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 246 (last week 249) 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.
After meandering sideways for most of the session, the major indexes picked up steam during the last hour and ended a rollercoaster week solidly in the green. The Dow recaptured its 33k level, the Nasdaq jumped back above 13k, and the S&P 5000 is again within striking distance of a new milestone marker, namely the 4k point.
Traders apparently decided to look past the potential supply chain troubles, caused by a stranded container ship in the Suez Canal, and focused optimistically on vaccination targets and economic progress due to re-openings.
Even rising bond yields could not stop this sudden enthusiasm, which also received an assist from the Fed’s announcement that banks could resume buybacks and raise dividends starting at the end of June. That helped the financial sector (XLF) to gain +1.67%.
After being clobbered all week, SmallCaps managed a last hour melt up to close in the green, but it remains to be seen if this can be sustained.
As ZH reported, it was not just US Tech that suffered, there was a major liquidation in China tech stocks as well, but the losers of the week were media stocks, which were monkey hammered and saw their biggest weekly drop since March 2020.
The US Dollar ramp, which eased a little today, finally allowed gold to score a small gain of +0.37%.
We have three more trading days to close out the quarter with some forecasts calling for increased volatility due to quarter-ending adjustments by mutual funds and other modeled entities.
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 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 rallied above its long-term trend line (red) by +17.53% and remains in “BUY” mode as posted.
Another day, another roller coaster ride. Sharp early losses were wiped out, as the markets did a U-turn with the major indexes ending moderately in the green. One of our more volatile SmallCap holdings had triggered its trailing sell stop last night and was sold.
Fed head Powell contributed to the early sell-off with these comments:
Fed Chairman Jerome Powell said the economy has recovered more quickly than expected thanks largely to stimulus and vaccines.
That will allow the central bank at some point to roll back some of its help, though he said that will happen “very gradually … and with great transparency.”
That spooked equities, which already had given a new definition to the rollercoaster name, but in the end the markets managed to crawl back out of that early hole with airlines and cruise line operators leading the rebound.
In economic news, Initial Jobless Claims fell below the 700k (to 684k) marker for the first time since the start of the pandemic. This was offset by news that the total number of Americans claiming some form of unemployment disappointingly rose last week, back above 19 million, according to ZH.
The US Dollar continued its rebound thereby taking the starch out of gold’s early leap and pulling the precious metal back into the red. Bond yields bobbed around their unchanged lines with the 10-year ending slightly higher, but the move was too small to have any effect on the markets.
I expect this type of volatility to continue and quarter-ending rebalancing to come into play for the remainder of this month.
After yesterday’s broad retreat, the Nasdaq managed an early bounce, which was quickly wiped out when the index changed direction and headed south while accelerating its demise for the day during the last hour.
SmallCaps had a wild and whacky day as well. Up strongly in the morning, the momentum faded with “value” and “growth” surrendering their early gains, but “growth” fared far worse than “value.”
In the end, the major indexes could not hold on to early advances and succumbed to the bears with the Dow holding up the best by ending essentially unchanged. While it seems that the markets continued to rotate out of high-flying growth names, it was disappointing to see that “value” ETFs were not able to hang on to their early boost.
Bond yields continued to the slip for the third straight day, but strangely enough that did not prevent or mitigate the sell-off. The 10-year yield dropped to 1.64% after having made a 14-month high last week.
The US Dollar Index resumed its rebound despite lower interest rates and scored 2-week highs. To make this even more confusing, gold rallied in unison with the Dollar. Huh?
ZH explained the choppiness in the Bloomberg’s chart noting that the Central Bank Balance sheets have stagnated:
Time to activate up the printing presses, or this market will continue to go nowhere.
An early attempt by the major indexes to cling to their respective unchanged lines proved to be a futile one, when mid-day the bears stormed out of hibernation. All equities were slammed, and a sea of red was the inevitable result.
Even slipping bond yields could not stem the tide, but at least the 20-year Bond ETF (TLT) finally managed a green close after having endured a serious slapping for most of this year (-13.61%).
One of the reasons for this equity weakness was the sudden scare of a third pandemic wave, which may impact the population in terms of medical vulnerability. Not helping matters was the realization that the much-touted global economic recovery may find itself between a rock and a hard place.
The World Health Organization said most regions of the globe are seeing an increase in new Covid cases as highly contagious variants continue to spread. Germany is extending its lockdown until April 18, while nearly a third of France entered a month-long shutdown on Saturday. Oil prices fell more than 6% amid the threat of a third wave of global infections.
To me, it seems that the bullish theme has fumbled somewhat over the past week, despite the Fed’s reckless money printing efforts during which $100 billion were created.
Today, there was simply no place to hide, as growth-, value- and SmallCap sectors were all pulled out of the barn for a severe spanking. For sure, some new driving force is needed to pull equities out of the doldrums.
Hmm, I wonder what that could be given that even today’s joint jawboning session between Fed head Powell and Treasury Secretary Yellen did nothing but accelerate downside momentum. Ouch!