ETF Tracker Newsletter For April 3, 2020

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ETF Tracker StatSheet          

You can view the latest version here.

A GLOOMY JOBS REPORT PENALIZES EQUITIES

[Chart courtesy of MarketWatch.com]
  1. Moving the markets

It could have been a lot worse with equities churning lower today, but thanks to Monday’s surge, the weekly effect was relatively minor with the S&P 500 “only” surrendering a modest -2%, which is tiny when compared to the recent wild rides we’ve seen.

Even the March jobs disaster, as Zero Hedge called it, showed that 701k jobs were lost, while the unemployment rate soared the most in 45 years. As was no surprise, private service and leisure were the hardest hit areas.

Keep in mind, the numbers were much higher, because the survey was taken around March 13 and ahead of the big shutdown and layoff announcements. That means the next set of numbers for April due out in May will indeed be epic, with some analysts forecasting a loss of as many as 10 million jobs.

It seems that oil’s recent rally, which continued today, helped support equities to some degree, as hopes of a supply cut sparked the single-biggest daily gain ever and the biggest weekly gain ever in crude oil, as ZH reports. They further summed up the stories of the week this way:

  1. Helicopter money begins… and the sovereign risk of the USA soars
  2. Oil has best week ever on hopes of supply cut.
  3. Stocks sink as any rebalance flow support evaporated.
  4. Lockdown effects are starting to be seen in labor and survey data

In the end, the major indexes are still hovering at a level inconsistent with underlying fundamentals. In the case of the Dow, forward earnings per share (EPS) would put this index just below the 15k level, as this chart from Bloomberg demonstrates. This translates into a drop of some 30% from current readings.

Who knows if it will get there? However, being in a bear market, you can’t simply discount this possibility.  

It’s good to be on the sidelines.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 04/02/2020

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ETF Data updated through Thursday, April 2, 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 02/27/2020

Click on chart to enlarge

Our main directional indicator, the Domestic Trend Tracking Index (TTI-green line in the above chart) is now positioned below its long-term trend line (red) by -24.22% after having generated a new Domestic “Sell” signal effective 2/27/20 as posted.

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Record Initial Jobless Claims—Markets Rally

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[Chart courtesy of MarketWatch.com]
  1. Moving the markets

The futures markets crashed into the red last night, despite a strong start to the session. The cause was another unprecedented surge in initial jobless claims, after last week’s record 3.3 million rise, but this week, we added 6.648 million for a two-week grand total of 10 million new people claiming unemployment benefits, as ZeroHedge pointed out.

So, what do you do when you know the markets are about to get slaughtered again?

You create a rumor. And that is exactly what the White House did, as Trump tweeted this:

Just spoke to my friend MBS (Crown Prince) of Saudi Arabia, who spoke with President Putin of Russia, & I expect & hope that they will be cutting back approximately 10 Million Barrels, and maybe substantially more which, if it happens, will be GREAT for the oil & gas industry!

That’s all it took to shift the computer algos into high hear with the Dow at one point being up some 500 points, after which it lost all of its gains and dipped below the unchanged line before recovering and storming back towards the highs of the day.

ZeroHedge clarified the events as follows:

The mid-day volatility was a result of Russia’s energy minister emphasizing that instead of cutting supply, Russia will wait for demand to return.

The Dow Jones news service made it clear that, according to Saudi sources, Trump’s tweet was nothing but a baseless oil price manipulation:

  1. SAUDI OFFICIAL SAY TRUMP’S TALK OF 10 MILLION BBL A DAY CUT OR ABOVE WAS AN EXAGGERATION

Finally, Moscow confirmed where to expect the oil prices in the coming year:

  1. RUSSIA IS SAID TO BASE REVISED 2020 BUDGET PLAN ON $20 OIL

After all this, it makes me laugh out loud how oil prices could have gained 23% and stocks participated with an over 2% advance, while 10 million Americans lost their jobs in 2 weeks’ time.

Maybe, it was simply another overdue dead-cat bounce.

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No Bullish Meat On This Bone

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[Chart courtesy of MarketWatch.com]
  1. Moving the markets

As the worst quarter in history came to an end with a sell-off, the 2nd quarter started with a bang—but to the downside, leaving the always optimistic Wall Street players gasping. As Barron’s commented, today was the worst first day of a quarter—ever. That’s a lot of “worsts,” and they erased some 50% of last week’s dead-cat-bounce.  

Today, there simply was no bullish meat found on that ageing carcass, with the major indexes spending the entire session below their respective unchanged lines giving the bears an easy victory, as any rally attempts ran into a brick wall of selling.

For sure, not helping matters was Trump’s warning that a “very, very painful” two weeks lie ahead, as we continue to face the rapidly spreading coronavirus epidemic. That indicates that many businesses will remain shut down for at least that period, but I think that timeframe will be extended.

It is now clear that the world’s economies have been and are experiencing a never seen before interruption to industries, small businesses and households, even far worse than what we saw in 2008. The hope that a V-shape type of recovery will be in our near future may not happen, if this shutdown extends for any length of time past the month of April.

Last week’s bullish driver, namely the quarter-end rebalancing act, is now spent and in the rear-view mirror. Another major player that has heavily contributed to the bullish theme over the past few years, corporate buybacks, have disappeared as well with companies having more serious issues than manipulating their stock price via the buyback game.  

That leaves economic data, and possibly the Plunge Protection Team (PPP), to offer market support, the power of either is questionable given current circumstances.

No, I am not being negative. I see a light at the end of the tunnel, the tunnel is just much longer than most anticipate.

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Ending A Miserable Quarter With A Sell-Off

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[Chart courtesy of MarketWatch.com]
  1. Moving the markets

An early rebound hit a brick wall, as this month/quarter turned out to be nothing but misery for the buy-and-hold crowd. To wit, during March, the major indexes lost big time with the S&P 500 plunging -12.5% vs. 0% for those who followed my trend tracking guidelines, which called for “all cash” effective 2/27/20.

Keep in mind that the -12.5% loss for the S&P 500 happened despite a huge rebound last week, which was powered by massive quarterly-ending rebalancing efforts. Otherwise, the index would have been down over 30%. In the end, the S&P 500 ended “only” down some -20% for the quarter. Ouch!

Much of this market deterioration has been blamed on the coronavirus, but this virus was merely a bug in search of a windshield, and it finally found one. As I posted before, the financial markets were long overdue for a serious correction, and Covid-19 was purely the pin that pricked the bubble.

Helping today’s early bullish theme were preliminary reports of what’s in store with consumer confidence, Chicago PMI and Chinese manufacturing, which were coming in better than expected, but I don’t think that encompasses the month of March, during which econ numbers look to have taken a steep dive with the country shutting down.

ZeroHedge posted the question: So, how bad was Q1? And answered it with this chart confirming that it was the world’s biggest quarterly capitalization loss in bonds and stocks ever…during which stocks lost a record-smashing $19.6 trillion…

So, the big question is “how low can we go?” While no one has that answer, one argument is that markets need to adjust to forward earnings. If that is true, as Bloomberg demonstrates in this chart, somewhere in the neighborhood of 1,600 for the S&P 500 might be a stopping point.

No one knows if that will happen, but I think it’s a possibility, so my preference, for the time being, is watching this develop from the sidelines.

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Quarter-End Rebalancing Props Up Markets

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]
  1. Moving the markets

Despite Trump’s announcement Sunday night that he had extended the social distancing guidelines through April 30th, which translates into a continued shutdown of food, entertainment and other service industries, you would not know it by today’s market reaction.

After a sight opening dip, the bullish theme was maintained, and the major indexes were pumped into the close. Sure, some of the traders’ attention was focused on the efforts to slow down the spread of the virus, but news reports did not show any earthshattering improvements.

It seems that the quarter-end balancing, which contained another $150 billion in re-allocations, according to ZeroHedge, was enough to sustain the bullish theme for another day. We may see another push higher tomorrow, but I doubt that this will carry into April.

Just as noteworthy has been the crude oil crash, down another 6% today, with the $20 level about to be taken out soon, with some futures already trading at $13.30. Bloomberg posted this chart for clarity.  

To me, the always interesting and entertaining comparisons to historical events, such as past market crashes, may have some validity, with Bloomberg posting the latest comparing the S&P now compared to 2008 in this chart. We will soon find out how this analog holds up, and my guess is that more clarity will set in during the month of April.

Despite last week’s rebound, we’re still stuck in bear market territory, and I believe the downward trend will continue but will be interrupted by breathtaking rebounds from time to time.

Right now, it pays to be safe than sorry.

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