Aimless Meandering—Gold Reigns

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[Chart courtesy of MarketWatch.com]

  1. Moving the markets

For most of the session, the markets engaged in directionless wandering but, as we’ve seen many times in the past, an afternoon ramp pushed the 3 major indexes solidly in the green, while pulling the lagging Nasdaq along for the ride.

Two concerns kept the indexes stuck in a range, namely fears that the pandemic is worsening and the rapidly deteriorating US/China relations. Regarding the latter, the US instructed China to close its consulate in Houston provoking consequences that are unknown at this point.

In the end, equities shook off all concerns, and we rallied into the close leaving all issues in the rear-view mirror—for the time being.

In terms of earnings, MarketWatch added:

Thus far, quarterly results have been better than feared. Of the 58 companies that have reported results thus far, 77.6% have reported above analyst expectations, compared with the average of 65% who reported above consensus estimates in prior quarters, according to data from Refinitiv, based on data going back to 1994. A little over 22% have reported results that fall below expectations, versus an average of 21% missing, the data show.

As announced yesterday, both of our Trend Tracking Indexes (TTIs) signaled a new “Buy.” We received confirmation this morning when the markets held steady and did not sell off. Our Domestic TTI took another jump today validating the current bullish theme. See section 3 for more details.   

Also, GLD, which we hold, turned out to be the winner of the day again with another solid showing of +1.52%. Thanks to the Fed, and its reckless money printing efforts, the precious metal has far more upside potential than what we have seen to this point.

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Equities Gain But Gold Soars—Buy Signals Triggered

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[Chart courtesy of MarketWatch.com]

  1. Moving the markets

While equities and gold usually diverge, today both gained, but the precious metal put on a superior performance with GLD adding +1.22% vs. the S&P 500s meager +0.17%. After the Nasdaq’s outstanding outing yesterday, the tech sector was due for a time out, and the index surrendered -0.81%.

Market sentiment was cheerful after the EU reached a historic pandemic bailout deal, as ZH called it, with a massive $860 billion recovery plan for their coronavirus-throttled economies. The tug-of-war to come to a solution spanned some 5 days and included a variety of turbulent and seemingly endless negotiating sessions.

Despite early sharp advances, the gains ended up being muted with the S&P attempting to break out of a 6-week trading range.

“The S&P 500 is breaking out of trading range,” said Crista Huff, founder of hedge fund Freedom Investment Partners, told MarketWatch. “We are beginning a bull run.” But “Clearly we have some massive problems in the economy and there are so many people that are unemployed and 10 or 20 million aren’t going to have an easy time finding a new job,” she added.

Still, some sectors performed well giving our Trend Tracking Indexes (TTIs) the boost they needed to validate new Buy signals. Please see section 3 for details.

Analyst Lance Roberts shows the seasonal effects on the S&P 500 as an average of all years in this chart:

As you can see, we are still in the seasonally strong part of the year, and the obvious question to me is this one: “Will a potential correction in September be strong enough to trigger our trailing sell stops?”

Since no one has the answer, we will continue to follow the major trends and step aside should they get interrupted.

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The Nasdaq Rules

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[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Right after the opening bell, the Nasdaq took over and lead the major indexes via a steady ramp to a green close. The Dow barely closed to the upside, while the S&P 500 showed a decent increase, but that one paled compared to the tech sector’s chest pounding 2.51% surge.

Much of this was based on anticipated earnings during this week, somewhat helped by positive developments from vaccine candidates but overshadowed by coronavirus cases and deaths continuing to set records.

North Carolina, Louisiana, and Kentucky reported record infections of COVID-19 of 2,400, 3,119 and 979 respectively on Sunday, The Wall Street Journal reported, while Arizona registered a record high death tally of 147 deaths.

Meanwhile, Florida, the epicenter of the outbreak in the U.S., reported nearly seven-day average of 12,000 cases, surging by nearly a 30%, according to CNBC, citing data compiled by Johns Hopkins University.

However, this week will be all about earnings and how many companies can beat the sharply reduced expectations, despite realization setting in that the dream of a V-shape type of recovery may be exactly that—a dream. The question remains as to whether the “improved” earnings will be in line with what markets expect, or will they provide a dose of reality?

Added MarketWatch:

Although Wall Street is betting that earnings will start bouncing off the bottom in the third quarter, the beginning point for that bounce is unknown, and early indications suggest the rebound’s magnitude may not match investors’ hopes.

Today has sent Bloomberg’s Fear-Greed index to its highest ever—above March 2000’s previous peak, according to ZH:

The lesson is simple. You cannot be in this market without an exit strategy.

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ETFs On The Cutline – Updated Through 07/17/2020

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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 186 (last week 148) 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 July 17, 2020

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ETF Tracker StatSheet          

You can view the latest version here.

A VOLATILE WEEK ENDS TO THE UPSIDE

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Volatility continued today, but in the end the Dow added some 2.5% for the week, the S&P 500 gained around 1%, while the Nasdaq skidded near -1.4% and suffered its worst weekly underperformance relative to the S&P 500 since 2009. This is minor when considering the Nasdaq’s YTD gain of some 22% vs. the SPY’s meager +0.99%.

The early bullish theme reversed, as the consumer sentiment index dropped to 73.2 from 78.1 vs. expectations of a rise to 78.6. Once again, the fallout from the virus continues to make itself felt, as activities are simply restricted blurring any forecasts especially those related to jobs.

For the day, the S&P 500 and Nasdaq climbed out of an early hole, while the Dow was the laggard by closing slightly in the red. It looks to me that the rise in Covid-19 cases has limited stock advances, and has overpowered optimism for further stimulus, at least for the time being.

Of course, a sudden or unexpected fiscal stimulus announcement will likely provide the bulls with more upside momentum, and I would expect such a move, should the “one-time” $600 unemployment bonus which is due to run out by the end of July, be extended.

On deck, and possibly having a far-reaching impact, is the 2-day summit of the EU’s 27 member states, which got underway this morning in Brussels. The subject will be a controversial 750 billion Euro recovery plan, which already face heavy resistance from fiscal conservatives in the bloc.

“Presumably, as is the way of Europe, they will agree to come back from more talks followed by a compromise and a watered-down deal,” Societe Generale’s Kit Juckes said of the EU discussions. “The positive though is that we are getting a recovery fund.”

Back to the US. It’s interesting that, after being squeezed Tuesday and Wednesday, the shorts were ominously quiet, as ZH put it, and Bloomberg’s chart demonstrates. That is why the bullish moves over the past 2 days were muted and, with the Fed being quiet, caused some aimless meandering in the markets.

For sure, such sideways trending is bound to end, especially once the updated numbers come out again, showing that the Fed’s balance sheet has slightly reversed and is trending modestly upward again, as Bloomberg’s chart shows.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 07/16/2020

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ETF Data updated through Thursday, July 16, 2020

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: SELL — since 06/25/2020

 

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 +2.03% but is still in “Sell” mode until we see more upside verification.

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