Lackluster Meandering

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[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The global rally fizzled out with only one of the major indexes making some headway, namely the Dow, as the S&P 500 slipped slightly into the red, while the Nasdaq sell-off continued, albeit at a lesser pace leaving the index down -1.37% for the day.

Pfizer’s vaccine stock fest hit some reality today with skepticism emerging as to the true efficacy of this vaccine and the ability to deliver it within a reasonable time frame.

The sector rotation persisted out of high-tech and into the Russell 2000 with small-caps and cyclicals anticipated to be the main beneficiaries of an economy recovering from the pandemic. Of course, this is only wishful thinking right now, as the pendulum could quickly swing back the other way.

“The ‘stay at home’ trade, which has led the market higher for most of this year, may be falling out of favor,” said Lindsey Bell, chief investment strategist at Ally Invest. “There’s still a good long-term case for tech, but it may not outpace the rest of the market like it has since March.”

In the meantime, the election uncertainties go on, despite some of the media already having decided who won. The fact is, however, they are not the decisionmaker, so we’ll have to wait and see until this challenge get legally resolved.

Gold managed to bounce back as the US dollar went sideways, while bond yields again spiked with the 10-year closing within striking distance of the 1% level.

In my view, gold remains a “safe haven” in an environment where politically and monetarily things could turn on a dime.

Analyst Peter Schiff had a similar view of gold’s role:

“It’s a safe haven from the monetary and fiscal policy mistakes that were made in reaction to COVID. That’s why gold was going up [during the pandemic]. And it’s because the government is going to continue to make the same monetary policy and fiscal policy mistakes after COVID, that’s why gold is going to keep going up. And in fact, because of all the money they printed before COVID, because of all the extra debt that we accumulated during COVID, that’s why the Fed can’t dial it back. That’s why if the economy recovers from COVID, it can never recover from the addiction to stimulus. That’s why the stimulus has to continue long after the disease it was meant to cure goes away. That means inflation is going to run out of control.”

For sure, until this election is decided, the days and weeks ahead will be anything but boring.

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Vaccine Pump Fest Propels Markets

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

If you were looking for wild and whacky market behavior, look no further, you found it today. Not only were futures up across the board, including gold, and led by the technology sector, things reversed once the regular session opened.

With the Dow being up some 1,500 points, and losing almost half of it by day’s end, the overnight leader, the Nasdaq, hit the skids and ended down some -1.5%. Despite a dive into the close, the Dow and S&P 500 managed to hang on to now sharply reduced gains.

You could almost think about it as “opposite” day. Consider that some sectors (not tech) rallied in the face of sharply rising bond yields with the 10-year (not shown) now in striking distance of the 1% level. The 20-year bond ETF TLT dropped -2.23% and looked like a penny stock.

The US dollar index rallied sharply thereby pulling the rug out from gold’s recent gains and sending the precious metal back below the $1,900 level.

Causing the relentless surge in equities, in the face of rising bond yields, were indications by drug makers Pfizer and BioNTech that their Covid-19 vaccine is more than 90% effective.

Added CNBC:

The 90% effective rate from Pfizer and Germany’s BioNTech was better than what the market was expecting. Dr. Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases, has said that a vaccine that was 50% to 60% effective would be acceptable.

Of course, hope suddenly reigns supreme about getting the old life back, at some point in the future, returning to normal, people going back outside, the economy reopening, and masks being ditched.

Who knows what the reality will look like and if the above drug maker announcements really have merit?

Technically speaking, it will now be interesting to see what happens to the S&P 500, which has reached the top end of its wide megaphone pattern, as Bloomberg demonstrates in this chart. Breakout or retracement, that is the big question.  

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ETFs On The Cutline – Updated Through 11/06/2020

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 312 High Volume ETFs, defined as those with an average daily volume of more than $5 million, of which currently 270 (last week 209) 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 November 6, 2020

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ETF Tracker StatSheet          

You can view the latest version here.

ENDING A STRONG WEEK WITH A WHIMPER

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

For sure, markets can’t go up in a straight line and momentum will slow down eventually. That was the case today when, after 4 days of solid gains, the major indexes ran out of steam and closed flat for the session. Still, despite an undecided election, we saw one of the best weeks since April in terms of performance.

Traders were looking for clarity in the election dilemma but found none, however, the positive mood was sustained due to better-than-expected US unemployment data, which may have stopped a potential sell-off from materializing.

The BLS reported that the economy added a stronger than expected 638k jobs in October, a little less than last month, but a “beat” of the 593k anticipated number. However, private job additions were boosted to a strong 908k. The surprise came via the tumbling unemployment figure, which dropped from 7.9% to 6.9%, far below the 7.6% expected.

Despite the continuing election uncertainties, the S&P 500 notched its best performance in an election week since 1932, as this chart shows:

Again, it appears that traders are getting relaxed and accepting the possibility of a divided government, which translates into political gridlock with the good thing being no significant changes on tax policy.  

The US dollar’s demise continued with the currency crashing to its lowest level since May 2018, which helped gold to reclaim its recently lost $1,950 level.

Here’s some food for thought for you, presented by ZH:

And finally, what happens next? 1987 or 2009?

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 11/05/2020

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, November 5, 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: BUY — since 07/22/2020

Click on chart to enlarge

Our main directional indicator, the Domestic Trend Tracking Index (TTI-green line in the above chart) has now rallied above its long-term trend line (red) by +12.04% and remains in “BUY” mode as posted.

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Post-Election Rally Shifts Into High Gear

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The “buy everything” mantra continued today extending the election week rally on beliefs that the current dilemma might result in a divided government, with the powers of the president/congress being offset by the opposing party controlling the senate.

The bullish reaction to the results so far “may have been due to the fact that Republicans appear likely to retain a majority in the Senate, something that will make it hard for Biden to proceed with the tax increases and stricter regulations he promised,” said Charalambos Pissouros, senior market analyst at JFD Group, in a note.

Even though analysts had originally claimed that a “blue wave” sweep of the White House and the congress was being priced in the market, when, suddenly the possibility of a split government seemed “market pleasing” giving power to the bullish cause.

Despite the WH outcome far from being certain, traders are confident that much of the election uncertainty has passed, and the worst possible outcomes seem to have been avoided. At least for the moment, this viewpoint prevails, yet it could change in a hurry.

ZH added this succinct spot-on tweet:

A disputed election is bad for stocks

Legislative gridlock is bad for stocks.

But the combination of the two is great for stocks

In the end, stocks soared led by the Nasdaq, bond yields tanked, and the US dollar got clobbered. The combination of lower bond yields and a declining dollar was like pouring fuel on the fire for gold, which ripped higher with spot gold actually outperforming the major indexes for the session.

Of course, as great as this rally feels, we must be aware that much is hype and not based on economic fundamentals, as this separation of “soft” vs. “hard” survey data shows. Additionally, the SMART money is not participating at all, and has not since August, which is demonstrated in this chart.   

That’s why our exit strategy will always be an ever-present component of our Trend Tracking strategy.

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