Snapping A 6-Day Win Streak

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

There was nothing exciting about today’s session other than a brief mid-day climb above the unchanged line, after which the major indexes hit the skids with the Dow and S&P snapping a 6-day winning streak. It’s still too early to determine if today’s action was the end of the current dead-cat bounce, as some analysts named last week’s rebound.

Not helping matters or instilling confidence was Wal-Mart’s earnings-related swan dive, which was its biggest one-day decline in 30 years (-10.18%). Yesterday, when the markets were closed for Presidents Day, the futures showed the plunge of the cash market at the open—except there was no opening! Someone forgot to turn off the computers confirming again for those who still don’t know that markets are manipulated and programs will be run as long as the power switch is on.

The VIX headed back above 20, and Treasury yields rose with the 10-year adding 1 basis point to end at +2.91%, its highest level since early 2014. That took any starch out of the mid-day rally attempt. The US Dollar (UUP) turned around and surged +0.64%, seemingly helped by the Chinese New Year Holiday.

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ETFs On The Cutline – Updated Through 02/16/2018

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 224 (last week 173) 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.

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ETF Tracker Newsletter For February 16, 2018

ETF Tracker StatSheet

http://www.theetfbully.com/2018/02/weekly-statsheet-etf-tracker-newsletter-updated-02-15-2018/

 COMEBACK WEEK

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

A solid mid-day rally hit the skids, as news from Special Counsel Mueller’s indictment of 13 Russian nationals and three Russian entities, accusing them of interfering with the US elections, flashed on computer screens around the world. The major indexes dove, briefly slipped into the red but recovered to close around their unchanged lines. Nevertheless, it was a crazy comeback-week in the markets (S&P 500 +4.3%), which ZH summarized like this:

  1. Nasdaq, S&P – best week since Dec 2011
  2. Dow – best week since Nov 2016
  3. Small Caps – best week since Dec 2016
  4. “Most Shorted” Stocks – biggest weekly short-squeeze since Nov 2016
  5. VIX – biggest weekly drop since Nov 2016
  6. US Treasury Yield Curve – 2nd biggest weekly flattening since Sept 2011
  7. HYG (HY Bond ETF) – best week since Feb 2016 (despite record outflows)
  8. Dollar Index – 2nd worst week in 6 months
  9. Gold – best week since April 2016

Giving equities an assist this week was a jump in bullish sentiment numbers and signs that the economy is growing but not yet overheating as had been feared. The 10-year bond yield seemed to support that view, if only for the time being, by slipping 3 basis points to end at +2.87%. At least the race towards the 3% mark has been halted.

The US Dollar Index (UUP) did its best imitation of a swan dive during the past 5 trading sessions thereby pushing all commodities higher. However, today UUP managed to bounce back +0.69%.

Budget deficits have been a non-addressed issue for a long time. Now, that the debt ceiling has been postponed for 2 years, we will see larger negative numbers for years to come. For some insight and the consequences, please see Simon Black’s excellent article.  

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 02/15/2018

ETF Data updated through Thursday, February 15, 2018

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

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 +3.28% after having generated a new Domestic Buy signal effective 4/4/2016 as posted.

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Equities Pump And US Dollar Dumps

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The equity bounce continued for the fifth day in a row, as the major indexes started the session in the positive, then dropped below the unchanged line and subsequently surged in a V-shape type recovery without looking back to close at the highs for the day. I took the opportunity during the momentary weakness to add to our positions as mentioned yesterday.

Apparently, Wednesday’s “hot” CPI report still did not bother traders who simply shrugged it off and proceeded driving the markets higher by continuing with their short squeeze, which is now on record as the biggest since the election. The VIX diverged today closing modestly higher while the S&P remained in rally mode.

Interest rates pulled back with the 10-year yield dropping 1 basis point to 2.90%. The US Dollar (UUP) showed some strength early on, then collapsed (down for the 5th day in a row) to its lowest close since December 2014.

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Market Madness: CPI Surges, Dollar Collapses, Bond Yields Up But Stocks Rally

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Sometimes you just have to laugh when you see the type of chaos in the markets that we saw today. The widely anticipated Consumer Price Index (CPI) reading came in much “hotter” than expected as it surged 0.5% in January. Consequently, bond yields spiked with the 10-year adding 8 basis points to close at 2.91%, which is its highest close since January 2014.

The US Dollar (UUP), which should have rallied given the yield surge, collapsed -0.77% while stocks rallied after an early morning dip pushing the major indexes solidly in the green. This outcome left many analysts scratching their heads as higher stocks, higher yields and a lower US dollar simply does not add up.

ZH summarized it best in what we learned during this session based on the reaction of various asset classes:

  1. Yields: many, many rate hikes
  2. Dollar: no rate hikes
  3. Stocks: hmmm, maybe some rate hikes
  4. Gold: we blew up the fed. No rate hikes.

Apparently, the new theme is that stocks love higher bond yields. Go figure…

The VIX hit and intra-day of 25 but closed below 20, while the Dow had a swing from the lows to the highs of some 600 points and today’s short-squeeze was the biggest in the past 12 months. These are all indications that equities can turn in either direction on a dime.

Nevertheless, the major trend remains bullish, and I will increase our ETF exposure slowly but surely while keeping my eyes firmly feasted on our exit strategy.

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