ETFs On The Cutline – Updated Through 11/16/2018

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 366 High Volume ETFs, defined as those with an average daily volume of more than $5 million, of which currently 56 (last week 81) 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 November 16, 2018

ETF Tracker StatSheet

https://www.theetfbully.com/2018/11/weekly-statsheet-for-the-etf-tracker-newsletter-updated-through-11-15-2018/

A Down Week Ends On A Positive Note

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The major indexes see-sawed throughout the session swinging above and below their respective unchanged lines but closing in the green in the end. The exception being the Nasdaq, which ended up slightly in the red but much improved from earlier levels. The cause was yesterday’s terrible earnings and poor guidance report by chip firms like Nvidia that dragged down the entire tech sector. More amazing is the fact how a stock from being up 50% YTD, can collapse to down -15% in a matter of a few weeks.

Helping upside momentum were dovish comments by the Fed’s Clarida, followed by remarks from Trump that he may not impose more tariffs on China and viewed “a list of things that China is willing to do” as positive step. This chart shows the impact these announcements had on market direction.

Lower yields helped bond investors, as the 10-year yield settled down 4 basis points to 3.07%, which is quite a drop from the 3.24% we saw not too long ago. The chart looks like we are in a topping pattern, which could indicate even lower yields ahead.

Regarding our Trend Tracking Indexes (TTIs), we are lurking on the sidelines waiting for a bullish signal (see section 3), also known as the year-end rally. However, if you look at the credit market index, it appears that the bears look to have the upper hand.

As always, there are many contradicting indicators, which is why I think it’s best not to get involved, unless the major trend resumes its bullish path.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 11/15/2018

ETF Data updated through Thursday, November 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 trend-line 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: SELL — since 11/15/2018

 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 -1.35% after having generated a new Domestic “Sell” signal effective 11/15/18 as posted.

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A Drop And Pop Kind Of Session

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Equities headed south in early trading, which was the validation confirming yesterday’s “Sell” signal for “broadly diversified domestic equity ETFs.” The markets dumped at first then see-sawed higher in what can be considered a drop, pop, drop and pop kind of session, during which all 3 major indexes ended in the green for a change ending a skid of 5 consecutive losing days for the S&P 500.

Our main directional indicator, the Domestic TTI, recovered a bit but remains stuck on the bearish side of its trend line. This will keep us on the sidelines until the TTI breaks back above it and shows some staying power at the same time. With the current wild swings in the market, and a projected year-end rally, we may find ourselves back in sooner rather than later.

Today’s roller-coaster was all about the latest version of the trade headlines. First, there was news of a trade truce causing a market bounce, then a drop, as the trade truce was denied, followed by a rally on news that next batch of tariffs have been shelved for the time being.

This back and forth surrounding one event make it questionable whether this late rebound will have legs or falter again, as we’ve seen in the recent past. Additionally, there is ongoing tightness of financial conditions which, if not resolved, may have a negative effect on equities, if this chart forecast is correct.

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A Hopeful Opening Bounce Dies

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

For a while it looked like the opening bounce had some starch in it, but that hope dissipated in the hurry, when a mid-day dive gave the bears the upper hand and south went with the Dow being down -250 points at one time.

A late afternoon levitation gave the bulls some hope that we might conquer the various unchanged lines again, when suddenly the sell-off resumed, and the major indexes dove into the close but off their lows for the session.

A host of worries occupied Wall Street traders. The latest Brexit developments appear to have a live of their own and are not giving anybody the warm fuzzies. Powerhouse Germany, the economic engine of Europe, started to sputter by seeing its own economy contracting -0.2% in Q3, its worst GDP print in 3 years, as car production collapsed.

China’s numbers are showing a mixed picture with retail sales slowing but industrial output and investment ticking higher. Domestically, consumer prices rose as expected, even though the increase of 0.3% was the fastest rate since the start of 2018. The good thing is that gasoline contributed to much of that, so we can expect that to reverse in view of collapsing oil prices.

With the markets, and our Trend Tracking Indexes (TTIs) as well, having wavered in and out of bullish territory, one trader summed up the current environment perfectly by noting that “we’re now in a deer in the headlights environment,” as every move looks to be tentative and unconvincing.

In the end, today’s move pushed our Domestic TTI to -2.18%. Despite having been patient only partially invested in a low volatility ETF, we have now reached a point below the trend line that warrants a move out of the market and onto the sidelines. Unless, a bullish move is happening tomorrow, I declare this domestic “Buy” signal to be over effective 11/15/18.

However, in this current market environment nothing surprises me. It could very well be possible for the markets to turn around again and generate a new “Buy,” which would let us participate in the much-anticipated year-end rally, in case it materializes.

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Treading Water; Oil Gets Bashed

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Despite several attempts to pull the major markets out of yesterday’s hole, the efforts failed with the Dow and S&P 500 sinking moderately while the Nasdaq ended the session unchanged. Not helping matters was the fact that oil prices tumbled -8.11% and ended up barely hanging on to the 55-handle after having now fallen for a record 12th day. Ouch!

The reason is not that far fetched in that I believe this trend is a sign of a sluggish or even reversing global expansion. We’ll have to watch and see if this turns out to be a canary in the coalmine as far as the future direction of equities is concerned.

The initial market levitation was helped by news that China’s top trade negotiator is set to meet Mnuchin in Washington later this month to work on resolving the trade dispute. That headline was later questioned due to lack of information about concrete steps which, as we’ve seen many times before, resulted in the markets losing their early upward momentum and south we went, while dip buyers were still conspicuously absent.

Stock specific news did nothing to encourage any bullish behavior. While GE’s stock finally bounced back, its bonds did not and moved into junk territory. Heavyweight Apple slipped back below its 200-day M/A and gave back 1% on the day. The FANGs had an early bounce but closed unchanged.

In the end, it was a day that offered no clue whatsoever as to future market direction. We remain on standby with our next potential domestic “Sell” signal and will act once we get a better clue as to where things are headed next.

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