Due to a variety of commitments I will not able to write today’s commentary.
Regular posting will resume tomorrow.
Ulli…
In Rebound Mode
- Moving the markets
After yesterday’s modest pullback, the major indexes continued to aimlessly vacillate around their respective unchanged lines throughout most of the session. A last hour push created enough upward momentum to assure a green close.
The Nasdaq led the charge with a gain +0.28%, despite the FANGs tanking. But, as has been the case lately, SmallCaps ruled jumping +1.56%, which was closely followed by MidCaps sporting a solid +0.85%. Even GLD, which had slipped during the recent past, finally managed to score +0.62%.
That means for the year, the Nasdaq is about unchanged while SmallCaps are the “dominator” with a chest pounding advance of +7.5%.
Assisting the move higher was the 2021 short squeeze, which appears to continue unabated and seems to be a most reliable tool by the algos to shove the markets higher, as the shorts need to cover, thereby assisting the levitation.
Bond yields were in a world of their own when, after an early bounce higher, the bottom fell out and yields tumbled and broke below a crucial but short-term uptrend channel. That’s what kept GLD in the green late in the session, while a collapsing US Dollar lent a helping hand as well.
I always enjoy Bloomberg’s comparisons of current to past market events. Most will not align with history, but it remains to be seen, if the latest one will:
For sure, if this scenario plays out, would it not be a really good idea to have an exit strategy?
Read MoreStumbling Off The Highs
- Moving the markets
The futures market already indicated a negative bias with US equities and global stocks dropping off their record highs on Friday. A sense of caution dashed across trading desks, as questionable economic data, hopes for more stimulus, political turmoil and the continued barrage of Covid-19 cases combined to give the bears something to cheer about.
For sure, the first week of 2021 was a strong one for equities, so it’s no surprise to see a pullback in the making, which clobbered the Nasdaq more than the other two major indexes. TSLA and TWTR were the biggest losers with the latter reaping the “rewards” of having banned 1,000s of subscribers.
Gold was in for a wild ride, up some 2.5% in the futures markets, then dumping into the red, recovering nicely to catch up to its early gains, but fading into the close but with a +0.56% profit. Unfortunately, the Gold ETF GLD did not keep up and ended down -0.18%.
The precious metal’s roller coaster was triggered by spiking bond yields with the 10-year now having clearly busted through the 1% level and settling at 1.13%. The US Dollar continued its ascent out of the basement and surged higher today but faded into the close.
Of course, the political grandstanding gave an assist to today’s weakness:
“When you listen to the speaker of the House … basically just saying the president is the most dangerous man, you got a week of danger and the markets don’t like it,” CNBC’s Jim Cramer said on “Squawk on the Street.”
It promises to be a week of uncertainty and volatility.
Read MoreETFs On The Cutline – Updated Through 01/08/2021
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 271 (last week 278) 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 January 08, 2021
ETF Tracker StatSheet
You can view the latest version here.
Preserving The Bullish Trend
- Moving the markets
Yesterday, I talked about rising bond yields to be a potential equalizer to future market direction, and we saw some of it today.
Stocks broke down a couple of times this morning, as the 10-year yield surged twice and pulled the Dow off its lofty level, as Bloomberg points to in this chart:
This is important and ZH elaborated as follows:
As we noted previously, if and when CTAs turn from sellers to outright shorters, accelerating the downward momentum in the 10Y price (and spike in yield), it may turn ugly fast, because as Morgan Stanley explained yesterday, while a slow push higher in the 10Y yield won’t affect risk assets materially, “should that adjustment in rates occur more rapidly, all stock prices will adjust lower, perhaps sharply, rather than just go sideways.”
While that is a future likelihood, at least today, a late afternoon ramp pulled the major indexes out of the red and to a green close. Contributing to this rebound were headlines from Joe Biden’s speech promising these goodies, which represent a fiscal bonanza:
*BIDEN: GAP IN BLACK, LATINO UNEMPLOYMENT IS `MUCH TOO LARGE’
*BIDEN: NEED RELIEF FOR WORKING FAMILIES, BUSINESSES NOW
*BIDEN: WILL LAY OUT FRAMEWORK FOR NEXT RELIEF PACKAGE NEXT WEEK
*BIDEN: VACCINE DISTRIBUTION IS GREATEST OPERATIONAL CHALLENGE
*BIDEN SAYS $600 RELIEF PAYMENTS AREN’T ENOUGH
*BIDEN: HOPE DEMOCRATIC CONGRESS CONTROL LEADS TO MIN WAGE BOOST
*BIDEN: AMERICANS ENTITLED TO $15/HOUR MINIMUM WAGE
*BIDEN: BLACK, BROWN-OWNED BUSINESS HAVE HAD LESS RELIEF ACCESS
*BIDEN: TENS OF THOUSANDS OF COS. GOT RELIEF THEY SHOULDN’T HAVE
*BIDEN: FOCUS TO BE ON SMALL BIZ WITHOUT CONNECTIONS
*BIDEN: WILL DIRECT RELIEF TO THOSE INDUSTRIES HIT THE HARDEST
*BIDEN: WILL HAVE NAVIGATORS TO HELP SMALL BIZ UNDERSTAND RELIEF
*BIDEN: WILL MAKE BANK EXPECTATIONS `CRYSTAL CLEAR’
That was all it took to restore bullish confidence, and up we went. The leader again, was the Nasdaq with a solid +1.03% gain, for a change outperforming Small- and MidCaps.
On the economic front, we learned that December Payrolls missed by a huge margin. It’s hard to believe, but 140,000 jobs were lost on expectations of a 50k gain. This is the worst month since April’s record drop.
You would think that a number like this would have decimated the stock market, but as I have repeatedly pounced on, the economy and stock markets are in no way related.
It’s all about monetary and fiscal stimulus, and with the Fed announcing “no taper” anytime soon, markets appear to be ready to reach for the next all-time high.
Gold got smacked today, giving back its hard-fought gains from earlier in the week, as the US Dollar rallied on higher bond yields.
Again, bond yields are the pivotal sector to watch, because a continued spike will affect equities negatively at some point.
Read MoreWeekly StatSheet For The ETF Tracker Newsletter – Updated Through 01/07/2021
ETF Data updated through Thursday, January 7, 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 a 7.5% 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 7.5% -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 +21.46% and remains in “BUY” mode as posted.
Read More