ETF Tracker Newsletter For November 17, 2023

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ETF Tracker StatSheet          

You can view the latest version here.

THE NASDAQ’S EERIE RESEMBLANCE TO 1999: A WARNING SIGN OR A COINCIDENCE?

[Chart courtesy of MarketWatch.com]

  1. Moving the markets 

The stock market gained modestly on Friday, capping off another week of gains in a sizzling November rally. This was the third consecutive week of positive returns for all three indexes.

What fueled this bullish frenzy? Investors seemed to shrug off the worries about inflation, the Fed’s rate hikes, and the geopolitical tensions that have plagued the markets for months. Instead, they focused on the positive signs of a soft landing for the U.S. economy, with moderate growth and inflation.

The market was also cheered by some encouraging economic data, such as stronger-than-expected housing starts, an improved Philly Fed index, a smaller-than-anticipated decline in retail sales, and steady jobless claims. Additionally, Congress passed a stopgap funding bill to avert a government shutdown, easing some of the political uncertainty.

As a result, the bond market rallied, sending the 10-year Treasury yield to its lowest level since September at 4.44%. The dollar weakened, posting its second-biggest weekly drop of the year, and turning negative for 2023. Gold shone, rising over 2% for the week and bouncing off its 200-day moving average.

The market was also helped by a short squeeze, as some of the most heavily shorted stocks surged on Tuesday and Wednesday. The so-called “magnificent 7” stocks, which include Apple, Microsoft, Amazon, Google, Facebook, Tesla, and Netflix, broke out of their downtrend, and reached new highs.

But before you pop the champagne and celebrate the return of the Goldilocks economy, you might want to look at this chart. It shows the striking similarity between the Nasdaq’s performance in 2023 and 1999, the year before the dot-com bubble burst.

Could history repeat itself? And if so, do you have an exit strategy ready? Or are you drinking Kool-Aid too?

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 11/16/2023

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ETF Data updated through Thursday, November 16, 2023

How to use this StatSheet:

  1. 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.
  1. 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.

  1. 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.

  1. DOMESTIC EQUITY ETFs: SELL— since 09/22/2023

Click on chart to enlarge

This is our main compass, the Domestic Trend Tracking Index (TTI-green line in the above chart). It has now barely broken above its long-term trend line (red) by +0.43% but remains in “Sell” mode for the time being.

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Market Summary: Stocks Flat, Bonds Yields Down, Gold Up

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets 

The stock market seemed to take a break from its recent rally today, as the major indexes barely moved from their opening levels. The S&P 500 and Nasdaq managed to squeeze out some gains, but the Dow closed slightly lower.

Tech stocks were hit hard by disappointing earnings and guidance from Cisco Systems and Palo Alto Networks, which plunged 12% and 7%, respectively. Investors were not impressed by their weak outlooks for the current quarter and the full fiscal year.

Meanwhile, economic data was mixed, with import prices falling more than expected in October, but weekly jobless claims rising last week. Some traders might see this as a sign of easing inflation pressures, but they are ignoring the bigger picture.

Massive government spending and money printing will continue to fuel inflation, which is already running at a 30-year high. The inflation monster is not going away anytime soon, no matter what the Fed says or does.

The bond market also reflected the sluggish economic conditions, with the 10-year yield dropping to 4.441%. The dollar was flat, but gold shone brightly, gaining 1.02% and closing in on its $2k level.

As ZeroHedge pointed out, the 10-year bond yield is following a similar pattern to 1987, when it crashed along with the stock market. But the S&P 500 is not following suit, at least not yet.

Will the bond market be proven right again, or will the stock market defy gravity? That is the question that keeps many traders awake at night.

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PPI Falls, Retail Sales Stall, And The Market Hits A Wall

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets 

The market had a good start today, thanks to some chill inflation numbers. But then it ran out of gas. Literally. Gas prices dropped like a rock, dragging down the producer price index (PPI) by half a percent. That’s the biggest fall since the pandemic started. But if you take out food and energy, the PPI didn’t budge. And it’s still higher than it was last year.

Not everything was rosy, though. Retail sales also dipped a bit. But hey, at least they didn’t dip as much as the experts predicted. That’s something, right?

Meanwhile, the interest rate on the 10-year Treasury bond bounced back after a big drop yesterday. That’s because the market cares more about retail sales than PPI. And apparently, retail sales were hot enough to push up the rates.

But don’t get too excited. Inflation is still a problem. And the Fed is still asleep at the wheel. Just listen to what analyst Peter Schiff had to say:

Prices are going to keep on rising because the budget deficits are skyrocketing. The money printing is going to continue. The inflation burden is going to be heavier, and heavier, and heavier. And this consumer, who has already been shot up, is going to get shot some more.

The reality is the Fed hasn’t done enough to stop price inflation. They haven’t tightened enough to stop the borrowing. But they have tightened enough to break an economy that is rooted in artificially low interest rates.

Will this reality eventually break through?

In other news, the financial situation is still loosey-goosey, the short squeeze is over, bond yields are up, the dollar is flat, and gold is down. Oil prices also took a dive, ending up where they started on Monday.

And in case you were wondering, the government might shut down soon. The House passed a bill to keep it open, but the Senate still must vote on it. And you know how they are.

Would that be a bad thing?

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Stocks Surge On Tame Inflation Report, But Is It Too Good To Be True?

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets 

Stocks soared on Tuesday, continuing their impressive November rally, as investors celebrated a mild inflation report that suggested the Fed might be done raising interest rates.

Tuesday’s gains added to the remarkable recovery this month for stocks. The S&P 500 is up 7.3%, erasing the losses since our “Sell” signal on 9/22/2023. See section 3 below for the latest update.

The catalyst for today’s surge was the CPI, which came in at 3.2%, lower than the 3.3% expected, while the monthly CPI was flat (0.0%), below the consensus of a 0.1% increase, and much lower than last month’s 0.4% rise.

The core CPI, which excludes food and energy prices, was also weaker than expected and the slowest in two years.

This sparked optimism in the market that the Fed could finally put an end to its rate-hiking cycle for good. After the report, fed-funds futures showed that traders eliminated any chance of a hike in December, from 14% odds before, which sent the market soaring.

A tweet by Fed insider Nick Timiraos, aka Nikileaks, confirmed that the Fed is now done with its hiking spree.

The 10-year Treasury yield, which spooked stock investors by jumping over 5% in October, plunged to 4.44% after the soft inflation report. Traders are convinced that the Fed’s last rate hike was indeed in July.

While this news ignited bullish sentiment, some analysts warn that inflation is far from being tamed and will likely pick up again soon. Bloomberg’s macro strategist Simon White points to the following factors:

  1. Large fiscal deficits are boosting corporate profits, which are now the main driver of corporate prices.
  2. A rebound in goods inflation reinforcing high services inflation.
  3. Rising price growth in China that will spill over to global inflation pressures.

I agree with him, but for now, caution is out the window, and this bear market bounce could turn into a new bull market. Even bank stocks jumped on the hope that the economy could avoid a recession.

Bond yields dropped, as the dollar had its biggest daily decline since November 11, 2022, and the most shorted stocks were squeezed. As the dollar tanked, gold soared and is again heading towards its $2k level.

ZeroHedge reported that on average it takes about 8 months from the last rate hike to the first rate cut. Does that mean March 2024 is when the Fed will finally give the market what it wants?

Or will it be too late by then?

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U.S. Stocks In Limbo As Moody’s Cuts Outlook

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets 

U.S. stocks wandered around like lost sheep today, apparently unfazed by Moody’s Investors Service cutting its U.S. credit rating outlook to negative from stable on Friday. The downgrade reflects the U.S.′ “very large” fiscal deficits and the political deadlock in Washington that prevents any meaningful action. The ratings agency still gave America an AAA rating, the highest level, but for how long?

This follows Fitch’s downgrade of the U.S. long-term foreign currency issuer default rating to AA+ from AAA three months ago, for similar reasons.

Treasury yields rose briefly and then fell back after the outlook change. The 10-year yield dropped 1.6 basis points to 4.627%. It seems that investors are either ignoring the Moody’s downgrade or are more worried about other things happening this week.

The main event is the consumer price index data for October, a key measure of inflation that the Federal Reserve watches closely. The data, due on Tuesday, will give us a clue about the state of the U.S. economy before the Fed’s December meeting. Right now, the odds of a rate hike at that meeting are slim to none.

The dollar weakened, gold rebounded, and crude oil climbed higher for the second day in a row. Bond yields have been rising lately, defying historical patterns. But that may change as U.S. foreign credit risk has increased with the downgrade.

Will foreign investors ask for higher yields to lend us money for our growing debt?

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