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 322 High Volume ETFs, defined as those with an average
daily volume of more than $5 million, of which currently 284 (last week 277)
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.
An
early spike hit a brick wall with the S&P 500 backing off its highs and fading
below the unchanged line. That came as no surprise, as the US-China trade deal
saga affected market direction due to a variety of headlines spreading some
confusion.
We
learned that the warring parties had reached an agreement on text on a phase 1
deal and will now move towards signing as quickly as possible. Trump tweeted these
details:
“We have agreed to a very large Phase One Deal with
China.
They have agreed to many structural changes and massive
purchases of Agricultural Product, Energy, and Manufactured Goods, plus much
more.
The 25% Tariffs will remain as is, with 7 1/2% put on
much of the remainder.
The Penalty Tariffs set for December 15th will not be
charged because of the fact that we made the deal.
We will begin negotiations on the Phase Two Deal
immediately, rather than waiting until after the 2020 Election. This is an
amazing deal for all. Thank you!”
The
fly in the ointment is what the US will get in exchange. One analyst pointed
out that this remains unclear—China has promised to buy “more” agri
products, but without providing actual details, while saying it plans to import
US wheat, rice, and corn within quotas.
The
market took it as a mixed bag and, in the absence of more substance, simply sold
off. After all, this constant “crying wolf” will get ignored eventually—and
by mid-day it did.
However,
dip buyers stepped in and a slow recovery brought the indexes back to their
respective unchanged lines where they vacillated into the close.
Not
much was gained today, but for the week the S&P 500 added +0.7%. In bond
land, Thursday’s crazy spike in yields, reversed and erased
almost all losses sustained yesterday.
In
the end, it was all about the Fed and the alleged trade deal with China.
Economic data points did not weigh on equities, despite Bloomberg’s US
Macro Surprise Index dropping to a level last seen 3 months ago.
ETF Data
updated through Thursday, December 12, 2019
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 02/13/2019
Click on chart to enlarge
Our main directional indicator, the Domestic Trend Tracking Index (TTI-green line in the above chart) is now positioned above its long-term trend line (red) by +6.98% after having generated a new Domestic “Buy” signal effective 2/13/19 as posted.
It’s amazing what little it takes to send the computer
algos on a bullish run and in the process pushing the major indexes into record
territory.
Trump’s announcement that “a big deal” with China
is “getting very close” and “they want it, and so do we” were the
magic words that ramped equities into uncharted territory. Traders assumed that
also meant that the fresh tariffs scheduled to go in effect on Sunday may be
avoided.
Then another report confirmed that the US team is indeed
offering to cancel the new tariffs and reduce existing levies on Chinese goods
by up to 50% on $360 billion worth of imports.
One analyst did not see any meat on that bone for the
U.S. and summed it up like this:
So, what does Trump get in return for folding
like a cheap chair? Why pledges to buy more agricultural products, pledges
which apparently are not even enforceable as they are merely “firm
commitments”, in other words taking China for its word.
Of course, we’ve heard all of this before, as one analyst
succinctly tweeted. There
is no doubt that eventually a deal be struck, but will it be this time or is this
simply another attempt to positively influence the markets?
Mid-day, some questionable news from the Chinese took the
starch out of upward momentum, but the major indexes recovered from the pullback,
as words that “a trade deal in principle” had been reached, seemed to
calm things down, and we closed solidly in the green.
Bondholders got punished today, as yields rocketed higher
with the 30-year
soaring the most in 3 months, while the 10-year rose 9.3 basis points to close
at 1.89%.
Looking at the big picture in the markets and considering
the worsening repo issues (overnight lending), the possibility of QE4 from the
Fed and the ever entertaining and ongoing trade saga with China, it promises to
be an interesting last 2 weeks of 2019.
As expected, the Fed left interest rates on hold but indicated
that they have no plans for any changes through the end of 2020. In fact, the
assessment of the economy was more upbeat, which caused market sentiment to remain
cautious.
Powell reiterated that the “current stance of monetary
policy is appropriate” to sustain an economic expansion, strong labor markets
and inflation near its 2% target. In other words, he considers the “policy
somewhat accommodative,” which gave markets a boost that assured a green close.
During his speech, Powell was pressed on the issues in
the overnight funding markets, to which he admitted that “if its does become
appropriate to buy something other than T-Bills, the Fed will do so.”
The reference was to the Fed’s current monthly $60
billion in purchase of T-Bills, which had been called “non-QE.” He has now
opened the spigot to purchase other assets as well, such as longer-term bonds. At
that point the objective is clear in that this will be for sure QE4, or an outright
monetization of debt.
The US dollar sold
off sharply and slumped to 5-month lows, while the 10-year bond yield dropped
to close a tad below the 1.80% level.
All eyes are now on the Fed and when it will enact the
new QE4, which can easily be caused by accelerating year-end problems in the overnight
lending markets, where the underlying financial plumbing issues continue to deteriorate.
From my understanding, some of these must be addressed and fixed prior to year-end.
I will be watching closely for any fallout that might
occur.
Bobbing and weaving best describes today’s session with
the major indexes being stuck in a sideways pattern after rebounding from an
early dip.
The latest news from the US-China trade debacle points to
some progress in that trade negotiators are “laying the groundwork for a delay”
of the new 15% import tariffs scheduled to be implemented this coming Sunday.
Meanwhile, the Fed started its 2-day policy meeting with the
results being announced tomorrow. Expectations are that interest rates will be
held steady. Of concern is Fed chief Powell’s intention of forging consensus towards
a “broader revamp of the Fed rate-setting strategy.”
Translated, that means he is favor of letting inflation
run above its annual 2% target. To my way of thinking, how can that end well?
It’s not that the Fed has a magic wand to rein in inflation, should it suddenly
burst out of control. Apparently, historic precedents as to the potentially
devastating effects of inflation, such as we’ve seen during the Weimar
Republic, are simply ignored.
Adding to this issue is the fact that we are living in a deficit-based
spending environment where debt and deficits are soaring relentlessly higher. While
these problems have been largely ignored, and are never addressed on any
political platform, they represent a piper that eventually will need to get
paid.
In the meantime, the markets went nowhere today with the major
indexes hugging their respective unchanged lines and slipping slightly in the
red.
In the underlying overnight lending market (repos), the
troubles continue with liquidity being conspicuously absent. We’ll have to wait
and see, if there will be a fallout by the end of this year that could affect
equities.
