ETF Tracker Newsletter For February 16, 2018

Ulli ETF Tracker Contact

ETF Tracker StatSheet

https://theetfbully.com/2018/02/weekly-statsheet-etf-tracker-newsletter-updated-02-15-2018/

 COMEBACK WEEK

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

A solid mid-day rally hit the skids, as news from Special Counsel Mueller’s indictment of 13 Russian nationals and three Russian entities, accusing them of interfering with the US elections, flashed on computer screens around the world. The major indexes dove, briefly slipped into the red but recovered to close around their unchanged lines. Nevertheless, it was a crazy comeback-week in the markets (S&P 500 +4.3%), which ZH summarized like this:

  1. Nasdaq, S&P – best week since Dec 2011
  2. Dow – best week since Nov 2016
  3. Small Caps – best week since Dec 2016
  4. “Most Shorted” Stocks – biggest weekly short-squeeze since Nov 2016
  5. VIX – biggest weekly drop since Nov 2016
  6. US Treasury Yield Curve – 2nd biggest weekly flattening since Sept 2011
  7. HYG (HY Bond ETF) – best week since Feb 2016 (despite record outflows)
  8. Dollar Index – 2nd worst week in 6 months
  9. Gold – best week since April 2016

Giving equities an assist this week was a jump in bullish sentiment numbers and signs that the economy is growing but not yet overheating as had been feared. The 10-year bond yield seemed to support that view, if only for the time being, by slipping 3 basis points to end at +2.87%. At least the race towards the 3% mark has been halted.

The US Dollar Index (UUP) did its best imitation of a swan dive during the past 5 trading sessions thereby pushing all commodities higher. However, today UUP managed to bounce back +0.69%.

Budget deficits have been a non-addressed issue for a long time. Now, that the debt ceiling has been postponed for 2 years, we will see larger negative numbers for years to come. For some insight and the consequences, please see Simon Black’s excellent article.  

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 02/15/2018

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, February 15, 2018

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.

  1. 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 4/4/2016

Click on chart to enlarge

Our main directional indicator, the Domestic Trend Tracking Index (TTI-green line in the above chart) is positioned above its long-term trend line (red) by +3.28% after having generated a new Domestic Buy signal effective 4/4/2016 as posted.

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Equities Pump And US Dollar Dumps

Ulli Market Commentary Contact

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

The equity bounce continued for the fifth day in a row, as the major indexes started the session in the positive, then dropped below the unchanged line and subsequently surged in a V-shape type recovery without looking back to close at the highs for the day. I took the opportunity during the momentary weakness to add to our positions as mentioned yesterday.

Apparently, Wednesday’s “hot” CPI report still did not bother traders who simply shrugged it off and proceeded driving the markets higher by continuing with their short squeeze, which is now on record as the biggest since the election. The VIX diverged today closing modestly higher while the S&P remained in rally mode.

Interest rates pulled back with the 10-year yield dropping 1 basis point to 2.90%. The US Dollar (UUP) showed some strength early on, then collapsed (down for the 5th day in a row) to its lowest close since December 2014.

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Market Madness: CPI Surges, Dollar Collapses, Bond Yields Up But Stocks Rally

Ulli Market Commentary Contact

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

Sometimes you just have to laugh when you see the type of chaos in the markets that we saw today. The widely anticipated Consumer Price Index (CPI) reading came in much “hotter” than expected as it surged 0.5% in January. Consequently, bond yields spiked with the 10-year adding 8 basis points to close at 2.91%, which is its highest close since January 2014.

The US Dollar (UUP), which should have rallied given the yield surge, collapsed -0.77% while stocks rallied after an early morning dip pushing the major indexes solidly in the green. This outcome left many analysts scratching their heads as higher stocks, higher yields and a lower US dollar simply does not add up.

ZH summarized it best in what we learned during this session based on the reaction of various asset classes:

  1. Yields: many, many rate hikes
  2. Dollar: no rate hikes
  3. Stocks: hmmm, maybe some rate hikes
  4. Gold: we blew up the fed. No rate hikes.

Apparently, the new theme is that stocks love higher bond yields. Go figure…

The VIX hit and intra-day of 25 but closed below 20, while the Dow had a swing from the lows to the highs of some 600 points and today’s short-squeeze was the biggest in the past 12 months. These are all indications that equities can turn in either direction on a dime.

Nevertheless, the major trend remains bullish, and I will increase our ETF exposure slowly but surely while keeping my eyes firmly feasted on our exit strategy.

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Fed Head Saves The Day

Ulli Market Commentary Contact

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

The major indexes slipped right after the opening bell and remained below their respective unchanged lines for most of the day but ended up crawling into the green to close with modest gains. Saving the day was new Fed Head Jay Powel after uttering words like financial stability, which was music to the ears of the traders to leave the early bearish mind set.

Nevertheless, activity was subdued ahead of tomorrow’s key inflation reading on January’s CPI. Traders are worried that a “hotter” than expected number could create another sell-off with higher prices causing the Fed to hike rates at a faster pace to control inflationary forces. That would spike volatility and could lead to a repeat of last week’s negative effect   on equities.

Not helping matters was Trump’s proposed $4.4 trillion federal budget, which would just about see the current deficit (2017) double and in the next year and climb some $7 trillion over the next decade, which for sure will have Treasury yields jump as higher interest rates are baked in the cake.

However, today, bond yields pulled back slightly with the 10-year dropping 3 basis points to end at 2.83%. The US Dollar (UUP), which rebounded off its lows last week, returned to its bearish trend by losing -0.55%.

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Bargain Hunting

Ulli Market Commentary Contact

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

Volatility continued today although not much was visible during the regular session. ZH remarked:

Having been up almost 400 points from its Friday cash close, Dow futures plunged back into the red, amid chaotic swings and the lowest market liquidity ever seen. But that did not last as the machines dragged stocks back up – The Dow up over 500 points to a 50% retrace of its Volocaust losses… before running out of steam…

In other words, we are still in the middle of chaotic conditions where anything can happen as witnessed by the “Fear-and-Greed” index whose needle remains stuck at “Extreme Fear.” It will take a little time to evaluate if the VIX is just taking a break to come back with a vengeance or if today’s upside follow through signals an end to the correction.

Markets headed higher supported by declining bond yields and a weaker dollar. The execution of our trailing sell stops last Friday affected about 55% of our ETF holdings, and we are participating in the current rally with the remaining 45%. I will increase those percentages as soon as I see some calmness return to the markets, which also likely means that bond yields will need to stop rising.

That was not the case today as the 10-year rose 3 basis points to 2.86% with inflation worries being on the forefront. In that regard, traders are eagerly awaiting Wednesday’s Consumer Price Index (for January), which is critical, as a higher than expected number will represent further inflationary tendencies, followed by higher interest rates and potentially a bearish effect on equities.

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