Below, please find the latest High-Volume ETF 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 322 High Volume ETFs, defined as those with an average daily volume of more than $5 million, of which currently 84 (last week 73) 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.
Despite a heroic attempt to pump the market into another green close, the computer algos pushed the major indexes back toward their respective unchanged lines, but not much was gained, as the bullish theme ran out of steam ahead of the upcoming Memorial Day weekend.
However, for the week, the S&P 500 managed to not only gain some 3% but also slip into the positive for the month, after the bears had threatened to reverse the bullish trend on 5/13.
Of course, as I posted on many occasions, the Central Banks (CBs) are behind this enormous rebound off the March lows, and BofAs Michael Harnett in his latest Flow Show report pointed to this fact:
In the past 8 weeks, central banks have been buying $2.4 billion per hour of financial assets.
As Deutsche Bank calculates, the combined G-10 central bank balance sheet is now above $20 trillion, catching up to its trendline since the financial crisis after stagnating around $16 trillion for the past two years…
If you had thought that the Fed acted as a lone ranger, accept that this enormous pumping effort of financial assets is a global phenomenon and not just limited to the US.
That means the Fed and the global banks have engaged in never-ending “emergency measures” to support financial assets, ever since the Great Recession came to an end some 10 years ago. Of course, those originally planned to be temporary measures became permanent ones, since none of the initial problems, namely too much debt, were ever addressed and fixed.
This week’s push higher was supported by optimism about the reopening of the economies, along with a slow but steady rebound in activity. Consensus has priced in a “U” or “W” shaped recovery, but should that not happen, watch out below.
Zero Hedge summed up the week like this:
Millions more job losses, thousands more deaths, hundreds more earnings outlooks cut or dismissed, dozens of rancorous threats and promises exchanged between US and China… and still a handful of key US stocks sent the major indices soaring on the week led by Trannies and Small Caps…
With the continued support of the Fed, I expect that we will receive a new Domestic Buy signal soon. However, it is important to realize that you must have an exit strategy established in case the powers to be run out of ammunition, or, the market simply hiccups and revisits the March lows.
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.
3. 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 Termsand new subscriber information in section 9.
1. DOMESTIC EQUITY ETFs: SELL — since 02/27/2020
Click on chart to enlarge
Our main directional indicator, the Domestic Trend Tracking Index (TTI-green line in the above chart) is now positioned below its long-term trend line (red) by -7.85% after having generated a new Domestic “Sell” signal effective 2/27/20 as posted.
Sometimes you just have to laugh at some of the market idiocy. Today, we had such a moment when Moderna (MRNA), who issued a press release on Monday, which I discussed, as to how 8 healthy young people did not die when given their latest vaccine.
The obvious stock pump turned into a giant dump today and putting all buyers of the hyped secondary offering under water, as this chart by ZH shows. You think there will be class-action lawsuits?
Added Linette Lopez from Business Insider:
It’s a perfect storm of stupid in the stock market right now.
I can’t wait to see which company will be next in line to promote the latest and greatest for the coronavirus treatment without producing any scientific evidence…
The indexes bounced below their respective unchanged lines throughout the session and scored only minor losses, despite horrific economic data points.
Another 2.44 million filed for unemployment last week, which was slightly worse than the 2.4 million expected. That brings the nine-week total now to 38.64 million jobless, which is massively worse, as ZH put it, than the prior worst nine-week period in the past 50+ years.
But, as disgusting as this picture truly is, the markets took it in stride with the S&P only dropping some -0.75%, and I am sure a new rally is being prepared and lurking on the horizon. Given that, it almost seems not even noteworthy that Existing Home Sales collapsed to 9-year lows, while China tensions soared.
Keeping the bullish dream alive was another giant short squeeze, which prevented a thorough thrashing of the indexes, although it was not enough of an effort to assure a green close.
Zero Hege concluded that “whatever the Fed, the market and the politicians are doing…it’s not working for sentiment:”
Today, upbeat quarterly earnings results from Target and Lowe’s set a positive tone and sent the major indexes to 10-week highs. However, as soon as news of a bill to delist Chinese companies from the US exchanges cleared the senate, equities came off their best levels of the day.
The focus remained predominantly on the positives of the reopening plans, which vary widely from state to state, but many are trying to lift restrictions prior to the upcoming long Memorial Day weekend.
Throwing a big assist, as we’ve seen often in the recent past, was another giant short-squeeze right after the opening bell, as Bloomberg shows in this chart. This has been the go-to trade ever since the March lows, and it has been executed perfectly. Also doing some of the heavy lifting were the FANG stocks, which rallied to new highs—again.
The positions of our Trend Tracking Indexes (TTIs) continues to improve, but it will take more of a bullish effort to pull the trigger for a new “Buy” signal. Right now, the S&P 500 (SPY) needs to gain over 2% from current levels, just to get to the point of where our February 27, 2020 “Sell” signal kicked in.
In the meantime, some of our sector ETFs, which run on their own cycles, are showing promising possibilities, and I intend to start nibbling carefully.
While the jury is still out whether we’re experiencing a bear market bounce or have moved into a new bullish cycle, I was surprised to read that two-thirds of fund managers are saying we’re still in a bear market rally.
I agree with that but will change my mind once our Trend Tracking Indexes (TTIs) generate a new “Buy” signal.
Three-quarters of the fund managers expect a U- or W-shaped economic recovery with just 10% anticipating a V-shape rebound:
This pessimism is reflected in their current allocations, where overweight in defensive assets like health care, cash, bonds rules and cyclical assets like energy, equities and foreign investments are underweight, while emerging markets have been shorted.
In a follow up from yesterday’s ridiculous yet market moving story about Moderna’s coronavirus vaccine press release, and the effect of its result on 8 patients, it was concluded that much of it was simply a media blitz with some allegations of stock manipulation.
“Even the figures the company did release don’t mean much on their own, because critical information — effectively the key to interpreting them — was withheld.”
The pushback was fast and furious with Moderna’s stock dumping not only to session lows but also below its offering price of $76/share.
The rest of the market bobbed and weaved for most of the day until the last hour when heavy selling set in and wiped out just about half of yesterday’s gains, as the fallout from the Moderna saga was too much for the bulls to handle.
After Fed head Powell and Treasury Secretary Mnuchin’s grilling by the senate banking committee, it was Boston Fed Reserve President Rosengren, during a CNBC interview, who through some somber thoughts about the possibly “premature” business re-openings due to Americans continue to content psychologically with the Covid-19 pandemic.
With many traders still erroneously expecting a fast and furious V-shape type of economic recovery, these were the wrong words to utter by an official, and downside momentum accelerated into the close, and we ended up at the lows for the day.
The S&P 500 has now formed a triple-top with strong overhead resistance lurking at the 2,950 level. The earnings divergence in the Nasdaq continued, as this chart by Bloomberg shows, and makes me wonder how long this can go on, namely the Nasdaq being just 5% from record highs, while consensus 12 month Fwd EPS is down 11%? (Hat tip to ZH for this data)
However, we’re living in times where anything nonsensible is possible, which is clearly supported by these words from Fed chief Powell that they will do “whatever it takes.”