One Man’s Opinion: Investors Are Sticking With Pavlov’s Dog Until Everything Breaks

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OneMan'sOpinionBy Zero Hedge

Remember when “bad news is good news” first leapt into common parlance? At first it was used as a way to describe the reaction function of Fed policy-makers. It was taken as a cute turn of phrase in encapsulating the state of the world. Over time, as Bloomberg’s Richard Breslow explains, it’s morphed into an ugly and cynical way of justifying mindless investing behavior.

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Central banks that cultivated and encouraged irrational exuberance as their main transmission mechanism of monetary policy are now hopelessly caught in its infinite loop. Seemingly feeling the need to continue doing more of the same, no matter the efficacy.

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ETFs On The Cutline – Updated Through 09/10/2016

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Below please find the latest High Volume ETF 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 318 (last week 322) are hovering in bullish territory. The yellow line separates those ETFs that are positioned above their trend line 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 September 9, 2016

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ETF Tracker StatSheet

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https://theetfbully.com/2016/09/weekly-statsheet-for-the-etf-tracker-newsletter-updated-through-09082016/

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Market Commentary

TURBULENCE CREEPING INTO MARKETS

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[Chart courtesy of MarketWatch.com]

1. Moving the Markets

Wall Street got a big wake-up call Friday as fears on an interest rate hike were exacerbated by news from the Fed, which indicated that an interest rate hike is just around the corner. All three major indexes closed down by at least 2.12%. Not helping sentiment was last night’s news that Japan might be steepening its yield curve, the effects of which could have far reaching market implications.

The so-called “hawkish” commentary by Eric Rosengren (President of the Federal Reserve Bank of Boston) follows the ECB’s decision this week to keep rates at current levels, which was a disappointment to investors who thought additional stimulus was needed to get the Eurozone economy moving again.

Prior to today’s decline, it had been a quiet and complacent period for stocks, with volatility very low, a development that was starting to make some investors nervous. Heading into today’s session, the S&P 500 had gone more than 50 trading days without a drop of 1% or more, only the 48th time that has happened since 1950, according to Sam Stovall, U.S. equity strategist at S&P Global Market Intelligence. I have repeatedly commented that this will come to an end at some point, and I am very curious to see if this is the beginning of a new prolonged downturn or if Central Banks will shift their jawboning in reverse and “talk” the markets back up next week. Stay tuned!

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 09/08/2016

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ETF Data updated through Thursday, September 8, 2016

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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

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Our main directional indicator, the Domestic Trend Tracking Index (TTI-green line in the above chart) remains 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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Major Indexes Drift Lower

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[Chart courtesy of MarketWatch.com]

1. Moving the Markets

U.S. stocks slipped today as traders digested the decision by the ECB to keep interest rates unchanged and looked for fresh catalysts, as in more Fed stimulus, to propel the market higher. As analysts had expected, the European Central Bank decided to keep its key deposit rate unchanged at -0.4%, but also said it would continue to buy 80 billion in euros worth of bonds each month at least until March 2017.

In auto news, Ford (F) is expanding a recall that entails an additional 1.5 million more vehicles that need to be brought into dealers to fix doors that can “fly open” while the vehicle is being driven. The new vehicles included in the latest recall include the 2013 to 2015 Ford C-MAX and Ford Escape, 2012 to 2015 Ford Focus, 2015 Ford Mustang and Lincoln MKC and 2014 to 2016 Ford Transit Connect. The automaker will obviously take a hit in Q3, but is taking action to remedy the situation.

In the world of retail clothing, shares of Pier 1 Imports (PIR) fell 12% today after the retailer’s stock was downgraded over performance concerns and the departure of its CEO. In a preliminary earnings report that Pier 1 issued yesterday, the company said its net sales for the Q2 fell about 6.7% compared to the same period in 2015.

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Nintendo Nudges Nasdaq Higher

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[Chart courtesy of MarketWatch.com]

1. Moving the Markets

Stocks ended mixed today, but the Nasdaq notched another record closing high after the big Apple “unveiling” event, in which the gadget maker revealed the latest version of its popular iPhone, the iPhone 7. While all the spec upgrades are tempting, the real winner today was Nintendo (NTDOY).

Apparently, Nintendo plans to release a version of its co-owned Pokemon Go augmented reality game to the Apple Watch and a running style game using Mario Bros. characters to the iPhone called “Super Mario Run.” Shares of Nintendo’s U.S. listed shares jumped 29% to $36.32 a share today after the gaming pioneer said during the Apple conference it would bring several titles to Apple’s various mobile platforms. The massive rise in Nintendo’s shares stands out especially given Apple’s (AAPL) own stock is stagnant, even after the announcement. Shares of Apple are up roughly 2% this year while the S&P 500 has risen nearly 9%.

In economic news, we heard today that the U.S. economy expanded modestly in July and August. Manufacturing activity picked up slightly, retail sales were flat and payrolls increased moderately in a tight labor market, the Federal Reserve said today.

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