ETF Tracker Newsletter For August 27, 2021

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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

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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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Holding Steady

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

After yesterday’s ramp, you could have expected some sort of pullback in the markets, but the rally continued unabated with some sell off into close, however, green numbers prevailed. Leading the charge was the Nasdaq with a gain of +0.52%.

Helping the major indexes to maintain upward momentum was news that US regulators granted full approval for the Pfizer vaccine, causing traders to presume that the latest Covid flare up has peaked.

Overall, it was a fairly quiet day with the focus being on the upcoming Jackson Hole symposium later this week. Again, the open-ended question is whether the bankers will disclose more details about their intended plans to taper stimulus—or not.

The summit will be on a virtual basis and held on Thursday with Fed head Powell giving a speech on Friday. Opined one analyst: “It will probably be a slow taper with no commitments over interest hikes.”

Business Sentiment soured, confirming the recent trend of “soft” survey data dumping back to the reality of “hard” data, as Zero Hedge saw it, with Bloomberg graphing the trend here.

The short squeeze of the past few days persisted with the index now having bounced off the bottom by some 9%. The 10-year bond yield headed north hitting overhead resistance, while the US Dollar accelerated its southerly path of the past two days.   

The leap in yields neutralized gold, which bounced around its unchanged line and ended the session down a tad, but its chart pattern indicates that a breakout, either up or down, will be a distinct possibility in the near future.

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High Anticipations

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The futures markets already indicated a strong opening, which is exactly how things played out. The major indexes roared out of the gate with all three of them displaying solid gains, but the leader was the Nasdaq by showing off with an advance of +1.55%.

Last week’s weakness was shoved in the rear-view mirror, when Fed VP Kaplan, after Friday’s close, uttered those words that markets are dying to hear, namely that “he’s open to adjusting his view that the Central Bank should start tapering sooner rather than later if the Delta variant persists and hurts economic progress.”

Wow, how much clearer can he be to announce that talk about tapering was just that: Empty talk.

Be that as it may, market reaction was broadly bullish with even the international arena recovering from its recent swoon and participating in today’s “Ramp-A-Thon.” The US Dollar took a swan dive, with bond yields joining in, as the 10-year dropped to 1.25%.

That caused Gold to take off with the precious metal not only rebounding +1.26% but also reclaiming its psychologically important $1,800 level.

The key event is the upcoming Jackson Hole, WY virtual symposium and Fed head Powell’s highly anticipated speech later this week causing a wave of speculations. Here’s one:

Our base case is that the FOMC will announce a taper in September if the August non-farm payrolls is strong,” said Joseph Capurso, head of international economics at CBA. “We anticipate the taper will be implemented in October or November, though the recent increase in Covid infections and deaths in parts of the U.S. may give Powell pause.

It seems something went awry in the markets today, as equities totally disconnected from the bond markets, as Bloomberg demonstrates in this chart leaving me pondering as to who will be right in the end.

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ETFs On The Cutline – Updated Through 08/20/2021

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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 229 (last week 252) 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.