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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Earnings And Tax Cut Hopes Drive Markets

Ulli Market Commentary Contact

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

Caterpillar and McDonalds combined to continue yesterday’s rally with Trump’s planned tax cut announcement, scheduled for tomorrow, providing the emotional fire power. The Nasdaq managed to conquer the 6,000 level and closed solidly above it in part due to gains by heavyweights Apple and Microsoft.

So far, overall profits of S&P companies are estimated to have risen 11.4% in the first quarter, which would be the most since 2011. However, the devil always is always in the details, although these days the only thing that matters is the headline number. Case in point is Caterpillar and its “tremendous earnings growth” which, when taking out adjustments and looking at real GAAP EPS, shows an entirely different picture as you can read here.

The last couple of days have been extremely painful for those professional investors (and amateurs) who had accumulated short positions. They were squeezed and most had to cover, meaning they had to buy offsetting long positions to cover their shorts, thereby contributing to the bullish theme of this week.

Short interest is measured and is considered the secret sauce that can extend a bull market’s life. However, the latest numbers showing short interest for the market’s most liquid ETF (S&P 500) having currently dropped to levels not seen since May 2007 just prior the S&P’s top and free fall. This begs the question as to how much ammunition will be left to have any effect on the next short squeeze, which will be needed to push equities higher.

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Relief And Hope Combine To Power Equities

Ulli Market Commentary Contact

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

The 1st round of the French election results provided relief and hope that the current leading candidate of left wing persuasion (Emmanuel Macron) will be the one winning the final election in a couple of weeks by defeating the right-wing anti-euro and anti-establishment Marine Le Pen in a run-off.

While Macron’s lead is fairly small, hope was high that the market favorite will become France’s next leader. Global equities shifted into rally mode with the French CAC 400 gaining +4.14%. All major indexes joined the fun, but the Nasdaq fell just short of conquering the 6,000 milestone marker.

Not to be outdone by international events, President Trump stepped up to the plate ahead of his anticipated tax announcement on Wednesday and “ordered” his aides to accelerate efforts to create a tax plan “slashing the corporate rate to 15% and prioritizing cuts in taxes over an attempt to not increase the deficit.” Let’s see how much opposition this idea will create and if it will be DOA.

Interest rates rose with the yield on the 10-year Treasury shooting up +1.79% to end at 2.28%, while the US dollar index gapped down to close at 98.97 and is in danger of breaking its 200-day M/A to the downside. That would be bearish as this support line has held since October 2016.

With the markets being caught up in euphoria, let me again be the voice of reason by pointing to the following two charts that require no comment or explanation:

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One Man’s Opinion: Why The Big Banks Are Terrified Of Le Pen Winning In France (But Not BREXIT Or Trump)

Ulli Market Review Contact

By Gains, Pains & Capital

France holds the first round of its Presidential election this weekend.

The big worry for the markets is the fact that anti-Euro candidate Marin Le Pen could potentially win.

Now, the polls show Le Pen as having NO chance of becoming Prime Minister.

Of course, the polls also showed that BREXIT would not happen and Hillary Clinton had a 98% of becoming President.

We all know how those turned out.

“So what?” one might ask, “why would a Le Pen victory matter? Both BREXIT and Trump’s Presidential election ignited massive stock market rallies… why wouldn’t France leaving the Euro do the same?”

One word…

Collateral.

The big problem for EU members from is debt.

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ETFs On The Cutline – Updated Through 04/21/2017

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 256 (last week 246) 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.