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 279 (last week 292)
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 bounce turned out to be short-lived, as ongoing issues with the coronavirus
infected the markets, with equities registering their first losing week for this
year. Despite the pullback, the S&P 500 remains still up by almost 2% for 2020.
A
last hour rebound reduced losses, which were less than 1% for the major
indexes. Again, the fear is that China’s coronavirus may disrupt travel and slow
down global growth.
Even
good quarterly earnings reports by Intel and American Express were not enough to
establish confidence and motivate dip buyers to step in.
ZH
summed up the market effects like this:
Shanghai Comp’s worst
week in 8 months
S&P 500’s worst
week in 5 months
“Most
Shorted” stocks had their biggest weekly drop in 4 months
France’s CAC 40 worst
week in almost 4 months
VIX’s biggest weekly
spike in almost 6 months
HY Bond Prices worst
week in almost 5 months
Treasury yields
biggest weekly drop in 4 months
Yield curve’s biggest
weekly flattening in 2 months
USD’s best week in 2
months
Yuan’s worst week in
4 months
Copper’s worst week
in over 5 years
Oil’s biggest weekly
drop in 8 months
Gold’s 6th weekly
rise in last 7 weeks
Despite
various squeeze attempts, when looking at the entire week, the most shorted stocks
won the squeeze
fest for a change by doing what they do best, go lower.
With
weakness in the markets being prevalent, you would have thought that the divergence
between stocks and bonds would finally narrow, but it didn’t, as this
chart from Bloomberg shows. Sure, stocks dropped but so did bond yields,
thereby keeping the spread as wide as ever.
The
propagation of the virus, or hopefully its containment, will be closely watched
over the weekend, but it will likely have further effects on market direction.
ETF Data
updated through Thursday, January 23, 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 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 +9.02% after having generated a new Domestic “Buy” signal effective 2/13/19 as posted.
As this
chart shows, news about the coronavirus played havoc with market direction
over the past 3 days, with optimism causing rallies and pessimism pulling equities
back down.
The overall impact was relatively minor so far, given the
relentless march higher over the past few months. An early drop caught some support,
and a slow but steady climb out of that early hole helped the major indexes to
close moderately in the green, with the Dow falling just short.
Still, China continues to struggle to get a handle on the
viral outbreak that has so far killed 17 people and infected 650 in several countries,
according to MarketWatch. Helping the markets recover was a statement from WHO
(World Health Organization) that they will not yet declare the coronavirus
outbreak to be a global health emergency.
A good old-fashioned short
squeeze kicked in, after the early market drop, and made its contribution to
the recovery of the indexes back towards the unchanged line. As the Nasdaq touched
new record
highs, bond yields went the other way causing a divergence, one of the many
we’ve seen over the last year, with none of them having affected equities negatively.
For right now, the major trend remains firmly in place.
Sometimes, any reason will do for the markets to pull
back, especially after they’ve been on a relentless tear. Today, news of the first
case of the coronavirus in the U.S. seemed to dampen spirits, and risk assets
were sold.
No surprise there, because after the record setting run
of the major indexes, a pull back was way overdue, after the S&P had risen for
two consecutive weeks, while the Nasdaq had been on fire sporting gains for six
straight weeks.
So, today’s less than -0.5% retreat is not even
newsworthy. Not helping the Dow was Boeing, whose troubles with their 737 Max
airplanes don’t seem to go away and news, that the company is in talks “to
secure a loan of $10 billion or more,” certainly did not create any warm
and fuzzy feelings for investors.
You could consider today’s market activity simply being a
case of investor fatigue, as in addition to the above, sluggish economic growth
outside the U.S., and the start of the impeachment trial, all combined to let
the bears finally have their moment in the sun.
