ETF Tracker Newsletter For November 10, 2023

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S&P 500 RIDES THE BUYBACK WAVE, IGNORES THE LIQUIDITY DROUGHT

[Chart courtesy of MarketWatch.com]

  1. Moving the markets 

The stock market had another good day today, as investors ignored rising bond yields that threaten to ruin their party. The S&P 500 ended the week with a 1% gain, despite losing its winning streak yesterday.

The bond market, on the other hand, was not so happy. The 10-year and 30-year Treasury yields jumped up and down like a yo-yo, ending the day flat. They were spooked by the Fed chair Jerome Powell, who said he was not sure if the central bank had done enough to fight inflation. He also hinted that more stimulus might be needed, which made bond traders wonder if he was printing money in his basement.

The bond market was also rattled by a lousy auction of Treasury bonds yesterday, which showed that the demand for US debt was not as strong as expected. Maybe the buyers were too busy shopping online with their stimulus checks.

Speaking of which, the economy seems to be doing better than expected, at least on the surface. The headlines tell us that the consumer is resilient and spending like there is no tomorrow. But if you look closer, you will see that the consumer is actually living on borrowed money and time. Americans have burned through $1.9 trillion in savings in just two years and are relying on their credit cards to keep them afloat. How long can this last before they sink?

This consumer spending spree has helped the stock market, even though the Fed’s interest rate policy is still unclear. The market thinks that the Fed is done with raising rates and might even cut them again. But the market has been wrong before and might be wrong again. The Fed has a tricky balancing act to do, as inflation is still above its target, but not high enough to scare it.

But the market doesn’t care about the Fed, or the bond market, or the economy. It only cares about the Magnificent 7, the big tech stocks that have been driving the rally. Investors flock to these stocks as if they were a ‘safe haven,’ even though they are anything but. They ignore gold, which is supposed to be the real ‘safe haven.’ Go figure…

The market also doesn’t care about what Powell says, if he doesn’t spoil the fun. Yesterday, he tried to sound cautious and prudent, but the market shrugged it off. The Nasdaq soared to new highs, even though most of its stocks were lagging. This is not a healthy sign, as it shows that the market is narrow and fragile.

But the market has a secret weapon: stock buybacks. The big companies have been buying back their own shares like crazy, boosting their prices and earnings. Goldman Sachs says that the global buybacks this week were $78 billion, and $142 billion over a month. That’s a lot of money that could have been used for something else, like investing, hiring, or paying dividends. But who cares about that when you can make your stock look good?

The S&P 500 closed above 4,400 today, filling the gap that was left by the big drop in September. This is a technical achievement that could signal a trend reversal. Or it could be a false breakout, followed by another plunge. Who knows?

The S&P 500 has also defied the global liquidity trend, which has been declining. This means that the money supply and credit growth are slowing down, which could hurt the economy and the market. The S&P 500 has been able to ignore this so far, but for how long?

Is the S&P 500 an outlier, or is it living in a fantasy world?

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 11/09/2023

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ETF Data updated through Thursday, November 9, 2023

How to use this StatSheet:

  1. Out of the 1,800+ ETFs out there, I only pick the ones that trade over $5 million per day (HV ETFs), so you don’t get stuck with a lemon that nobody wants to buy or sell.
  1. Trend Tracking Indexes (TTIs)

These are the main indicators that tell you when to buy or sell Domestic and International ETFs (section 1 and 2). They do that by comparing their position to their long-term M/A (Moving Average). If they cross above, and stay there, it’s a green light to buy. If they fall below, and keep going, it’s a red light to sell. And to make sure you don’t lose your shirt if things go south, I also use a 12% trailing stop loss on all positions in these categories.

  1. All other investment areas don’t have a TTI and should be traded based on the position of each ETF relative to its own trend line (%M/A). That’s why I call them “Selective Buy.” In other words, if an ETF goes above its own trend line, you can buy it. But don’t forget to use a trailing sell stop of 12%, or less if you’re feeling nervous.

If some of these words sound like Greek to you, please check out the Glossary of Terms and new subscriber information in section 9.

  1. DOMESTIC EQUITY ETFs: SELL— since 09/22/2023

Click on chart to enlarge

This is our main compass, the Domestic Trend Tracking Index (TTI-green line in the above chart). It has now broken below its long-term trend line (red) by -3.64% and has moved into “Sell” mode effectively 9/22/2023.

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A Bad Day For The Bulls: S&P 500 Dives As Bond Yields Soar After Disastrous Auction

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[Chart courtesy of MarketWatch.com]

  1. Moving the markets 

It was a bad day for the S&P 500, as the bond market threw a tantrum and spoiled the party. The trigger was a disastrous 30-year bond auction, which saw foreign buyers flee. This was not the first time this year that the bond market was disappointed, but it was the worst. Stocks and bonds both got clobbered.

Fed chair Jerome Powell tried to calm the nerves, saying that inflation was slowing down, and more work was needed to tame it. But then he added this zinger:

We are not sure if we have tightened the monetary policy enough to bring inflation down to 2 percent in the long run.

That did not help.

Regional banks tanked, as the dollar soared, and money dried up. I wonder what the Fed and the Treasury will do about this mess.

Thorstein Polleit from the Mises Institute had this to say:

Investors are finally waking up to the huge debt problem in the US, which they have ignored for too long: The US government owes more than thirty-three trillion US dollars, which is about 123 percent of the US economy.

And it is only getting worse: by 2030, the debt could reach fifty trillion US dollars. The usual suspects who used to buy US debt—like Japan, China, Brazil, Russia, and Saudi Arabia—are not interested anymore. Who will fund the US government’s spending spree of 6 percent of the economy every year?

The most hated stocks also got smashed, as the bulls ran for the hills, while the 30-year yield had its biggest spike since the pandemic, and the 2-year yield breezed past 5 percent again.

Gold was the only winner, as it rose despite the stronger dollar and higher bond yields. Is that a warning that things are about to get worse?

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S&P 500 Sneaks A Win, Small Caps Slump, Buffett Hoards Cash

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[Chart courtesy of MarketWatch.com]

  1. Moving the markets 

The S&P 500 had a roller-coaster ride on Wednesday, as it barely kept its winning streak alive for the eighth day in a row. That’s the longest run since 2021. But Small Caps got hammered again, as they lagged the big boys.

It seems that traders are betting on the Fed to take a break from hiking rates and hoping for a smooth landing. Stocks have been beaten down for too long, and they’re finally bouncing back a bit.

Of course, the fate of the market depends on how inflation and the economy behave. The data so far suggests that things are cooling off, but not crashing. That is, unless the numbers are wrong and get revised later.

The earnings season is almost over. Most companies in the S&P 500 have reported their results, and most of them have beaten the profit estimates. But the revenue picture is not so rosy, as only a little over half of them have exceeded the sales expectations. That could spell trouble for the future direction of stocks.

Wall Street is also eagerly waiting for what the Fed Chair Jerome Powell has to say. His words, along with the earnings picture and the inflation report next week, could either boost or bust the market.

Meanwhile, regional banks kept sliding, bond yields moved in different directions, the dollar stayed flat, gold lost some shine, and crude oil plunged to its lowest level since July.

And the US Treasury market saw its worst liquidity since 2010. Is that why Warren Buffett is sitting on a mountain of cash? Or is he just scared of his own indicator, which shows that stocks are as pricey as they were during the dotcom bubble in 2000?

Hmm…

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Stocks Rally Again, But Is It A Fluke Or A Trend?

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets  

Stocks were snoozing early on, as traders took a nap after a wild rally on Wall Street to kick off November, but a sudden burst of energy pushed the major indexes back into the green.

Tech stocks rose as yields retreated, with the yield on the 10-year Treasury note dropping about 7.5 basis points to 4.575%. Some notable winners included Microsoft, Amazon, and Advanced Micro Devices.

Traders wondered if last week’s rally was a fluke or a trend after all three indices had their best week in 2023. However, some feared that a fierce rally like this one was too good to last.

The November surge was a sharp contrast to a dismal October in which the S&P 500 dipped into correction territory. Wall Street cheered up after the Federal Reserve kept interest rates steady following their meeting last week.

Treasury yields slid and stocks climbed. Sure, lower yields gave a boost to the growth sectors of the market, but falling oil prices also helped ease inflation worries, as drivers enjoyed some relief at the pump.

Wolfe Research looked at the technical side of the market and predicted that the early November rally could soon fizzle out, if history repeats itself:

“Each rally since the July peak has fizzled out before making a fresh 1-month high, before tumbling to a new 1-month low…the definition of a downtrend.”

As ZeroHedge noted, another quiet macro day had no major catalysts – even with a bunch of Fed Speakers – since they all sang the same song – data-dependent, job not done, inflation still too high, rates high(er) for long(er), no cuts on the agenda.

As a result, the Nasdaq zoomed from open to close, The Dow and S&P barely budged, while Small Caps ended in the red. Regional banks struggled and faced some new rules to reign in their risky lending.

Bond yields pulled back, the dollar gained, while gold drifted lower and crude oil tanked, closing at its lowest level since July.

Looking at the big picture, you can see that global central banks are still in tightening mode and are sucking out the excess liquidity from financial markets, causing this gap.

Hmm…Which way will this crocodile mouth snap shut?

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Wall Street’s Rally Stalls As Fed Chair Powell Looms Large

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets  

The S&P 500 wandered around like a lost sheep on Monday, as Wall Street tried to keep up the good vibes from last week’s stellar performance. In the end, after a tiny surge, nothing much changed.

Just to refresh your memory, all the major indexes had their best week of the year, starting November with a bang. The Dow soared by 5.1% last week, its biggest jump since October 2022. The S&P climbed 5.9% in the same period, and the Nasdaq rocketed 6.6%.

It was the best week for both indexes since November 2022. Weak jobs data also pushed bond yields lower, which helped stocks.

As I wrote before, this was just a nice bounce back from a bear market, and it only erased the losses that the buy-and-hold folks suffered since 9/22/23, when we issued our last domestic “Sell” signal.

The big question is whether this bounce can turn into a new bull market, as earnings season is almost over. JP Morgan thinks this rally will fizzle out soon:

We think that stocks will go back to being a bad deal as the Fed is going to keep rates high for longer, stocks are overpriced, earnings forecasts are too rosy, companies are losing their edge, profit margins are shrinking, and sales growth is slowing down.

I agree, this rally could collapse like a house of cards. But we don’t need to speculate, we will just follow the direction of our Trend Tracking Indexes.

A lot depends on what Fed chair Powell says in the next few days. He is scheduled to speak twice, and traders will be listening closely to see if he is more hawkish or dovish.

Most shorted stocks got hammered today, as there was no sign of a short squeeze. Regional banks gave up half of Friday’s gains, Bond yields went up with the 10-year undoing Friday’s drop.

The dollar stayed the same, gold slipped lower and fell below $2k. Financial conditions have eased, and we’ll see how Fed head Powell reacts, after he was happy that they had tightened.

Will he talk them up again on Thursday? Or will he change his tune and sing a different song?

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