Equities Spike As Bond Yields Pull Back

Ulli Market Commentary Contact

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

After several failed rally attempts early last week, the bulls regained the upper hand with the major indexes advancing for the third day in a row. Fears, that the Fed might be on a rate hike binge, were alleviated when 2 of the Fed’s mouth pieces took front and center and calmed down nervous traders.

First, Fed President Bullard opined that “the so-called neutral US interest rate may not rise much over the next two years.” Then Fed Governor Quarles soothed raw nerves even further by saying that he sees ‘encouraging signs’ of a turning point in the economy’s long-run growth prospects and that “faster growth will not automatically lead to out-of-control inflation.” That’s all it took, and the markets shifted into overdrive.

The technology sector led the rally with Semiconductors (SMH) taking top billing with a solid +2.12% gain, followed by Transportations (IYT +1.80%), Financials (XLF +1.51%) and Large Caps (SCHX +1.11%). All of our current holdings closed in the green.

Lower interest rates assisted the rally with the 10-year bond yield retreating 2 basis points to 2.86%. After its recent zigzag, the US Dollar (UUP) slipped -0.13%, which had no effect on market behavior.

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ETFs On The Cutline – Updated Through 02/23/2018

Ulli ETFs on the Cutline Contact

Below please find the latest High Volume ETFs 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 366 High Volume ETFs ETFs, defined as those with an average daily volume of more than $5 million, of which currently 219 (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 February 23, 2018

Ulli ETF Tracker Contact

ETF Tracker StatSheet

https://theetfbully.com/2018/02/weekly-statsheet-etf-tracker-newsletter-updated-02-22-2018/

FINALLY—A RALLY WITH LEGS

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

Finally, after the third attempt in as many days, the major indexes managed not only to hang on to an early rally but also to build on it by spiking late in the session and closing at the highs. This was enough to turn weekly losses into gains with the S&P adding +0.55% since last Friday’s close and recapturing its 50-day M/A, which it had been hugging recently.

The gains were broad with Semiconductors (SMH) adding +2.25%, while Aerospace & Defense (ITA) lagged with +0.62%. None of our holdings closed in the red.

The driver behind this bullish tone was the Fed’s report which, upon further review, suddenly offered few signs that a more aggressive monetary policy might not be adopted. That caused bond yields to retreat further, which was music for the bulls and up we went.

10-year yields had been up 7 weeks in a row, but today the 10-year retreated 4 basis points to close at 2.88%, which was just about where it ended last Friday. Should bond yields further back away from the critical 3% level, I could see the markets continue to advance and power on to new highs. The yield level will be the key that will make or break the future of equities.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 02/22/2018

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, February 22, 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 +2.85% after having generated a new Domestic Buy signal effective 4/4/2016 as posted.

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Another Rally Bites The Dust

Ulli Market Commentary Contact

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

In a repeat performance from yesterday, we watched an early rally lose steam and head back south below the unchanged line, when last minute buying pushed the Dow and Nasdaq higher to close in the green. However, the Nasdaq slid for the 4th day in a row. Ongoing concerns about rising inflation and bond yields took center stage.

To calm the markets after yesterday’s tumultuous release of the minutes, the Fed paraded one of its mouthpieces, Fed President James Bullard, to calm the troops by reiterating that “everything needs to be perfect” for 4 rate hikes. That comment had the desired effect early on but did not last for the entire session.

However, Bullard did have an effect on Treasury yields, which slipped today with the 10-year giving back 2 basis points to 2.92% thereby postponing the day when the 3% level will be surpassed. After its recent bounce-back, thanks to higher yields, the US Dollar (UUP) headed back south and lost -0.34%. We are still at that moment in time where the markets could either resume its long-term bullish trend or collapse to test its recent sell-off lows.

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Equities Dive As Bond Yields Spike

Ulli Market Commentary Contact

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

We started today’s session on a positive note when the major indexes suddenly ran into a brick wall, reversed course and headed south with a vengeance with the Dow giving up a 300 point gain and plunging 500 points. The day turned out tumultuous, after the minutes from the Fed were released, causing volatility to rise (VIX back to 20) and giving the bears the upper hand.

The Fed minutes showed that that the economy was strengthening increasing the likelihood of more rates hikes ahead as had been previously assumed. It’s also a sign that inflation worries are justified and a more aggressive hike schedule may be on the horizon increasing borrowing costs not just for corporations but private borrowers as well.

The 10-year bond reacted promptly after the minutes were released, and its yield spiked 6 basis points to close at 2.94%. We’ll now have to see if/when the psychologically important 3% barrier will be broken to the upside and what the effect on equities will be. Benefitting from higher bond yields was the US Dollar (UUP) which, after an opening dump, reversed to close up +0.38%.

None of our trailing sell stops were affected by this 2-day sell-off.

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