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 281 (last week 282)
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.
DRIVING
THE MARKETS: TRADE HOPE AND RETAIL HEADLINE
[Chart courtesy of MarketWatch.com]
Moving the markets
While
today’s headline retail number showed a rise of +0.3% MoM, which was better than
the expected +0.2%, the under the hood core number looked mixed at best by only
rising +0.1% MoM vs. an expected +0.3%. But headline news are what computer algos
read, so up we went.
The
initial boost came from alleged positive US-China trade war developments,
with the White House econ advisor Kudlow saying Thursday night that “negotiators
are getting close to an agreement,” however, Trump added that “he likes
what he sees, he’s not ready to make a commitment, we have no agreement just
yet.”
In
other words, there is no deal, only promises and possibilities, but that’s all
it takes these days to keep traders and algos happy, a condition which pushed the
major indexes into new all-time territory.
Even
poor economic news good not stem the march higher. US MoM Industrial Production
plunged
the most since March 2009, as October’s -0.8% collapse led to a YoY
decline of -1.13%. In addition, Manufacturing
output fell -0.6%, its weakest reading since December 2015 (Source: ZeroHedge).
I
am merely pointing this out to clarify that the stock market and the underlying
economy are in no way connected, and that a high level of stock prices does not
indicate a solid economic environment.
This
is further confirmed by the fact that the GDP for Q4 2019 has crashed with the US
economy growing at its slowest pace in 4 years, as the Fed’s tracking estimates
having tumbled by over 0.4% just the past week. The US GDP in Q4 2019 is now set
to print at around 0.35%, which is anemic and in no way justifies the current
level of stock indexes.
But
that is not what matters. What is critically important for the continuation of
the bullish ramp, as I pointed out before, is the liquidity in the market, which
has been created by an increase in the Fed’s balance
sheet. It grew by some $280 billion in the past two months alone and is directly
responsible for driving equities relentlessly higher.
ETF Data
updated through Thursday, November 14, 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 +5.58% after having generated a new Domestic “Buy” signal effective 2/13/19 as posted.
The bouncing below the unchanged lines went on throughout
the session with the major indexes having a hard time seeing green, with only
the S&P 500 and Dow briefly peeking into positive territory.
The cause for this lack of upward momentum turned out to
be usual culprit, namely the latest trade
reports casting a big shadow on some of the alleged process. For one, the White
House “conceded that the original target date may slip,” but they denied
reports of a setback.
Other bon mots included things like “China was absolutely
delaying the truce with its approach,” and “there is a lot of jockeying going
on—it’s a standoff, in part,” all of which did nothing to calm the markets.
However, the positive in all that was that the indexes remained stable and closed
within a fraction of their respective unchanged lines.
Even the mid-day tumble was stopped by an influx of dip
buyers making this pullback an event now long forgotten and only visible in the
rear-view mirror. So, the trade movie continues with all of its idiosyncrasies,
as the market-implied
odds of a trade deal are worsening from day to day.
On a side note, I had to crack up today when I heard the latest
interpretation of using politically correct language, an area that seems to have
taken on a life of its own. You’ll be delighted to hear that a new word is spreading
in the investment community.
We all, especially the buy-and-hold crowd, certainly remember
the crash of 2008, which decimated many portfolios, and I believe the next one
will even be more destructive, whenever it arrives. To lessen the pain, some joker
suggested we call such an event no longer a “crash” but rather “a
sudden value reassessment.”
Well, I don’t know about you, but I would feel far more
comfortable losing 50% of my portfolio due to “a sudden value reassessment”
than due to a “crash,” wouldn’t you agree?
It was another trading day during which uncertainty ruled.
The major indexes survived an early sell-off and bounced back only to be
slammed back down below their respective unchanged lines.
Give credit to the mid-day slam to a US-China trade problem,
caused by reports that that a snag was hit over farm purchases. Then China
barked by “resisting US requests for tech-transfer curbs and any enforcement
mechanism.” Needless to say, the markets were not amused and down
we went, while at the same time the latest short
squeeze appeared to have run out of ammunition.
In the end, however, the indexes managed a comeback into
the green with the weakling being the Nasdaq, which bumped against its
unchanged line but failed to conquer it.
However, I consider one development today an important one,
namely that the recent bond sell-off, during which the widely followed 10-year
yield spiked dramatically, thereby taking the starch out of low volatility ETFs
like SPLV, appeared to have reversed. After pushing towards the 2% level, the yield
pulled back and closed at 1.88%, which allowed SPLV finally to have a good
day by gaining +0.78% vs. the meager +0.05% the S&P 500 (SPY) generated.
While the 5-week old rally continues to roll on, today’s
gains were small, but they were gains, nonetheless. I keep harping on the importance
of liquidity as being “the driver” for further advances. Well, the Fed has
pumped some $280 billion into the system over the past 7 weeks, which all but
guarantees the momentum necessary to support the bullish theme.
Never mind that the October budget deficit surged 34% to $134
billion, which was its worst in five years. There is nothing but red ink in our
future, but who cares about such minor details, if it stokes the liquidity engine.
An early rally petered out, as the S&P 500 briefly
surpassed another milestone, namely the 3,100 level, and then faded towards its
unchanged line. The move was based on nothing but hope that Trump would later,
during a scheduled speech, elaborate about the China trade deal.
Focused on that target, and that good news might be on the
horizon, the army of computer algos combined forces and gave an assist via a short
squeeze, which later puked, just as happened yesterday.
Trump’s comments disappointed somewhat, although he said “a
significant phase one” trade deal could happen soon, but that he would
accept it only if the agreement worked out to the advantage of U.S. workers and
businesses. While that is a noble idea, it’s not one the headline scanning algos
took as a positive, so down we went with most the early gains evaporating and
the Dow turning negative.
The fly in ointment, contributing to the pullback, was a
rebuttal by the unofficial Chinese mouthpiece Global Times, which tweeted:
Quite a lot of criticisms and complaints
about China from President Trump in his latest speech, but hardly anything new.
Similar statements of senior US officials have bored people. It seems this US
administration really believes a lie repeated a thousand times becomes truth.
Cautious optimism also went out the window due to a Wednesday
deadline looming as to whether Trump will put off the intended 25% tariffs on
European auto imports. If he doesn’t, that could be a drag on the markets, which
makes me believe that this decision will be pushed back.
More uncertainty is on the way with Fed head Powell to be
scheduled to give a congressional testimony on the state of the economy, which is
due tomorrow at noon. We may very well see much treading of water in the indexes
until Powell’s speech is dissected down to his every word.
