Lackluster Meandering

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

“Uninspiring” best describes today’s session during which we saw the Nasdaq storming ahead of the other 2 major indexes by sporting early gains of more than 1%. Mid-day, the positive vibes stopped, and the Nasdaq suddenly plunged into the red but managed to crawl out of that hole and slightly into the green.

The Dow spent the entire day below its unchanged line, while the S&P 500 vacillated aimlessly without making any headway; in other words much ado about nothing.

Not helping the markets was JP Morgan’s downgrade of SmallCaps, which pulled all of them, the growth- and the value kind, off their recent highs after announcing a “tougher road ahead for that arena,” citing that “their extraordinary performance is coming to an end.”

While that is not a sure thing, at least for today all of them dipped into the red.

Things went haywire in bond land as well when, after an impressive 20-year auction, the yield suddenly plunged leaving most analysts scratching their head and looking for an explanation—but unable to come up with one.

The latest economic news did nothing to spark the mood with US Industrial Production unexpectedly plunging in February and Retail Sales collapsing, after a huge surge in January.  

Maybe it was simply nervousness about tomorrow’s upcoming event of the week, namely the Fed’s guidance on interest rates and inflation. Markets are on the edge and any “hawkish” tones could lead to a sell off, but any “dovish” undertones will support the bullish theme.  

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Conquering An Early Tumble

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

An early pop was shadowed by a mid-day drop, which was then followed by one more pop in the indexes with the Dow scoring another record high as economic reopening optimism prevailed.

The early plunge was the result of negative news from several European countries about blood blot concerns by vaccine developer AstraZeneca.

But equities recovered when the #1 party spoiler, namely rising bond yields, did not come into play today. The 10-year slipped almost 2 basis points but remains stubbornly above the 1.6% pain threshold, but traders were simply pleased by not seeing further spikes.

Still, the tug-of-war goes on between those who believe that equities should be able to absorb roughly 2% yields, while others call for a 20% collapse in the Nasdaq should this level be reached.

Therefore, Wednesday’s upcoming verdict by the Fed regarding interest rates will be dissected down to the last word. Will they fine-tune their interest rate outlook, which currently does not consider any rate hikes through 2023?

Any unexpected wording will affect markets instantly.

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ETFs On The Cutline – Updated Through 03/12/2021

Ulli ETFs on the Cutline Contact

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 250 (last week 243) 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 March 12, 2021

Ulli ETF Tracker Contact

ETF Tracker StatSheet          

You can view the latest version here.

RISING BOND YIELDS = SLIDING TECH SECTOR

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Again, it was the Nasdaq futures, falling as much as 2%, that predicted a sloppy opening of the regular session. That’s exactly what happened because bond yields spiked again, thereby taking the starch out of any investment with the word “growth” attached to it.

The 10-year bond yield dashed and topped its March 5th highs with the 30-year following suit keeping the major indexes in check. The exception was the Dow, which never dropped below its unchanged line and gained +0.90% for the day, in the process setting another record.

The S&P 500 climbed out of hole and managed to barely crawl back into the green. The Nasdaq’s attempt to do the same failed but early losses were greatly reduced.

The US Dollar inched higher by a modest amount, but today’s environment clearly belonged to the value sector with RPS and IJS, which we own, adding +1.58% and +1.46% for the session. Higher yields also benefitted the financial sector with XLF gaining +1.05%.

There is no question in my mind that higher yields, if allowed to continue to elevate, will be the biggest danger to all risk assets (equities), especially if Fed policies become less dovish at some point in the future.

Ned Davis Research seems to agree:

He estimates that the Nasdaq 100, the tech heavy index which tracks the 100 largest non-financial companies in the Nasdaq Composite, would drop another 20% if the 10-year yield hits 2%.

All bond yields have now reached pre-covid level, as Bloomberg shows in this chart. Once the inflationary forces are truly recognized, yields will continue to ramp higher.

However, keep in mind that during the initial phase of inflation, equities will rally, but once a certain, yet unknown point is breached, it will be all over for the bull market.

That’s the moment in time where the value of an exit strategy will become priceless.  

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 03/11/2021

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, March 11, 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 +20.41% and remains in “BUY” mode as posted.

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Tech Rules For The Day

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The futures markets already pointed to higher prices for the Nasdaq, which had fallen as much as 12% last week before attempting a comeback. Today, it was the leader among the major indexes sporting +2.52%, while the Dow and S&P 500 lagged with gains of +0.58% and +1.04% respectively but both hit new intraday highs.

CNBC described the rebound this way:

Tech and growth stocks are rebounding from a swift correction triggered by rising interest rates. Higher rates make profits in far-off years seem less attractive to investors and can knock down stocks with relatively high valuations.

In economic news we learned that January job openings spiked by 165k to 6.917 million, the highest level since the pre-covid highs of February when there were just over 7 million job openings, according to ZH.

Better than expected weekly jobless claims, 712k vs. 725k, cheered on traders and, while this is an improvement, it is nevertheless a sorry situation to see some 700k-800k of new claims occurring week after week.

Despite the passing of the $1.9 trillion stimulus package, the US Dollar continued its southerly path, while the 30-year bond yield whip-sawed through the auction and ended higher.

For the week, yields are still lower, but that could change tomorrow when the highly anticipated PPI (Producer Price Index) will be released.  

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