With the recent performance of the S&P, in which there has not been even a single 1% drawdown since the election, not only is complacency raging but some traders have forgotten what it even means to experience a modest 5% correction, let alone a 20% bear market. How much longer can this go on?
For the answer, we turned to a recent report by InvesTech, according to which as the table below shows, a 5% correction has occurred about once every seven months in an ongoing bull market.
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 228 (last week 217) 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 StatSheet
https://theetfbully.com/2017/02/weekly-statsheet-etf-tracker-newsletter-updated-02022017/
When Bad News Is Good News
Equities started the day solidly above the unchanged line and went up from there breaking out of its narrow sideways pattern, but the gains for the week were slim with the S&P 500 adding only a meager 2 points.
The widely anticipated non-farm payroll number of 227k jobs gained was higher than expected. Interestingly, not only did full-time jobs soar by 457k; part-time jobs tumbled by 490k, the biggest monthly drop since the middle of last year.
The other surprising positive aspect was that job growth, contrary to the past, was spread evenly across many sectors and not just limited to the minimum wage variety. Here are some of the numbers:
Retail: +46,000
Construction: +36,000
Financial: +32,000
Professional/technical: +23,000
Food services: +30,000
Health care: +18,000
These were certainly good and broad gains for a change. The fly in the ointment, also known as “when bad news is good news,” was the fact that average hourly earnings growth slowed down to its lowest number since last August. And this “bad news” is what fired up the stock market and send the dollar lower, as it means that the Fed may not hike rates as much as was feared.
ETF Data updated through Thursday, February 2, 2017
Methodology/Use of this StatSheet:
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.
If you are unfamiliar with some of the terminology, please see Glossary of Terms and new subscriber information in section 9.
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 +1.84% after having generated a new Domestic Buy signal effective 4/4/2016 as posted.
“Dead man walking” would best describe today’s session as the major indexes continued their recent sideways pattern by vacillating above and below their respective trend lines with nothing to show for at the end. It’s been now 78 days since the S&P 500 moved 1%, which simply tells us how narrow this trading channel has been.
Bonds went nowhere with the 1-year Treasury yield barely budging and even the always lurking and potentially trend affecting VIX was flat. Oil dropped a slight -0.35%, but the winner was gold, which gained 0.79%.
On deck is tomorrow’s jobs report, which could move the markets in either direction, although I think it will take a back seat to the latest announcements from the White House in regards to the potential protectionist and populist sentiment.
An early rally fizzled in a hurry as the Dow and S&P 500 dipped into negative territory but managed to crawl back to barely conquer the unchanged line. The Nasdaq ended solidly in the green by +0.50% thanks to gains in Apple shares, which rallied 6.1% to $128.75 and reached its highest close in 18 months.
The Fed was up next and while they did not change interest rates, as expected, their accompanying language lacked detail as to when the next rate hike might be forthcoming. Remember, back in December 2016, it appeared that 3 hikes during 2017 seemed like a foregone conclusion.
Wall Street hates uncertainty, which was reflected in today’s session and which resembled predominantly aimless meandering as stocks struggled to find momentum. The dollar took a dive after the Fed’s decision but ended relatively unchanged while Treasury yields rose.
Chaos happened in the energy complex as computer algos got stuck in a tug-of-war with oil selling off, ramping up sharply thereafter, crashing again to the lows but rallying into the close on a weak dollar. Surely, with that much idiocy, traders in that complex have to be sporting a head of gray hairs.
