Sizzling And Fizzling

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The markets stumbled into the first trading day of September with an early rally running out of steam, but the major indexes managed to stay close to their respective unchanged lines. The exception was the Nasdaq, which showed most of the staying power by not only remaining solidly in the green throughout the session but also hitting a new intraday all-time high.

In the end, it may have been ADP’s dismal private payroll numbers, which took the starch out of the early bounce.

ZeroHedge explained it this way:

For the second month in a row, the ADP Private Payroll employment report has been a complete disaster, and one month after the the ADP missed by almost half printing at 330K in June (missing expectations of 683K), ADP reported that private payrolls in August rose just 374K, which while a modest improvement from July’s downward revised 326K (which was the lowest since February), was again a huge miss to the 638K expected, and was in fact below the lowest forecast by polled economists (+400K).

That has traders on edge, because this report is a precursor to the official August non-farm payrolls data due out this Friday. Expectations are the creation of 720k new jobs along with a drop in the unemployment rate to 5.2%.

Some analysts are also concerned about a correction in September, which is historically the worst month of the year for equities. Additionally, stocks have not had a significant pullback since last October. However, given the Fed’s dovish attitude, who knows if history will repeat itself.

Bond yields took a dive early on, after the ADP report, yet bounced back with the 10-year ending at 1.3%. The US Dollar dropped moderately, and gold closed just about unchanged.

If Friday’s payroll report confirms that jobs growth is indeed slowing, this could have a negative effect on the economy, but a positive one the stock market.

Why?

It means that easy monetary policy will likely continue. In today’s twisted reality, that is how bad economic news becomes good news for the markets.

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Closing A Bullish Month On A Whimper

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The major indexes managed to close the notoriously slow month of August on a whimper, but unscathed and with bullish momentum intact. It was a day of churning with the S&P 500 touching a new intraday high but then fading below its unchanged line.

For the month, all three of them came out ahead, led by the Nasdaq with a 4% gain, while the S&P 500 and Dow ended up with advances of 3% and 1.3% respectively.

Earnings growth contributed to the bullish meme, assisted by continued loose Fed monetary policies, which were the main contributor to the S&P 500 scoring its 9th positive month in the last 10. The index also achieved its 53rd record close of 2021 just yesterday.

All this occurred in the face of oncoming headwinds in form of the Delta variant of Covid 19, which at times managed to cast doubt on the economic recovery. However, in the end, the Fed and its lack of serious taper talk and definitive action, as well as soothing words about the “transitory” effect of inflation, won out and kept the upward trend alive.

Today, we learned that consumer confidence crashed with inflation fears hitting a 3-year high, as ZH reported. The US Dollar trod water, while the 10-year yield inched up a couple of basis points to 1.305%. This flight to nowhere allowed gold to add +0.28% thereby solidifying it position above the $1,800 level.

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ETFs On The Cutline – Updated Through 08/27/2021

Ulli ETFs on the Cutline Contact

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 229) 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 August 27, 2021

Ulli ETF Tracker Contact

ETF Tracker StatSheet          

You can view the latest version here.

DOVISH FED PROPELS MARKETS

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Equities received a giant boost from Fed head Powell’s statement that he supports starting to “taper bond purchases” this year, which was expected. What was not expected was his dovish tone, AKA a nothing burger, by not discussing when the actual taper might be announced.

“The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff, for which we have articulated a different and substantially more stringent test,” Powell said.

That was enough to sends the bulls on a rampage, with the major indexes never looking back and closing solidly in the green led by the Nasdaq with +1.23%. The rally was broad based with both “value” and “growth” participating.

The US Dollar took a dive and lost -0.42%, joining bond yields with the 10-year collapsing to 1.31%. This combination gave a huge boost to gold, which added an impressive +1.47% and solidified its position above its $1,800 level.

While Powell’s statement was the main driver behind today’s “Rip-A-Thon,” let’s not forget that the third short squeeze in a month made its presence felt as well, as Zero Hege noted.

The recoupling of the S&P 500 with the 30-year yield over the past couple of days broke down during this session, and I find myself wondering which way the eventual sync-up will turn out. Will the S&P close the divergence by snapping down to the yield, or will it be the other way again?

Next week, I have a change to my posting schedule, which you can view here.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 08/26/2021

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, August 26, 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 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 now rallied above its long-term trend line (red) by +9.63% and remains in “BUY” mode as posted.

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Keeping The Bullish Premise Buzzing

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Right now, it seems there is no stopping the bullish train with the S&P 500 taking out its 4,500 milestone for the first time, while the other two major indexes continued their winning streak as well.

Bond yields rocketed higher with the 10-year climbing to 1.35%, which was the highest level since earlier in the month when it reached 1.36%. This move helped the financial sector with XLF sprinting ahead by +1.18%.

Assisting the ascent was the ongoing short-squeeze, which followed through from last week and has now bounced 10% off its bottom, which was helped by a massive bank buy back scheme. Also boosting sentiment were signs that the delta variant cases could be peaking.

The US Dollar ripped and dipped and essentially ended unchanged, thereby allowing gold to recapture some of its early losses, but the precious metal still lost its $1,800 level again by dropping -0.88%.

As ZeroHedge pointed out, the month of August has historically been one of the quietest periods for trading, but the S&P’s average volume this year is still below its 10-year average and looks to be the lowest since 2018. It now has been 10 months since the S&P suffered a 5% drawdown or greater. Hmmm…

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