was instrumental in collapsing the financial markets in 2008.

All this uncertainty resulted in equities being hit, but it’s noteworthy that a last hour rebound prevented a worse outcome. It remains to be seen whether there is more downside to come, or if dip buyers will re-appear.

There were no winners, but as was to be expected bond yields dropped, and the US Dollar rode the range but closed about unchanged. Gold was the shining star by gaining +0.79%, which was one of the few green numbers on the computer screens.

We have now reached a point where markets could break either way, meaning they could recover or the bubble might burst entirely, which brings up the interesting question as to whether history might repeat itself, as Bloomberg demonstrates in this chart.  

That is why it’s critical to have an exit strategy in place designed to prevent the participation in the worst-case scenario. As you know, I use a combination of trailing sell stops and my Trend Tracking Indexes (TTIs). You can see their latest update in section 3 below.

My posting schedule for this week has slightly changed again and is updated here.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

An early purge in the markets was met with a subsequent surge, which propelled the major indexes back to their respective unchanged lines, but only the Nasdaq managed to score a green close.

Retail sales surprised by rising 0.7% MoM, which was exactly the opposite of expectation of a 0.8% MoM drop. Helping this enormous “beat” was a revision of the initial July estimate from a gain to a decline, which makes the validity of this current number questionable.

Meanwhile, the latest weekly unemployment insurance data revealed that 332k first-time claims were filed, a slightly worse number than the 320k expected.

Still, uncertainty about a host of issues affect the markets, which one analyst described like this:

The stress factors facing the market have not materially changed, including the Delta variant, earnings headwinds from supply chain and labor challenges, fiscal and monetary tailwind shifting to headwinds and bubbling concerns around China.

Dip buyers could not resist and got today’s rebound started assisted by another short squeeze, the combination of which wiped out most of the early losses.  

The US Dollar Index spiked, as did Bond yields with the 10-year reaching the 1.33% level. As a result, as we’ve seen many times before, this double punch sent Gold reeling and back below its $1,800 level.  

As Bloomberg shows in this chart, the S&P 500 seems to have gotten ahead of reality, namely the Fed’s balance sheet expansion, so a pullback would be in order. It could happen tomorrow during quadruple witching hour, when a huge number of options will expire, which is an event that can wreak havoc with the markets.

As a reminder, I will be out tomorrow, so there will be no market commentary. My regular posting schedule will resume on Monday.  

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 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 -8% point has been taken out in the “Off High” column. For more volatile sector ETFs, the trigger point is -10%.

3. Trend Tracking Indexes (TTIs)

Our TTIs pulled back a tad, as the major indexes dug themselves out of an early hole.

This is how we closed 09/16/2021:

Domestic TTI: +7.45% above its M/A (prior close +7.65%)—Buy signal effective 07/22/2020.

International TTI: +4.52% above its M/A (prior close +4.89%)—Buy signals 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.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

Despite a shaky start, the major indexes found support and managed to overcome the September doldrums, at least for this day. Bullish momentum surfaced with equities accelerating to the upside during the afternoon session, and all three indices closed the day with solid gains.

While the battle between Small Caps (VBK) and Value (RPV) continued unabated, both gained, but the latter outperformed the former by a 2:1 ratio. Helping to stabilize bullish sentiment early on was the Empire manufacturing index, which not only accelerated in August but also beat 18 consensus estimates.

Anxiety about the upcoming Debt ceiling discussions, were moved to the front burner again, yet did not hamper equities but pulled the US Dollar lower, while pushing bond yields higher with the 10-year closing at the 1.3% level.

This combination did not work well for Gold, which slipped and lost its $1,800 level again.

In the end, as Bloomberg charted here, inflation remains with us, with the Industrial Sector Surprise Index limping lower, which translates into the dreaded “S” word, namely Stagflation. Hmm, as Zero Hedge put it, that could be the Fed’s worst nightmare scenario.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

Except for yesterday, we have seen the pattern of an early bump getting pounded in the afternoon during all last week. While Monday instilled some confidence in traders’ minds that the bullish meme is still alive, that mantra was smashed today with the major indexes spending most of the session below their respective unchanged lines.

Even a better-than-expected inflation report could not stop the bears from taking over and sending the indexes to another red close. Despite the downward trend during 6 out of the last 7 sessions, the losses were moderate and certainly not out of line given the relentless march higher during this year.

The CPI came in slightly below expectations at 0.3% MoM vs. 0.4% MoM expected and printed at 5.3% YoY, which was in line with forecasts. Still, this is a significant jump, despite one analyst calling it “continued easing in the inflation piece without deterioration in the economic outlook.”  We’ll revisit that wishful thought next month.

There was no place to hide, as “red” was the dominant color of the session, with the Dow and Small Caps having their worst day since mid-July, as ZeroHedge posted, but “value,” as represented by RPG, had its own issues by giving back just about all of yesterday’s gains.

Bond yields plummeted with the 30-year heading to 6-week lows. The US Dollar index swan dived, reversed, and recovered all its early losses. Every bit of this uncertainty proved to be a boon for gold, with the precious metal not only gaining 0.68% but also climbing back above its $1,800 level.

With Friday’s quadruple witching hour (options expirations) on deck, it looks like volatility will be with us for a while.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

For a change, an early rally maintained its momentum throughout the session, despite a temporary mid-day pullback, with two of the three major indexes finally eking out a gain, following five days of losses. The Nasdaq trailed and closed slightly in the red, after dancing around its unchanged line all day.

Small Caps dipped but “value” ripped, with RPV gaining a solid +1.56% after nibbling at its trailing sell stop last Friday.

Still, today’s bounce back was subdued and a far cry from convincing traders that the bullish theme is back on. After all, we are in the middle of one of the historically most volatile months, during which anything is possible. The S&P 500 was saved only by late-session bidding, which pulled the index out of the red.

Spraying to all fields:

Bond yields dropped, as nervousness over the upcoming debt ceiling debacle moved front and center.

The US Dollar bounced without clear direction but managed to hang on to modest gains.

Gold popped and dropped but ended slightly higher yet still short of recapturing its $1,800 level.

Inflation is here to stay, despite jawboning to the contrary, as the Commodity Spot Index rallied to a 10-year high.  

This week’s posting schedule will be slightly different due to me being out of town on Friday. You can see the latest update here.

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