Equities headed south right after the opening bell with the Dow ending its 4-day win streak. Bringing the recent rally to a halt was news that several pharmaceutical companies were facing challenges with their Covid-19 vaccines due to side effects causing 2 companies to pause its trials.
Earnings season got started with banking giant JP Morgan delivering better-than-expected earnings but slightly weaker than expected revenues. One of the items that made me go “Hmm…” was their reduction in loan loss provisions, which dropped by 90%. As if potential future loan losses no longer are of any concern…
Also not helping the mood on Wall Street were the stalled talks in Congress with another coronavirus stimulus package questionable, as the warring parties appear in no mood for any concessions.
Precious metals got hammered today as the dollar spiked with gold trying to hang on to its $1,900 level, while bonds rallied as yields fell.
The Nasdaq fared the best among the major indexes, while the S&P 500 was unable to keep recent upward momentum going and therefore failed to take out its recent highs.
In the end, it was a whipsaw day with nothing gained but not much lost either.
The futures already indicated this day to be one for the bulls, as renewed stimulus hopes, the upcoming earnings season and just general market optimism formed the basis for another day of levitation with especially the Nasdaq receiving a nice boost of +2.6% thanks to a massive melt-up squeeze.
It was the tech sector’s best day since September 9, when it rallied +2.7%.
Added ZH:
On the stimulus front, Nancy Pelosi and Steven Mnuchin were expected to (what else) talk more this week about an economic stimulus plan. Still, even if they manage to strike a deal, there’s almost no chance of getting legislation written and passed by Congress before the election. “There is not a denying of the fact that investors would appreciate easier accessibility to cash and cheaper cash as a result of even more stimulus,” said Jameel Ahmad, director of investment strategy at Naga Group AG in London, also pointing out the obvious.
This most recent ramp has moved the S&P 500 within striking distance of some 50 points of taking out its September 2nd all-time high of 3,581.
On the other hand, reality had nothing to do with today’s bullish theme. Pelosi rejected the White House offer, bond markets were closed, the Fed was quiet, and MSM focused on the Supreme Court justice hearings.
The US Dollar whipsawed and ended unchanged, while growth stocks outperformed value for the second day in a row, as ZH remarked.
Though it was a wild day, it went in favor of the bullish crowed, while the bears got mauled and now have some serious thinking to do.
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 265 (last week 244) 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.
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.
Despite Tuesday’s pullback, equities picked up steam and closed higher with the Dow sporting its best week since August, while the S&P 500 added +3.85% over the past five trading days, with the Nasdaq showing similar gains.
Despite the non-stop stimulus tug-of-war, today Trump indicated that “Covid relief negotiations are moving along. Go Big!” That is quite a turnaround from his Tuesday tweet of negotiations being postponed till after the elections. Well, you would need to read his book “The Art of the Deal” to make sense out of this and to see where he is coming from.
That also explains the reversal in the dollar, which has been freefalling and tumbling to three week lows. It comes as no surprise that the beneficiary turned out to be Gold, which has soared and comfortably recaptured its $1,900 level.
Added ZH:
Gold, meanwhile, has concluded that the now-imminent debt binge will indeed crush the dollar, sending capital pouring into safe havens. This sent gold to its best day since Aug 17th…
The act of creating reckless amounts of new money to fund deficits and relief programs is a hotly debated issue with analyst Peter Schiff seeing it this way:
“The problem is once you accept the false premise that government stimulus actually helps the economy – that it really is a stimulus – then you’ve kind of lost the argument. Because if borrowing and printing $1.6 trillion, if that’s a good thing, why isn’t borrowing and printing $2.4 trillion a better thing? Because you put the Republicans in the position of arguing that 2.4 trillion is too much of a good thing — that somehow, if we just create 1.6 trillion out of thin air and spend it, that’s really going to help. But if we push it to 2.4, it’s actually going to hurt. Why? I mean, when does something good suddenly become something bad?”
I agree with his analysis, which is why I look at the long-term effects and potential consequences and realize the significance of holding gold in anyone’s portfolio. Make no mistake about it, hyperinflation is the eventual outcome, the timing of it is just the big unknown.
Again, the short-squeeze continued unabated and has been a major driver of equities since late September, as Bloomberg’s chart shows.
Let’s see how this movie continues next week. For sure, it won’t be boring.
ETF Data updated through Thursday, October 8, 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 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 +10.79% and remains in “BUY” mode as posted.
Due to a variety of afternoon business commitments, I will not be able to write today’s market commentary. However, I will post the updated StatSheet by 6:30 pm PST.
