ETF Tracker Newsletter For May 29, 2020

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ETF Tracker StatSheet          

You can view the latest version here.

TRUMP PLEASES MARKETS

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Nervousness prevailed in the markets with the major indexes sliding, as the world waited with bated breath for Trump’s remarks on potential actions to be taken against China’s ‘violations.’

His highly anticipated news conference came and went, but it did not turn out as stringent and disturbing as traders had feared. That caused the computer algos to shift into high gear and a vertical spike generated a green close except for the Dow.

ZeroHedge likened the ‘soft’ stance towards China as “caving to market pressure:”

In what was perhaps the clearest sign that the president was calibrating his response with one eye on the stock ticker, the president didn’t announce any new tariffs or trade actions, ameliorating fears that he might scrap the “Phase 1” trade deal.

The market cheered the move, as equities surged off their lows of the day as the president simultaneously signaled a more confrontational approach to his dealings with Beijing, while being careful not to escalate an already tenuous situation.

ZH’s headlines about poor economic data points were again a non-event, but they are at least noteworthy:

UMich Sentiment disappoints as “Hope” hits 7-year lows

Chicago PMI plummets to 11-year low as orders and production plunge

US Spending crashes by most ever despite $3 trillion government handout-driven income surge

For the week, the S&P 500 added another 3% closing out the month with a gain of some 7.5%, with SPY now having reached the level we sold at on 2/27/20. In other words, the buy-and-hold crowd has been successfully bailed out again.

As I posted, we have added selective positions from well-performing sector ETFs, and I believe a new domestic “Buy” is in the making and could possibly materialize next week, if the rebound continues unabated.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 05/28/2020

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ETF Data updated through Thursday, May 28, 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 -3.31% after having generated a new Domestic “Sell” signal effective 2/27/20 as posted.

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Markets Take A U-Turn Into The Red

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

A follow-through rally ran into a brick wall, took a U-turn, and headed south with the major indexes being pulled off their lofty levels and below their respective unchanged lines.

The early burst higher was based on hope that the worst economic damage is now in the past with shutdowns continuing to ease. While that is a step in the right direction, I think there is more fallout to come, but the markets don’t see it yet.

The economic numbers keep worsening, as this list shows (hat tip goes to ZH):

Initial jobless claims kept rising by another 2.123 million over the past week, which now brings the ten-week total to 40.767 million. That’s more than at any time period in American history. What’s more disturbing is that in the past 10 weeks almost twice as many people have filed for unemployment than jobs gained in the last decade since the end of the Great Recession.

Pending Home Sales plummet 35% YoY—biggest drop ever

Q1 GDP revised to -5%—corporate profits plunge 14%

Collapse in Durable Goods Orders accelerates in April

None of these issues mattered throughout most of today’s session. The quick turnaround came on a report that Trump was set to hold a news conference on China tomorrow.

That hurled a cloud of uncertainty over the markets, especially due to the recent war of words and current ratcheting up of tensions not just between the two countries, but also regarding the uprising in Hong Kong and the potential imposition of a national security law.

For once, the Fed was out of the limelight, and we will have to see how this event shapes up.

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Leaving Overhead Resistance In The Dust

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[Chart courtesy of MarketWatch.com]

  1. Moving the markets

After the Dow and the S&P 500 battled with their overhead resistance yesterday, it was a different story today, when, after some early morning bobbing and weaving, the major indexes reestablished upward momentum and off we went.

You would have thought that dismal economic data and rising US-China tensions would have imparted a sense of reality, but that did not happen. Even the Fed’s beige book was filled with alarming notes about the economic devastation, with the hardest-hit industries being retail, travel, and hospitality, but none of it mattered.

Then we learned that one of the former main drivers of the stock market, namely profits, posted a record decline. Zero Hedge noted:

S&P 500 companies posted a record decline in Q1 operating profits, exceeding the previous single-quarter collapse that occurred during the Great Financial Recession.

The decline in Q2 operating profits will prove to be far bigger. Corporate solvency risks are alive and growing. Equity valuations are at nosebleed levels. A retesting of the March lows in the equity market is a probable outcome.

Yet, none of these data points are a problem at this time—until one day, when they will…

Currently, it’s all about the Fed’s intentions of bailing out anyone that needs it, and it’s now a matter of experiencing one more market collapse, after which the Fed will decide to purchase stocks outright.

On the other hand, you must ask yourself, how long can this go on?

I am continuing to look for more suitable sector ETFs, but it appears that a new Domestic “Buy” will be in our near future (see section 3).

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Fighting To Conquer Key Levels

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Attempting to cross psychologically important key levels to the upside was the name of the game today with the Dow trying to conquer the 25,000 obstacle, while the S&P 500’s goal was trouncing the 3,000 number.

Both succeeded intraday, but a late sell-off pulled the indexes back below, as reports surfaced that the US was considering transaction controls and asset freezes on Chinese officials and firms. 

The early support of this massive rebound came from the usual  suspects, namely fresh coronavirus vaccine news and simply optimism for the reopening of the economy, although not much attention was given to the fact that a yet unknown number of businesses have reached the point of no return.

If you are in awe of the March low rebound of the markets, author Charles Hugh Smith shared these succinct thoughts on that topic:

As you’ve probably heard by now, sales don’t matter, profits don’t matter, costs don’t matter, and indeed, nothing matters but the Fed has our back so buy stocks, never mind the valuations. In other words, the U.S. stock market has reached the spiritual level where the corporeal tangible world no longer matters: in a word, Nirvana, or Heaven if you prefer.

If we set aside the satire and the absurd justifications of the financial punditry ( “we see a V-shaped recovery of profits in 2023, or was it in 2032? Never mind, doesn’t matter…”), we discern a reality that should worry us: America’s economy and financial system cannot allow the stock market to decline because any sustained drop will pop the debt-bubble and bring the entire rickety, rotten, corrupt structure down.

The never-ending supply of liquidity, Fed bailouts and outright purchase of bonds will keep interest rates low and the bullish theme alive. All of which is being assisted by the ongoing short squeeze, as Bloomberg shows in this chart. The loser of the day was the US dollar, which saw its biggest daily drop in 2 months.

Our Domestic Trend Tracking Index (TTI) is getting close to signaling a new “Buy,” but I already have started easing into those sector funds that run on their own cycles.   

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ETFs On The Cutline – Updated Through 05/22/2020

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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 84 (last week 73) 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.