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.
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.
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.
It’s been a wild ride during the past 24 hours, since yesterday’s horrific CPI release, which indicated that we now have the highest inflation in 40 years. Not helping the markets were subsequent comments by the Fed’s mouthpiece Bullard, who called for 0.5% rate hike and an active sale of the Fed’s securities, thereby sparking panic, and helping the sell-off in the process.
Today, his remarks, which certainly added a sense of realism and urgency, were rebuked by various Fed speakers, and the media, as having been “immature” and “unprofessional.” So, damage control went into full swing and helped the major indexes early on to gain some footing, but in the end the sell-off persisted also due to war drums being beaten in the Ukraine.
Added ZH:
A sudden slap to the face seemed to shock investors from their multi-month stupor, waking to the reality that The Fed is serious this time about raising rates and withdrawing liquidity. That realization, considering US equity valuations have never been higher (combined with a collapse in US consumer confidence) have many wondering just where (or if) these two lines will ever converge…
Bond yields were caught on a high speed rollercoaster with the 10-year up 15 bps yesterday and down 13 bps today, as rumors of Russia’s imminent invasion made headline news. The US Dollar rode the news cycle up and down and ended the week a tad higher.
During all this turmoil, gold benefited and surged above the $1,860 level, its highest since Thanksgiving, according to ZeroHedge.
We are having a major power outage in my area, so I had to “wing” this report on my backup equipment.
ETF Data updated through Thursday, February 10, 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 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 crawled above its long-term trend line (red) by +2.04% but still teeters on the edge of losing its “BUY” mode.
Starting a rumor is always a good way to keep a rally from falling apart, especially prior to one of the most eagerly awaited announcements, namely tomorrow’s CPI. Such was the case last night when, according to ZH, JPM heard “whispers of CPI below expectations,” which gave the bulls a running start.
That was enough of a spark to motivate traders and computer algos to front run tomorrow’s event in the hope that the CPI comes in lower, thereby giving the Fed less ammo to raise interest rates and keep the bullish dream alive.
The inflation data is estimated to show that prices rose 0.4% in January, for a 7.2% gain from one year ago, according to Dow Jones.
As a result of today’s rumor, bond yields, which had surged throughout this year, eased up with the benchmark 10-year coming off its recent high of 1.97% to end the session at 1.95%.
Of course, big rallies do not simply develop on their own, they need an assist, which came today via another short squeeze. As ZH explained, the most shorted stocks are up 4 straight days, over 9%, which is the biggest squeeze since late October.
The US Dollar slipped again, while gold showed some steadiness by being up 8 of the last 9 days.
We will also find out tomorrow if the well-worn adage “buy the rumor, sell the fact” can still be applied.
