Do you want to know which ETFs are hot and which ones are not? Then you need my High-Volume ETF Cutline report. It tells you how close or far each of the 311 ETFs I follow is from its long-term trend line (39-week SMA). These are the ETFs that trade more than $5 million a day, so they are not some obscure funds that nobody cares about.
The report is split into two parts: The winners that are above their trend line (%M/A), and the losers that are below it. The yellow line is the line of shame that separates them. You can see how many ETFs are in each group and how they have changed since the last report (270 vs. 268 current).
INDEXES RETREAT, BOND YIELDS RISE AS INVESTORS EYE FED MEETING
[Chart courtesy of MarketWatch.com]
Moving the markets
This week, the major indexes experienced fluctuations due to options expirations volatility, ultimately closing lower. Technology stocks felt the pressure as inflation concerns persisted, particularly in anticipation of the Federal Reserve’s policy meeting next week.
Tech giants like Apple and Microsoft saw their shares decline by more than 1% and 2%, respectively. Amazon and Alphabet also faced downturns. Nvidia, however, managed to climb more than 1%, despite a volatile week for the stock as traders grappled with valuation concerns and profit-taking.
Traders remained on high alert following a series of economic data releases earlier in the week. The producer price index for February indicated a higher-than-expected rise in wholesale inflation. This contributed to a significant increase in the benchmark 10-year Treasury yield, raising questions about the Federal Reserve’s ability to adjust monetary policy considering the robust economic data. The Fed is set to begin its two-day policy meeting on March 19.
The recent economic reports may lead to speculation about whether the Fed believes inflation has moderated enough to consider reducing interest rates later this year, which could impact long-term borrowing rates.
Today’s trading volumes were higher than usual, and market prices were notably volatile due to the simultaneous expiration of futures and options on stock indexes and individual stocks, an event known as “triple witching” that occurs quarterly.
Inflation data that exceeded expectations, coupled with slower growth and weaker labor market data, not only pulled the indexes from their high levels but also negatively impacted the US macro surprise index. Concurrently, inflation concerns have dampened rate cut expectations for 2024.
Bond yields rose throughout the week, with the 10-year nearing its year-to-date highs, which particularly affected Small Caps and Big-Tech stocks. Banks also struggled as the Federal Reserve’s bailout facility came to an end, while AI stocks experienced a tumultuous week. The higher yields bolstered the dollar but tempered gold’s momentum, at least temporarily. Bitcoin saw modest gains, ending the week slightly higher.
Crude oil prices surged, reaching their highest point since early November, which may not bode well for the upcoming CPI report. Nvidia’s performance this week has kept comparisons to Cisco Systems relevant. Whether Nvidia will break away from this pattern or history will repeat itself remains to be seen.
As we approach the Federal Reserve’s policy meeting, the question on many investors’ minds is:
What will the outcome be for the market’s direction?
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.
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.
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.
DOMESTIC EQUITY ETFs: BUY— since 11/21/2023
Click on chart to enlarge
This is our main compass, the Domestic Trend Tracking Index (TTI-green line in the above chart). It has broken above its long-term trend line (red) by +9.90% and is in “Buy” mode as posted.
In the financial theater today, the S&P 500 experienced a slight setback after inflation data came in warmer than anticipated, propelling Treasury yields upward. Nvidia’s shares, on the other hand, were less fortunate, facing downward pressure.
The Producer Price Index (PPI) for February, which tracks wholesale inflation, rose by 0.6% last month, surpassing the expectations of a 0.3% increase. Stripping away the food and energy sectors, the core PPI climbed by 0.3%. Initially, the stock market seemed indifferent to the data, but it wasn’t long before the enthusiasm waned.
The burning question on traders’ minds is whether the Federal Reserve will adjust its rate cut strategy, potentially impacting the stock market rally. With bond yields on the rise, concerns about a market downturn are growing. It seems likely that both the Fed’s rate decisions and the bond yields will play a significant role in the market’s direction.
The inflation report has nudged bond yields higher, with the 10-year Treasury note adding 9 basis points. Nvidia’s shares have retreated for the fourth time in five sessions, dropping by nearly 3%.
As we approach the Federal Reserve’s policy meeting on March 19-20, this PPI report stands as the final piece of significant economic data. The macroeconomic landscape has been turbulent, with softer Retail Sales, unexpected rises in Producer Prices, and an increase in Jobless Claims, all contributing to a shift in rate-cut expectations.
Bond yields surged, pushing the 10-year to its annual peak, which in turn has impacted the major indexes, with Small Caps leading the decline. Banks felt the strain, and Nvidia’s streak of record highs has been interrupted, as investors move away from non-profitable tech stocks. The usual market buoyancy provided by short squeezes was notably missing.
The dollar strengthened alongside the bond yields, Bitcoin settled at the $70k mark after a significant ETF inflow, gold diverged from the dollar’s trajectory, and oil prices hit their highest point since early November.
Despite these developments, stocks seem to be maintaining a distance from rate hike expectations.
But the question remains: for how long can this detachment last?
The S&P 500 took a breather Wednesday, retreating from its recent peak, as Nvidia’s sizzling start to 2024 finally saw a chill. The trading floor was still buzzing from Tuesday’s gains, where the S&P 500 and Nasdaq jumped over 1% after inflation reports aligned with the crystal ball predictions. Core inflation, minus the munchies and gas, ticked up a notch last month but didn’t dampen the spirits of the ever-optimistic market mavens.
As we inch closer to the Fed’s pow-wow on March 19, traders are on the edge of their seats, anticipating Fed Chair Jerome Powell’s next move. Will he stick to the script of being data-driven and keep a steady hand on the wheel?
In the meantime, it’s been a seesaw session: Small Caps took the lead, while Nasdaq played catch-up… that is until a last-minute sell-off shook things up. The Dow and Small Caps scraped together some modest wins, but Nasdaq and S&P weren’t so lucky, ending up in the red.
The “Magnificent 7” had a less than magnificent day, struggling to shine despite a brief comeback. Meanwhile, the most shorted stocks got a morning boost only to lose steam, mirroring bank stocks that started strong but closed weaker as the Fed’s safety net program (BTFP) wrapped up.
On the bond front, yields were up, but the real headline-grabber was Bitcoin’s ETFs, which saw a record-breaking influx of over $1 billion, catapulting Bitcoin to a dizzying $73,000 high. Not to be outdone, Gold wiped away its losses, and oil prices soared, adding to the market’s rollercoaster ride.
So, as we ponder the parallels between Cisco Systems and Nvidia, one must wonder: are we on the cusp of déjà vu all over again?
On a day when the inflation report played nice and mostly met the expectations for February, the stock market decided to throw a little party of its own. The consumer price index, which is like the economy’s thermometer, rose by 0.4% last month, hitting a 3.2% year-over-year fever. The economists’ crystal balls predicted this well, except they were off by a smidge, expecting a 3.1% annual increase.
Now, let’s talk about core inflation – that’s inflation without the mood swings of food and energy prices. It got a bit spicy, rising 0.4% in February, which is a tad hotter than the forecasted 0.3%. Year-over-year, it’s up by 3.8%, outpacing the 3.7% forecast. But hey, it’s still the coolest it’s been since April two years ago.
Diving deeper into the numbers, we find the ‘Super Core’ – think of it as the core of the core, minus housing costs. It jumped 0.5% month-over-month, reaching a scorching 4.5% year-over-year – the highest since the days of May 2023.
Some Wall Street folks are sweating over these numbers, thinking they might throw a wrench in the Federal Reserve’s plans to start slicing interest rates come June. The road to their 2% inflation target is looking a bit more like a game of “Where’s Waldo?”
In the tech world, stocks were on a caffeine buzz. Nvidia’s shares leaped 3%, Microsoft edged up about 2%, and Oracle? Well, they blasted past 10% after showing Wall Street they’ve got the earnings muscle.
As traders shift their gaze to the upcoming producer price index (PPI) and the Fed’s monetary policy huddle later this month, the financial playground is getting interesting.
Bond yields climbed the jungle gym, the MAG7 stocks bounced back like they’re on a trampoline, the dollar did a hopscotch routine, and gold took a breather after sprinting to record highs.
With a few more economic breadcrumbs left this week, the market could flip faster than a pancake at a breakfast buffet.
So, the question remains – will the market end the week flexing for the bulls or playing dead for the bears?
