One Man’s Opinion: Stockman: The Trump Reflation Fantasy Ends On Day 100

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By David Stockman

In honor of the Donald’s “Mother of All Bomb” (MOAB) attack on the Hindu Kush mountains Thursday, let me introduce MOAD.

I’m referring to the “Mother of All Debt” crises, of course. The opening round is coming when Washington goes into shutdown mode on April 28, which happens to be Day 100 of the Donald’s reign.

In theory, this should be just a routine extension of the fiscal year (FY) 2017 continuing resolution (CR) by which Congress is funding the $1.1 trillion compartment of government which is appropriated annually.

The remaining $3 trillion per year of entitlements and debt service is on automatic pilot, but the truth is Washington can’t agree on what to do about either component — except to keeping on borrowing to pay the bills.

There is a problem with this long-running game of fiscal kick-the-can, however. Namely, a 100 year-old statute requires Congress to raise the ceiling for treasury borrowing periodically, but the Imperial City has now reached the point in which there is absolutely no way forward to accomplish this.

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ETFs On The Cutline – Updated Through 04/28/2017

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 252 (last week 256) 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 April 28, 2017

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ETF Tracker StatSheet

https://theetfbully.com/2017/04/weekly-statsheet-etf-tracker-newsletter-updated-04272017/

MARKETS EKE OUT A GAIN DURING THE LAST WEEK OF THE MONTH

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

The aimless meandering to the downside during the first 3 weeks of April is now in the rear view mirror as the last 5 trading days combined to pull the markets above the unchanged line for the month, or +0.9% in the case of the S&P 500. This week turned out to be the best for stocks for the year, although volume was abysmal for the past two days.

Hard to make some sense out of that fact as economic performance, when measured by the GDP, collapsed to an embarrassing 0.7%; and that is the officially admitted number, which makes me wonder if the real one is still on the positive side of the ledger.

In the end, technology was April’s winner, energy turned into the big laggard, while the Dollar index headed south for the 2nd month in a row. As I mentioned before, the banks continued slipping and are down ever since Trump announced his tax plan. Interestingly, the 30-year yield hit its glass ceiling (the 3.00% level) five times this week without breaking through confirming the theme that higher rates continue to be on the horizon.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 04/27/2017

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, April 27, 2017

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 +3.32% after having generated a new Domestic Buy signal effective 4/4/2016 as posted.

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Nasdaq Hits A New Record; Dow & S&P 500 Unchanged

Ulli Market Commentary Contact

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

Earnings were in the spotlight and threw an assist to the Nasdaq pushing it into record territory, while the Dow and S&P 500 drifted and barely closed above the unchanged line. Despite the gains by companies like Comcast, PayPal and Intuit, the market had to deal with a menu of uncertainties (hat tip to ZH for this summary):

  1. Disappointing hard and soft data
  2. Growing government shutdown fears
  3. Collapsing GDP expectations
  4. Declining earnings expectations
  5. Plunging Crude Oil
  6. North Korea threats

The recent levitation of the Nasdaq helped SMH, a semi conductor ETF, which is part of our “10 ETFs in the Spotlight” (section 2 below), to continue its rally with a YTD gain of almost 13% and remaining the leader of the pack.

The US dollar went sideways but managed to close up +0.09%, gold gained a tad while the 20-year Treasury bond slipped a tiny -0.03% as interest rates closed higher. The major banks ended up lower ever since Trump announced his tax plan.

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Diving Into The Close

Ulli Market Commentary Contact

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

The old adage “buy the rumor and sell the fact” certainly rang true today as the upward momentum of the past couple of days continued early in the session in anticipation of Trump’s mother of all tax cuts. While the actual announcement confirmed some leaked information, some analysts considered the tax plan a “wish list with no details.” You can read highlights of the proposal here.

While Trump’s announcement had a questionable effect on the markets there were others that certainly raised eyebrows. Case in point was the crashing of Canada’s housing bubble as its biggest mortgage lender, Home Capital Group, exploded and its stock price tumbled by 61%. Other home lenders joined the party and were dragged down as well. These are banking institutions, which means that depositors that jogged to the bank yesterday are now in a full on sprint.

The major indexes went into retreat mode and stumbled into the close and ended up slightly in the red, while the 20-year Treasury bond (TLT) rallied, as interest rates retreated, and gained +0.55%. Bucking the trend were SmallCaps (IWN), which ended up +0.30% and Aerospace & Defense (ITA) with +0.21%.

The US dollar managed a rebound of +0.28% but remains firmly stuck not only below its psychologically important 100 level but also below its 6-month support line, namely the 200-day M/A.

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