Out of the 1,800+ ETFs out there, I only pick the ones that trade over $5 million per day (HV ETFs), so you don’t get stuck with a lemon that nobody wants to buy or sell.
Trend Tracking Indexes (TTIs)
These are the main indicators that tell you when to buy or sell Domestic and International ETFs (section 1 and 2). They do that by comparing their position to their long-term M/A (Moving Average). If they cross above, and stay there, it’s a green light to buy. If they fall below, and keep going, it’s a red light to sell. And to make sure you don’t lose your shirt if things go south, I also use a 12% trailing stop loss on all positions in these categories.
All other investment areas don’t have a TTI and should be traded based on the position of each ETF relative to its own trend line (%M/A). That’s why I call them “Selective Buy.” In other words, if an ETF goes above its own trend line, you can buy it. But don’t forget to use a trailing sell stop of 12%, or less if you’re feeling nervous.
If some of these words sound like Greek to you, please check out the Glossary of Terms and new subscriber information in section 9.
DOMESTIC EQUITY ETFs: BUY— since 11/21/2023
Click on chart to enlarge
This is our main compass, the Domestic Trend Tracking Index (TTI-green line in the above chart). It has broken above its long-term trend line (red) by +6.88% and is in “Buy” mode as posted.
The markets predominantly trod water after the S&P’s fresh record close, with traders’ eyes now focused on tomorrow’s jobs report.
Friday’s non-farm payrolls report for May will be analyzed carefully, because any weakness in the labor force will freshen hopes that the Fed might indeed cut rates. Expectations are for 190k in new jobs created.
Optimism prevails on Wall Street that the economy is still doing well, despite much evidence to the contrary. A cooling job market will be hard to reverse once it starts, which is why traders believe a rate cut is on the horizon.
More pressure will be on the Fed after the Bank of Canada cut rates by a measly 0.25%, which was followed this morning by the ECB. That tiny reduction appears to be more like a market pleasing goodwill gesture rather than a serious effort. Remember, all Central Banks are walking a tightrope, because lowering rates to save failing economies will stoke inflationary fires.
Tech darling Nvidia’s upward momentum got crushed during this session, with the company losing some $175 billion in market cap. Gold and silver picked up on the BoC and ECB rate reductions and continued their upward swing.
In terms of the US Labor market, which has been horrendously weak, it was now confirmed what ZeroHedge pointed to a more than a year ago, namely that all the job growth in the past few years—drumroll—has gone to illegal aliens.
I leave it up to you to ponder this chart and arrive at your own conclusions:
Continue reading…
2. Current “Buy” Cycles (effective 11/21/2023)
Our Trend Tracking Indexes (TTIs) have both crossed their trend lines with enough strength to trigger new “Buy” signals. That means, Tuesday, 11/21/2023, was the official date for these signals.
If you want to follow our strategy, you should first decide how much you want to invest based on your risk tolerance (percentage of allocation). Then, you should check my Thursday StatSheet and Saturday’s “ETFs on the Cutline” report for suitable ETFs to buy.
3. Trend Tracking Indexes (TTIs)
The ECB followed in the Bank of Canada’s footsteps and lowered its main interest rate by 0.25% as well. The major indexes traded sideways, with tomorrow’s potentially market moving jobs report lurking on deck.
Our TTIs offered a mixed picture, as the international one advanced, while the domestic one slipped slightly.
This is how we closed 06/06/2024:
Domestic TTI: +6.88% above its M/A (prior close +7.08%)—Buy signal effective 11/21/2023.
International TTI: +9.29% above its M/A (prior close +8.89%)—Buy signal effective 11/21/2023.
All linked charts above are courtesy of Bloomberg via ZeroHedge.
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Nvidia’s jump to a new record, while conquering the $3 trillion market cap, sparked bullish sentiment, at least in the Dow and S&P 500, both of which headed higher right after the opening bell. The latter scored a new all-time high late in the session, as the 10-year yield slipped to 4.29%.
With traders looking everywhere to find new evidence that would convince the Fed to finally lower rates, weak labor market data was their next focus. ADP showed that hiring slowed to 152k jobs in May, which was far below expectations of 175k.
Offsetting those numbers were new data points from the services sector, as that area increased to 53.8, more than the expected 50.7 figure. Next up tomorrow will be weekly jobless claims and Friday’s all-important May employment report.
While the S&P and Nasdaq spurted ahead over 1%, broader gains were more moderate, as concerns remained that a weak economy could signal an unstoppable slowdown and overcome the benefits of a rate cut.
However, oethe Bank of Canada took the lead by cutting its rate for the first time in 4 years by 0.25% to 4.75%, despite a very sticky inflation rate of 2.7%. Very likely, the ECB will follow suit tomorrow. The reason is not that inflation has been licked, it’s that economies are faltering and quickly descending into recession territory—or worse.
ZH reminded us that most of the gains in equites have come from the MAG7 stocks, which are up 30% YTD. Compare that to the S&P’s 13%, while the S&P 493 is up only 6.5%. This chart demonstrates that owning the broad market was not the best choice. Ah yes, the benefit of hindsight.
Gold, after its recent pullback, showed signs of life again and looks to be approaching its all-time highs. As is Bitcoin, which also hovers within striking distance.
The major indexes continued their efforts to overcome a listless start to June, and they started this session by being stuck to their unchanged lines, until a last hour surge pushed them to a green close.
On the economic side, employment data from the Labor Department showed some 8 million job openings in April vs. expectations of 8.4 million, the lowest level in over 3 years. The “hard data” component dropped to its weakest since the start of 2024, causing rate cut expectations to rally.
Weak manufacturing data did nothing to spark bullish sentiment, as traders are observing whether growth can hold up, and if not, if that will weaken inflation enough for the Fed to then cut interest rates. At least, so goes the theory.
Bond yields have been slipping since the end of May, with especially the 10-year taking a dive. The dollar whipsawed over the past week, while gold gave back yesterday’s gains. Bitcoin caught fire and suddenly headed back up to its $71k level.
Oil prices continued to slide off their April highs, in the process dipping below the $74 level.
Market volatility has picked up and created some uncertainty among traders, who are trying to find a new catalyst to drive the indexes back into record territory.
On a day-to-day basis, bulls and bears appear to be locked in the usual tug-of-war contest—with no end in sight.
Do you want to know which ETFs are hot and which ones are not? Then you need my High-Volume ETF Cutline report. It tells you how close or far each of the 311 ETFs I follow is from its long-term trend line (39-week SMA). These are the ETFs that trade more than $5 million a day, so they are not some obscure funds that nobody cares about.
The report is split into two parts: The winners that are above their trend line (%M/A), and the losers that are below it. The yellow line is the line of shame that separates them. You can see how many ETFs are in each group and how they have changed since the last report (267 vs. 268 current).
The major indexes started the last day of May in mixed mode, with the Dow being little changed, while the S&P 500 and Nasdaq meandered below their respective unchanged lines.
However, an afternoon melt-up pulled the Dow and S&P out of their doldrums with both indexes closing solidly in the green, while the Nasdaq ended about unchanged.
The Fed’s preferred inflation gauge, the PCE, increased 0.2% in April, which was in line with expectations. The Core PCE rose 2.8% on an annual basis, a tad above the forecast of 2.7%.
On the economic side, consumer spending grew only 0.2% in April, less than hoped for. But when adjusted for inflation spending declined 0.1% from the prior month, confirming that the consumer is not in good shape.
Still, traders were somewhat relieved that these numbers did not turn out to be worse, with hope abounding that slowing spending could lead to lower inflation numbers.
That shows the lack of understanding that the real threat of higher inflation still lies ahead of us and is caused by ever-growing debt and deficits, as there seems to be no end to unrelenting government spending. Have you heard anyone talk about balancing the budget lately?
Be that as it may, this month turned out to be positive for equities, with the S&P 500 being up some 4.8%, after having lost 4% the prior month.
The MAG7 stocks lost momentum, while bond yields showed a mixed picture. The dollar moved higher after bouncing off its unchanged line, gold pulled back from yesterday’s gains, as Bitcoin dropped but found support at its $67k level. Crude oil, after a spike midweek, gave back all advances for the week.
Another divergence, between gold and the 10-year real rate, has created another alligator snout, which is bound to close at some time.
