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 (240 vs. 192 current).
Tech Split, Wage Spike, Market Dip, Oil Rip: A Mixed Bag for the Economy
[Chart courtesy of MarketWatch.com]
Moving the markets
Tech giants Amazon and Apple had a split decision in their earnings reports yesterday. Amazon delivered a knockout, while Apple got knocked out. The result? A combined loss of about $30 billion in market value today. Ouch indeed!
Meanwhile, the job market showed some signs of cooling down, but not enough to ease the inflation fears. The payroll report for July missed the mark, but the average hourly wages beat expectations by rising 0.4%. That means workers are getting paid more, but also paying more for everything else.
ZeroHedge had a bleak take on the situation:
According to the headlines, the US added 187K jobs in July, and 268K more people found employment. But a closer look reveals that most of these jobs were part-time, low-paying gigs. In fact, the number of full-time workers dropped by a staggering 585K, while the number of people working multiple jobs rose by 118K. So much for the economic “miracle”!
The Babylon Bee added some humor to the mix: “White House says that the economy is so successful that the average American has twice as many jobs as he had two years ago.” Haha!
The stock market started off strong, but then hit a wall and crashed hard. The major indexes ended up in the red, with the S&P 500 sinking to its lowest level in three weeks.
The most shorted stocks continued their downward spiral, and the dollar rallied for the third week in a row, although it lost some steam today. Gold benefited from the dollar’s weakness and bounced back, but still finished the week lower.
Oil prices soared to their highest level since November, topping $82 per barrel. This is bad news for anyone who hopes that inflation is under control.
Why?
Because gas prices are going up too. And that brings us to the dreaded “S” word: Stagflation. That’s when you have no growth and high inflation. Not a good combination.
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 12/01/2022
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 above its long-term trend line (red) by +4.99% and remains in “Buy” mode.
The bond market was the bad guy today, as higher yields scared off stock buyers for the third day in a row. The 10-year yield jumped to 4.18%, the highest since last November, and the 30-year yield was close to its October peak.
This hurt real estate stocks, which fell more than 1%, and made the market more nervous, with volatility at its highest since June. Utilities also got a beating, losing 2.3%.
The stock market was due for a correction anyway, but rising rates could make it worse, as momentum has been fading lately. Some analysts think that the old pattern of “break, bounce, break again” will still hold, as long as there is some hope that the long-term trend is up.
On the earnings front, there were more misses than hits, with Qualcomm, PayPal, and Expedia all disappointing investors and seeing their shares drop.
Later today, we will hear from two of the biggest names in tech: Apple and Amazon. The dollar was steady, Crude Oil recovered some of its losses, while gold slipped a bit under the pressure of higher rates.
These higher 10-year yields are starting to weigh on the major indexes, especially the S&P 500, as this gap can’t last forever—and from this chart it looks like that the index will have to ‘catch down’ to the yield.
Wall Street got a wake-up call on Tuesday night when Fitch, a ratings agency, downgraded the U.S. credit rating from AAA to AA+, citing the worsening fiscal outlook for the next three years. But the U.S. sovereign risk didn’t seem to care much, as this chart shows, unless you compare the different presidential terms.
This triggered a selloff in stocks on Wednesday, with the Nasdaq Composite plunging more than 2%, its worst day since February, as investors dumped risky assets and sought safer havens.
Some analysts tried to put a positive spin on the situation, saying things like “this is just a healthy correction after a strong rally, nothing to worry about” and “we still believe in the economy and the markets, despite this minor setback”.
But the earnings reports were mixed at best, and the manufacturing sector suffered another month of job losses, its fifth in a row. The ADP report showed that wages were growing slower, even though 324k jobs were added, beating expectations.
Bond yields soared, with the 10-year breaking above 4% for the first time since November. But they lost steam by the end of the day and closed lower.
The shorts finally had their day in the sun, as the stocks that they favored fell hard.
Banks and chipmakers were among the losers, with AMD taking a big hit. The dollar rose along with bond yields, but oil and gold went south.
So, is the Covid/Crypto boom back in sync with the AI boom? It sure looks like it.
The market took a small but widespread dip today, as investors are facing a flood of earnings reports from 160 companies in the S&P 500. The mood was tense, but not hopeless, as most of the firms beat the low expectations that were set for them.
Some analysts think this means the economy can dodge a recession, even though they ignore the signs of inflation and uncertainty ahead.
According to FactSet, analysts still expect a 7.1% drop in earnings from a year ago, marking the third quarter in a row of shrinking profits. How does that square with the high stock prices we see today?
Bond yields jumped, despite weak economic data, and the dollar broke free from its recent range. The usual suspects – short sellers – prevented a bigger sell-off and kept the S&P 500 from losing more than 1% in 40 days.
Banks took a hit, as the 10-year yield rose above 4% again, and the 30-year reached its highest level since last November. Gold didn’t shine either and fell below $2k again.
As for inflation, those who think it’s tamed may have to think again. Crude oil is climbing up from its lows, while wholesale gasoline is ready to burst. In short, it was a rough day for the bulls, but not a disaster. Yet.
