Ulli... The ETF Bully

Finding Some Bullish Meat On The Trade Bone

Ulli Monday, 30 September 2019, 1:49 PM Market Commentary Contact

[Chart courtesy of MarketWatch.com]

Moving the markets

I mentioned last Friday that we would need a good trade headline to give stocks a boost. That is exactly what happened but not the way you think.

There was no news in US-China trade arena, so the Trump administration came out and played down or disputed reports that they were considering blocking Chinese companies from listing shares on US stock exchanges.

The net effect was that Friday’s dump after that announcement was reversed and equities pumped on this last day of September and maintained their positions above the unchanged line all the way into the close.

For the month, the major indexes ended up barely in the green, but the S&P 500 gained +1.74%, while for the quarter, all indexes were higher with SmallCaps having an ugly close. Still, my favorite low volatility ETF (SPLV) managed to come out ahead by posting a solid +2.06%.

Not doing so well were the FANG stocks, which fell for the third straight month in September and had their worst quarterly drop since Q4 2018. ZH noted that we heard some economically encouraging news in that September saw one of the biggest surges in economic surprise data since January 2009.

Still, we’re now looking straight in the jaws of October, which historically has been a month where anything is possible.

ETFs On The Cutline – Updated Through 09/27/2019

Ulli Saturday, 28 September 2019, 5:54 AM 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 226 (last week 259) 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 September 27, 2019

Ulli Friday, 27 September 2019, 1:48 PM ETF Tracker Contact

ETF Tracker StatSheet

You can view the latest version here.

SLUMPING INTO THE WEEKEND

[Chart courtesy of MarketWatch.com]

Moving the markets

An early 100-point gain on the Dow evaporated in a hurry and turned into a 150-point loss at one point, after a report that the White House had thrown down the gauntlet by contemplating delisting Chinese stocks from US Exchanges.

Of course, such a crackdown on capital flows does not bode well for softening the intensity of the tariff battle being waged. This news comes in the face of the warring parties having set an Oct. 10-11 date to meet to resolve their trade differences. I don’t see how this ratcheting up of tensions will be of any value but, it could be simply a negotiation ploy. In the end, the odds of a China deal slipped this week.

Economic data points were mixed with consumer spending growth showing disappointing estimates, while orders for durable goods rose 0.2% in August vs. expectations of a 0.7% decline. But the consumer sentiment was revised upwards in September from 92 to 93.2, however, the index remains on a downward trajectory.

On the week, equities fell with Small Caps leading the drop and having its worst week since May 2019. As ZH pointed out, all the major indexes tested or broke below key technical levels: The Nasdaq below 50 and 100 DMA; Russell 2000 below 200 DMA; S&P testing 50 DMA.

10-year yields attempted several times to break out above the 1.70% level, but the efforts were rebuffed, and we closed the week around the 1.68% area.

This was the second losing week in a row for the S&P 500, but it’s still hanging on to a gain for the month. For sure, it looks like a very positive trade headline is needed next week to get the bulls going again.

Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 09/26/2019

Ulli Thursday, 26 September 2019, 6:30 PM ETF StatSheet Contact

ETF Data updated through Thursday, September 26, 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 Terms and 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 +3.82% after having generated a new Domestic “Buy” signal effective 2/13/19 as posted.

Headline Ping Pong

Ulli Thursday, 26 September 2019, 1:37 PM Market Commentary Contact

[Chart courtesy of MarketWatch.com]

Moving the markets

The markets were trading in the red for most of the session, as the latest trade headlines pushed equities further south and then gave traders hope that optimism is warranted.

When things looked bleak at mid-day, Reuters managed to provide the algos with some ammo to drive the indexes out of the doldrums and back up to their respective unchanged lines using the following:

CHINA’S WANG YI SAYS HOPES BOTH SIDES CAN TAKE ‘MORE ENTHUSIASTIC MEASURES,’ REDUCE PESSIMISTIC LANGUAGE AND ACTIONS IN TRADE DISPUTE – RTRS
CHINA’S WANG YI SAYS ‘IF EVERYONE DOES THIS, TALKS WILL NOT ONLY RESUME, BUT WILL PROCEED AND YIELD RESULTS’

Despite that effort, the unchanged lines proved to be overhead resistance, and we sold off into the close, but with only modest losses.

Adding to the negative early sentiment was the Trump Administration confirming that it’s “unlikely to extend temporary wavers to supply Huawei.” That reinforced that the US-China trade deal is simply not getting closer to an agreement, even though other headlines attempt to prove that a deal is close.

Real Estate provided some optimism when Pending Home Sales rose 2.48% YoY, which was the biggest annual jump since April 2016, but it was simply not enough firepower to restore bullish momentum.

The overnight liquidity shortage, also known as the funding disaster, keeps getting worse with the Fed as lender of last report supplying some $60 billion in liquidity after yesterday’s $92 billion.

No one has really come out to explain the source of the problem and if it might be just a quarter ending issue. MSM does not report about it, but somewhere the financial plumbing in our system has sprung a leak.

One analyst posed the thoughts that have been on my mind as well:

It’s great that the Fed is pumping liquidity into the system, however, why were the existing operations insufficient?
As of today, the Fed had injected $105 billion in liquidity into the Repo market, but rates were still stubbornly high. Whatever changed last week to cause the funding spikes is clearly still a problem.

If this problem is not resolved quickly but spreads even further, equity markets will eventually be negatively affected.