ETF Tracker Newsletter For March 24, 2017

 

ETF Tracker StatSheet

http://www.theetfbully.com/2017/03/weekly-statsheet-etf-tracker-newsletter-updated-03232017/

HEALTH CARE BILL FAILS; MARKETS SINK

[Chart courtesy of MarketWatch.com]

  1. Moving the Markets

In a repeat performance of yesterday, an early rally stalled and reversed leaving the major indexes about unchanged for the day but down for the week with the S&P 500 surrendering some -1.4%.

As I mentioned throughout the week, the most widely watched news event was the path of the health care bill and whether Trump could muster enough votes in his own party to get the legislation through congress. The answer was finally revealed, before the markets closed, as Republicans pulled the bill prior to the voting procedure admitting that it could not get passed in its present form.

That leaves the question as to what market reaction might be come next week. On view is that this is an ominous sign for Trump’s ability to push through his economic agenda while, on the other hand, you could argue that, with this monkey off his back for the time being, other things that are not as complicated like lowering taxes and reducing regulations, might be more doable.

Market internals looked like this: This is the Dow’s longest losing streak (7 days) since election. Small Caps had their worst week since February 2016. The S&P 500 had its worst five trading days since November while the Financials suffered their worst week since January 2016.

The greenback continued its slide for the 8th losing day in a row, which is the longest losing streak for the Bloomberg Dollar Index since April 2011. Treasury yields dropped on the week, despite the Fed’s rate hike on 3/15, which gave bond investors a reason to cheer as bonds finally rallied. Gold was the winner again, and the precious metal is now up for 2 weeks in a row, its best 2-week period since Brexit in 2016.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 03/23/2017

ETF Data updated through Thursday, March 23, 2017

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 +2.31% after having generated a new Domestic Buy signal effective 4/4/2016 as posted.

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Hope Rally Fails As Health-Care Bill Vote Is Delayed

[Chart courtesy of MarketWatch.com]

  1. Moving the Markets

One look at the above chart shows the type of roller coaster ride the major indexes went through resulting from continued uncertainty about the outcome of the health care vote. In the end, hope of a passage got crushed as the vote got postponed on doubts that it can pass handing Trump a defeat, as his own party appeared to be split on the battle to repeal and replace “Obamacare.” The vote is now tentatively planned for Friday.

The major indexes gave back early gains and ended up slightly in the red, which was the Dow’s sixths straight day of losses. How wild was the ride? ZH summed it up nicely:

  • 0855 Drop – Freedom Caucus Meeting postponed
  • 0930 Rally – Brady – 95% agreement of health bill
  • 0940 Drop – Brooks – 30-40 “no” votes still
  • 1030 Rally – Freedom Caucus Meeting
  • 1300 Drop – Freedom Caucus Meeting ends with no agreement
  • 1330 Rally – Spicer press conference confirms vote will take place tonight
  • 1505 Drop – Ryan Press Conference Postponed
  • 1520 Rally – Trump “we have a chance”
  • 1530 Drop – House delays vote on health bill amid doubts it can pass
  • 1557 Rally – Freedom Caucus committed to working with the President

 

In the end, the gap between fact and fiction actually narrowed a little as the chart below shows:

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Upcoming Healthcare Vote Keeps Markets In Check

[Chart courtesy of MarketWatch.com]

  1. Moving the Markets

Since market participants did not show much commitment one way or the other, the major indexes ended up hovering slightly above and below the unchanged line but managed to close slightly above it except for the Dow, which gave back a tiny -0.03%. Considering yesterday’s sharp selloff, today’s lack of follow through to the downside was an encouraging sign for the bulls in that there may be more upside potential ahead.

The choppiness and uneasiness was caused by uncertainty not only about Trump’s struggle to push through his healthcare bill, with a vote looming on Thursday, but also his ability to successfully promote his promised tax cuts, which were the main cause of the record breaking rally since November.

Interest rates continued their march south as the 10-year US Treasury yield dropped from a recent high of 2.62% to 2.40% meaning that bonds went back into rally mode during the past 1.5 weeks. The dollar slipped again following the recent downward trend, which started in early March, thereby helping gold to score its 5th day of gains in a row and closing above $1,250.

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Banks & Stocks Bleed While Gold Shines

[Chart courtesy of MarketWatch.com]

  1. Moving the Markets

An early rally attempt driven by Apple reaching new all-time highs was rebuffed in a hurry, as worries surfaced that Trump may not be able to deliver on his promised tax cuts as quickly as had been assumed, an assumption that has been the reckless driver of the market in recent months.

Right now, it appears that nervousness is increasing ahead of the crucial vote on Thursday regarding the new healthcare plan. Depending on the news source, it’s become more questionable today as to whether Trump can muster enough votes to push the new legislation through. If he fails, his much hailed tax cuts may have to be put on the back burner and may not come to fruition until next year.

With Wall Street having more or less counted on tax cuts and the infrastructure plan, any disappointment will impact market direction, the beginning of which we may have witnessed today. The major indexes had their first 1% plus drop since October 11, as the D.C. drama intensified.

Not helping matters was the continued demise of the US currency with the dollar index dropping back below the widely watched 100 level and to near election lows. Bank stocks (JPM, GS, MS, BAC) got clobbered again and had their worst day since Brexit. The winner again was precious metals, which continued on their recent upward path. Is there more downside to come? The following graph attempts to shed some light on that question:

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Equities Lower; Precious Metals Higher

[Chart courtesy of MarketWatch.com]

  1. Moving the Markets

An early rebound attempt ran out of steam as the Fed paraded a couple of their mouthpieces, who managed to spew some words of hawkishness to undermine any positive market momentum. First it was Fed’s Harker, who caused some worries with announcing that we “can’t rule out more than 3 hikes this year,” which was followed by Fed’s Evans with “more upside possibility in uncertainty facing Fed,” and then this bon mot:

This is a challenging time period to all of a sudden have a big injection of positive fiscal policy expansion because we are pretty close to full employment. We might be at full employment.

To me, that sounded like if Trump even attempts any fiscal boost, like infrastructure spending, it may very well be met with additional rate hikes, which is not exactly soothing for the nervous crowd on Wall Street.

In the end, the pullback was minor as the major indexes recovered thanks to the usual last hour ramp thereby keeping any losses to a minimum. Retail stocks continued to get clobbered; High Yield bonds slipped again, as did the 10-year Treasuries but gold managed to hold on to its March gains.

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