Comeback Wednesday

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

With the effects of the coronavirus on everyone’s mind, China felt obliged to assure the world that it will take measures to help virus-stricken businesses by identifying weak links in supply chains. That was enough to get a rebound started with the S&P 500 and Nasdaq promptly scoring new intra-day all-time highs.

At the same time, the Chinese claimed that the rate of new cases has allegedly started to slow down creating optimism that the much-feared trade and travel disruptions may not be as bad as assumed, but the WHO still has recommended caution.

Helping the rebound was the release of the Fed’s minutes indicating that officials think that the economy appeared stronger in late January than had been expected. As a result, interest rates were kept unchanged, although concerns were voiced about the threat of the coronavirus, not just in China but globally as well.

Looking at the big picture, domestic equities have kept their bullish trend intact this month, on one hand helped by positive earnings reports while, on the other, being neutralized a tad as global growth has slowed due to the effects of the virus, the full impact of which is still to be felt.

However, right now, the bullish theme continues unabated.

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Apple Rattles Wall Street

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Powerhouse Apple Inc. pulled the plug on Wall Street this morning, after announcing that its second quarter results may be impacted by the virus outbreak in China.

This in turn stoked fears again that any potential interruptions of supply chains will have far-reaching consequences not just for worldwide economies but also the financial markets.

Apple clearly stated that its monetary guidance for the second quarter will not be met, because its suppliers’ manufacturing has been affected, but discussions with health experts and suppliers continue full force.

Sure, Wall Street expected some of these announcements, but the magnitude of it came as a surprise. However, financial markets don’t like surprises, hence the sell-off today. In other words, the always optimistic traders, who had shaken off concerns about the disease, are now facing a dose of reality.

While the mid-day recovery pulled the indexes off their worst levels, only the Nasdaq managed to gather enough steam to close in the green.

Still, it’s amazing when the world’s largest company, Apple, issues a warning on a holiday about the unknown fallout from the coronavirus, and the markets barely seem to notice, as the mid-session drop caused dip buyers to step in to “save” the bullish theme.

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ETFs On The Cutline – Updated Through 02/14/2020

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 279 (last week 271) 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 14, 2020

ETF Tracker StatSheet          

You can view the latest version here.

STUMBLING INTO THE WEEKEND

[Chart courtesy of MarketWatch.com]

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Despite predominantly trading sideways over the past 2 days, the major indexes managed to eke out a gain for the week with the S&P 500 adding +1.6%.

Uncertainty about the coronavirus, especially the reporting accuracy, left many wondering what the true status might be, after China changed the government’s counting method.  

Rabobank summed it up like this:

Not so pleasing is that there is genuine confusion on how many people are being tested; how they are being tested; how they are being classified; and how many people are actually dead. This kind of confusion is something markets have learned to live with over a little matter like Chinese GDP; it’s not so easy when it comes to something you live or die with, like a virus.

Surprisingly, so far, the markets have taken this uncertainty with a grain of salt without a substantial pullback, while the three benchmarks touched all-time highs earlier in the week.

From the economic calendar, we learned that retail sales rose 0.3% last month, import prices climbed 0.2% and industrial production headed south again by declining the fourth time in five months. Neither of these numbers had any measurable market effect.

In the end, the indexes closed the week with a last hour pump assuring a green close for at least the S&P 500 and the Nasdaq, both of which closed at all-time new highs. Of course, we have learned not to look at underlying fundamentals, such as this chart by Bloomberg shows, which paints a different picture in terms of what market direction should be.

We continue to follow the major trends which, despite the ever-present coronavirus scare, continue to plow deeper into bullish territory.  

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 02/13/2020

ETF Data updated through Thursday, February 13, 2020

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.

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 Terms and new subscriber information in section 9.     

1. DOMESTIC EQUITY ETFs: BUY — since 02/13/2019

Click on chart to enlarge

Our main directional indicator, the Domestic Trend Tracking Index (TTI-green line in the above chart) is now positioned above its long-term trend line (red) by +8.80% after having generated a new Domestic “Buy” signal effective 2/13/19 as posted.

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Hovering In Record Territory

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The major indexes gapped higher at the opening and raced into record territory supported by news that the number of new coronaviruses has slowed down. We all know that the accuracy of those numbers coming out of China remains questionable at best, market reaction, while positive, can also be premature.

While the last few weeks have been devastating, as the number of new cases and the death tolls have accelerated, you would not know it by looking at recent market performance, where it seems that FOMO (Fear Of Missing Out) remains one of the drivers that keeps pushing prices higher.

This continued levitation has occurred despite a slowdown in global liquidity, as this chart demonstrates. It also shows that, if history any guide and liquidity does not pick up, a correction may be in the cards. In the end, however, the unshakable belief that the central banks will come to the rescue with their liquidity spigot wide open, may keep any pullback modest in nature.

Comparisons to the past may have no bearing on the future, but at least it’s interesting to observe if history, as shown in this chart by Bloomberg, will repeat itself.

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