Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 01/17/2019

ETF Data updated through Thursday, January 17, 2019

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: 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 -3.42% after having generated a new Domestic “Sell” signal effective 11/15/18 as posted.

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Following The Rumor

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

If markets appear stuck and non-directional, simply start a bullish rumor to get things moving again. Such was the case today when the major indexes, after hovering tightly around their unchanged lines for most of the session (weak bank earnings), took off and headed higher.

The support came from a report alleging that the Trump administration was debating whether to “ease tariffs on Chinese imports” in order to ease tensions and calm markets in view of the ongoing partial government shutdown. The result was an instant spike in the major indexes (see chart above), which was faded as the rumor was denied, but the “rumor” idea worked, and we closed in the green.

The other highly anticipated news item was Netflix’s after hour earnings report. Leading up to it, the stock was pushed higher in part of yesterday’s announcement of an increase in subscription rates. After publishing their report card, the stock sank some 3% (as of this writing) due to the revenue missing expectations. It remains to be seen if there are any negative consequences for the Nasdaq tomorrow.

Bond yields popped and advanced with the 10-year making new highs for 2019. That came as a surprise, as there was no news supporting such a move. While we only reached the 2.75% level, any further moves towards 3% is bound to take some steam out of current bullishness. Is that why some analysts seem to think that we are due for a market correction starting next week?

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Getting to Know The Real Market Catalyst

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The Dow was leading today’s modest advance after having been the laggard yesterday. Some positive earnings from financial powerhouses Goldman Sachs and BofA gave the assist, while uncertainty over the partial government shut down was on traders’ minds but did not affect market direction.

You may be wondering what the real catalyst was that generated and propelled the post-Christmas rally other than President Trump declaring to “buy the dip.” Despite weak economic data points and the Smart Money exiting stocks, we’ve seen sharp swings higher helping the buy-and-hold crowd to reduce the Q4 2018 losses.

ZH shed some light on this phenomenon via their comment “it’s not the economy, it’s the central banks, stupid,” and added this for clarification:

Q4 2018 saw global stock markets finally wake up to the fact that the world’s central banks were withdrawing liquidity and played catch-down to an ugly tightening reality. December’s contagion to American stocks was the final straw for the world’s elites however  and after the Mnuchin Massacre, it appears the Plunge Protection was ordered back into battle and as the chart below shows – central bank balance sheets suddenly started to grow – aggressively so… and that is what is dragging stocks higher, squeezing shorts at an unprecedented pace, and economically irrationally levitating P/Es despite a wall of uncertainty ahead.

This chart makes the above abundantly clear. As you can see in the circle on the right, Central Banks’ (CBs) balance sheets suddenly grew sharply (asset purchases) pulling global stocks out of the doldrums. The exact opposite happened when balance sheets were normalized, demonstrated by the drop starting in late September.

Just like in 2018, 2017, and 2016, the start of the year has prompted a resurgence in the size of global central bank balance sheets… and just like in 2018, 2017, and 2016, global stocks (with US being the most liquid attractor of that flow) are soaring

And just remember, The ECB is supposed to be tapering, The Fed is still on ‘autopilot’ for now, and The BoJ is being forced to taper its buying size…

And finalizing with:

So, the simple lesson once again is – watch what they do, not what they say!!

While this is only one man’s opinion, it sure explains the irrational exuberance created in the marketplace out of nowhere and with lightening speed.

For us trend trackers the only question is this one: Manipulation or not, will this rebound have enough staying power to push our Trend Tracking Indexes (TTIs) back into “Buy” mode?

As always, no one has the answer, so we’ll to wait for this event to happen. As of today, our Domestic TTI is -4.32% away from a new “Buy” signal.

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Netflix Boosts The Markets

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Netflix was the major driver to get things started in the bullish direction and kept things alive throughout the session, despite earnings growth estimates having fallen recently to less than half the average growth for the first three quarters.

However, that did not matter, what was most important was that Netflix’s price hike prompted buying throughout the session with the Nasdaq benefiting the most. The fly in the ointment was Senator Grassley’s remark that there was “little progress” in the China talks as well as the “failed” Brexit amendment vote.

Even JP Morgan’s earnings disappointment did nothing to stop the computer algos from ramping things higher. In graphic form, you can see the effect on the markets here. So far, early announcements about future guidance was ignored, as first Apple, then Delta, Barnes & Noble, Macy’s, American Airlines, Alibaba and now Goodyear Tire have all slashed their outlook.

As more guidance cuts, like the above ones, make companies tell the truth about economic reality, Morgan Stanley may be right with their proclamation that we will soon see an earnings recession rather than an earnings season.

Hmm, makes me wonder if the computer algos are programmed to deal with that scenario.

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Global Growth Fears Keep Bullish Tendencies In Check

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

An early sharp drop gave way to a bounce throughout the session, but conviction was lacking in the face of ugly China trade data, and by association, more concerns again over a general global slowdown.

Adding to the uncertainty was the beginning of earnings season, which many analysts view with some skepticism after a mixed Q4 2018, during which the S&P 500 got clobbered at the rate of -14%. Citi Bank started things out, was bashed at first due to disappointing revenues, but recovered and rallied.

Still, much of today’s early damage was wiped out when Trump threw an assist by proclaiming “very good China talks,” which has been a reliable standby for months to prop up the markets. They did rally, but not in convincing fashion as the major indexes still ended up with losses for the day.

In regard to earnings, forward expectations are disconnected from the S&P 500, as this chart (thanks to ZH) shows. That leaves the question wide open as to which direction the eventual “connect” will occur, which in turn will then give some clue as to who will dominate soon: Will it be the bulls of the bears?

We should find out within the next few weeks.

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ETFs On The Cutline – Updated Through 01/11/2019

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 60 (last week 53) 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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