Recovering From The Selloff

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

After stumbling during the last week of January, and a weak overnight session in the futures markets, the major indexes shook off whatever ailed them and opened solidly to the upside. An early dip towards the unchanged line was quickly recovered, and up we went during the remainder of the session.

Taking the lead in today’s levitation were SmallCaps (IWO), which rocketed ahead +2.72% with the Nasdaq in close pursuit via an impressive gain of +2.55%. Even GLD finally managed to hang on to most of its early gains, very likely a rollover result of the short-squeeze stampede into silver, which catapulted higher by some 11%, over $30, before surrendering some its gains.

But some damage was done as the silver futures diverged heavily from the American Eagle 1 oz coin price, showing a $14 premium, as Bloomberg demonstrates in this chart.

Things were quiet in the markets as Wall Street traders tried to shake off last week’s retail trading short squeeze apocalypse featuring predominantly the GameStop stock. Word had it over the weekend that the Reddit Forum WallStreetBets would now attempt a repeat of the squeeze—but in the silver markets. They appeared to have done so, but details of its impact are still sketchy.

CNBC summed it up like this:

Many on Wall Street were spooked by a frenzy of activity among retail traders in heavily shorted stocks including GameStop and AMC Entertainment, which caused hedge funds to take off risk across the board even if they weren’t directly involved in the trade. Goldman Sachs said that the short squeeze triggered by the buying spree is the most extreme in 25 years. However, some strategists believe it’s unlikely that the impact will ripple through Wall Street and derail the new bull market.

Earnings season will kick into full gear this week with names like Alphabet, Amazon, Alibaba, Exxon, and other heavyweights on deck.

Read More

ETFs On The Cutline – Updated Through 01/29/2021

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 268 (last week 269) 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 January 29, 2021

Ulli ETF Tracker Contact

ETF Tracker StatSheet          

You can view the latest version here.

TRIPPING INTO THE WEEKEND

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

While the major indexes managed a green close yesterday, the Dow gave back about half of its early gains, but it could have been worse had it not been for the closing bell to “save” the markets from further declines.

And that is exactly what transpired, not only this morning but also during last night’s futures trading, namely that the rebound now appeared to have been a dead-cat-bounce with the sour mood continuing the entire session thus wiping out more than yesterday’s gains.

With options expiration lurking and the fallout from the GME short-squeeze debacle continuing, during which the once considered “untouchable” hedge funds’ short positions were squeezed to a degree never seen before, the battle raged on pushing up the stock another +67.9%. It is not known yet how many hedge funds had to be given a financial emergency enema, just to keep them alive.

It was the 6 million retail investors and their Robinhood accounts that unnerved the markets and made sure that the billionaire “hedgers” learned to use a little more discretion, by not shorting more than the entire market float, as they now have become intimately acquainted with the possible consequences of such actions.

As I pointed out 2 days ago, much of the selling in stocks and bonds was attributable to those hedge funds with outsized margin calls to sell everything they could to meet them—just to stay alive.

Added CNBC:

Shares of GameStop jumped 67.9% after Robinhood said it would allow limited buying of the stock and other heavily shorted names after restricting access the day before. Robinhood raised more than $1 billion from its existing investors overnight, in addition to tapping bank credit lines, to ensure it had the capital required to allow some trading again in volatile stocks like GameStop.

Investors are concerned that if GameStop continues to rise in such a volatile fashion, it may ripple through the financial markets, causing losses at brokers like Robinhood and forcing hedge funds who bet against the stock to sell other securities to raise cash.  

For sure, fears have increased that this GameStop mania could be indicative of the market bubble I have talked about before, because none of the daily trading activities are a representation of the underlying economy, but merely a function of liquidity supported by the actions of the Fed. That may eventually contribute to more chaotic trading and possibly give the bearish crowd something to cheer about.

In the end, the markets scored their first losing month in four, with the Dow and S&P 500 dropping 2% and 1.1% respectively, but SmallCaps maintained their winning streak. The US Dollar scored its first monthly win since September, while Gold surged on various occasions, but every bounce was met with selling pressure, as ZH pointed out.

Yet, despite all this upheaval, panic and nervousness, the S&P 500 remains within 3.5% of its all-time highs. Go figure.

Read More

Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 01/28/2021

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, January 28, 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 +15.99% and remains in “BUY” mode as posted.

Read More

No Market Commentary

Ulli Uncategorized Contact

I won’t be able to make it back in time to write today’s market commentary. The next post is scheduled for tomorrow.

Ulli…

Dropping And Not Popping

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Even though the futures markets benefited for a little while from Microsoft’s blow-out earnings yesterday, that positive sentiment did not last long with the major indexes plunging right at the opening of the regular session.

A few factors came into play and contributed to today’s plunge:

  1. The markets melted up over the past couple of months in almost a vertical fashion, supported by intense speculative behavior from retail investors, so a correction has been way overdue.
  2. All eyes were on the Fed today, which opted to hold interest rates near zero and left unchanged its massive bond-buying program. Fed head Powell stressed that the economy remains far from a recovery, a point that I have repeatedly made.
  3. The short squeeze of stocks like GME continued unabated causing some of the billionaire hedge fund shorts a world of hurt with some of them likely needing to be bailed out.

The events around GME, along with others, and the pain experienced by the leveraged short-sellers were worsening, as the stock catapulted to the $385 level. It’s almost funny when you consider that based on economic analysis heavy shorting by the pros of this stock backfired, after an army of retail speculators poured into the stock via massive share purchases and options and drove it to higher highs in the process forcing the shorts to cover thereby throwing more gasoline on the fire.

In the end, not only did the short sellers tried to cover, but they also had to face gigantic margin calls, which caused them to sell off any asset they held indiscriminately, thereby contributing to today’s broad sell off.

In other words, amateur traders made the pros puke their longs to cover their short losses. Ouch!

To no surprise, bond yields dropped to 1%, and the US Dollar rallied. With the major indexes surrendering 2%-2.5%, Gold held up well during this Sell-A-Thon by only giving back -0.65%.

To show you how downright stupid some of the market moves were, ZH pointed to the holding company for Blockbuster’s liquidation, which is up a rather amusing 4,900% in the last two days, as this chart shows.

Let’s see if that kind of insanity continues tomorrow. I will be pressed for time and may write an early and shortened market commentary, if possible.

Read More