Seesawing—But Limping Higher

Ulli Market Commentary Contact

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

Yesterday’s last-minute pump, to get the major indexes to a green close, finally made sense, when it became known that the Fed had injected $134 billion in liquidity in the repo markets. This event sparked a furious last hour rally, which ZH charted like this.

As the table shows, the increase in liquidity availability for overnight repos was increased from $75 billion to $120 billion, while term repos jumped from $35 billion to $45 billion. The overnight repo was the biggest ever, which again begs the questions “what is broken?” and “will it go exponential?”

Added ZH:

The only possible explanation, is someone really needed to lock in cash for month end (the maturity of the op is on Nov 7) which is when a “No Deal” Brexit may go live, and as a result one or more banks are bracing for the worst. The question, as before, remains why: just what is the source of this unprecedented spike in liquidity needs in a system which already has $1.5 trillion in excess reserves? And while we await the answer, expect stocks to close pleasantly in the green as dealers transform their newly granted liquidity into bets on risk assets.

These are serious issues with potentially significant repercussions for equity markets, which so far have simply shrugged off this event. In my view, this will not end well…

However, for the time being, the major indexes continued their aimless meandering around their respective unchanged lines with a bullish bias, as headline earnings reports provided a mixed picture.

MarketWatch featured these highlights:

Microsoft’s stock surges as big earnings beat prompts analysts to boost price targets

Twitter stock tumbles 20% after company says advertising bugs weighing on earnings

Comcast’s stock surges after profit, revenue rise above expectations

Nokia’s stock plummets toward worst day in 19 years on heavy volume after profit warning

On the economic side, things did not look encouraging with US New Home Sales slowing in September, as prices plunged to their lowest since 2017. Not to be outdone, the Durable Goods report showed that orders tumbled last month, while Business Investment contracted the most since Trump’s election.

Still, it looks to me that traders and computer algos are eagerly awaiting Amazon’s earnings, due out after the close today. If expectations are solidly beat, this may provide enough optimism/firepower to propel the indexes into all-time high territory, which is not a big deal, since we have been hovering within striking distance (around 1%) for a while.

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Chopping Around Key Technical Levels

Ulli Market Commentary Contact

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

Despite disappointing results from Boeing and Caterpillar, the markets managed an early ramp higher but were not able to sustain it, as a slow deterioration of upward momentum pulled the major indexes back below the unchanged line.

Traders had one eye on the Brexit developments, where the latest parliamentary vote eased concerns about the UK busting out of the EU without a deal by October 31st.

Looking at the big picture, this week is all about earnings with next week’s highlight being the Fed meeting on interest rates. Even though 82.7% of S&P companies have delivered results above expectations, let’s not forget that these expectations have been sharply reduced.

Companies are further justifying these numbers by elaborating that “how we did this quarter isn’t as important as what we expect the future to hold.” Yeah, right.

With the Fed’s money printing going into overdrive at the rate of some $60 billion a month, it’s no wonder that Central Banks around the world have been accumulating gold at a record pace. Today, we learned that my home country, Germany, has joined the party by openly buying gold into its reserve holdings—for the first time in 21 years.

That is not surprising, as Germany has more experience with the awful effects of too much money printing than any other industrialized nation. If you are not familiar with that part of history, please read more about the Weimar Republic.

Combining the ECB policies along with Deutsche Bank’s (one of the largest derivatives holders in the world) precipitous demise, fears of a looming financial crises have become a possibility for the Germans and have subsequently caused this renewed interest in gold.

Here in the US, the liquidity scramble in the overnight repo market continues, as the latest operation was oversubscribed 5.9 times. As ZH pointed out, it simply means that the demand for the Fed’s permanent liquidity injection is increasing with every operation.

How long can that go on before we go exponential? And just as important, how long can this go on before equity markets realize that not all is well with the financial plumbing?

Be that as it may, at least for today, the major indexes moved aimlessly and looked to end up at their respective unchanged lines when a last-minute pump assured a green close.  

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Touching The Glass Ceiling—And Running Out Of Steam

Ulli Market Commentary Contact

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

It sure was a day consisting of mixed reports and, as much as I searched, I could not find a reason that might have supported the early rally. Of course, the latest earnings reports took center stage, but it seemed the disappointing results from McDonalds, Travelers and UPS were overpowering the positive ones.

With the markets failing to break out, after having reached the upper limit of their 3-month trading range, this may change when tech behemoth Amazon releases its results on Thursday. Analysts are looking for “a solid beat” and a subsequent move of the major indexes not just above the current glass ceiling but also into new record-high territory.

With traders’ focus being on a breakout, almost no one talks about far more concerning issues, namely the continued stress, strain and funding squeeze in the overnight lending markets (repos). It’s a very complex issue that boils down to the fact that banks have trouble securing funds due to a shortage in liquidity.

That makes me go hmmm… The Fed announced last week that they will inject funds at a rate of $60 billion per month (but they don’t call it QE) via the purchase of T-Bills, yet today’s repo was oversubscribed 5.5 times. This confirms that participants are scrambling to convert their “safe” assets into dollars as fast as possible, as ZH explains. That leaves this question:

Why are banks still so desperate for liquidity even though the Fed has now made clear the Fed’s balance sheet will expand to accommodate all reserve needs, and why do they so stubbornly refuse to approach the interbank market for their funding needs?

In short, what do they know about the banking system that we don’t?

This monetary crunch, if it continues, may very well get exponentially worse, at which time, there will be no way that the sleepy equity bulls will not have a very rude awakening.

The “smart money” may have already woken up to that fact, if this chart from Bloomberg is any indication.

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Edging Higher; S&P Reclaims The 3,000 Level

Ulli Market Commentary Contact

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

The markets edged higher to start the week with Boeing being a drag on the Dow capping the gains by some 100 points. The S&P 500 managed to finally hold above its 3,000 level but is now homing in on overhead resistance lurking at around 3,020. Then index also has failed to close the breakaway gap (blue circle), which means a retracement will be in order at some time.

However, for right now, the computer algos are chasing headline news and front running any suggestions that Beijing and China have successfully laid the groundwork to solidify a solution to the long-running trade disagreement.

Assisting the bullish theme was another short-squeeze, which helped the indexes to stay in the green and kept the mood upbeat.

In the meantime, the Brexit saga continues full force with UK’s PM Johnson experiencing a setback, which traders liked, since some are of the opinion that a Brexit without a trade agreement could disrupt global markets even further.

On the earnings front, we learned that 75 of the S&P 500 companies have reported with 82.7% showing better-than-expected results. Of course, the bar has been lowered considerably, but when it comes to headlines, a “beat is a beat.” This weak, we have 130 more candidates presenting their report cards, and we will have to see if the above numbers hold up.

On a personal note, I’d like to thank all of you who have emailed and wished me a speedy recovery from my eye surgery last Friday night. It was successful, and I thank you for your kind words.

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ETFs On The Cutline – Updated Through 10/18/2019

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 322 High Volume ETFs, defined as those with an average daily volume of more than $5 million, of which currently 250 (last week 224) 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 October 18, 2019

Ulli ETF Tracker Contact

ETF Tracker StatSheet          

You can view the latest version here.

GLOBAL GROWTH FEARS STOP BULLISH MOMENTUM

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

This is an early and short version of Friday’s commentary, since I will be tied up this afternoon. The markets are still open and will be for another 3.5 hours.

We saw early weakness in part caused by China’s worst GDP growth in 30 years registering 6%. As a result, stocks worldwide pulled back modestly but appear on track to close out the week on the plus side.

Not helping matters was ECB’s Mario Draghi, who will leave office later this month, but couldn’t help himself to issue a warning that he sees “mild signs of over-stretched valuations in markets,” contributing to the early softness in stocks.

Despite relatively upbeat earnings so far, it seems that a fresh stimulus for equities is needed considering slowing Chinese activity and the ever-changing stories about the upcoming Brexit and the US-China trade saga. After all, for the S&P to break through its overhead glass ceiling, I believe it will take more than your hyped news headlines to bring about a push of this bullish trend to new all-time highs.

On a personal note, and the reason for this early release commentary is this. I saw my ophthalmologist a couple of days ago, and he performed an office procedure to fix a partially detached retina. At this time, it appears that it was not successful, and I will have to undergo surgery tonight. The final call will me made this afternoon. I expect to resume posting on Monday again.

Please note that section 2 and 3 below contain yesterday’s data, and I hope to make the update sometime this weekend.

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