Edging Higher; S&P Reclaims The 3,000 Level

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The markets edged higher to start the week with Boeing being a drag on the Dow capping the gains by some 100 points. The S&P 500 managed to finally hold above its 3,000 level but is now homing in on overhead resistance lurking at around 3,020. Then index also has failed to close the breakaway gap (blue circle), which means a retracement will be in order at some time.

However, for right now, the computer algos are chasing headline news and front running any suggestions that Beijing and China have successfully laid the groundwork to solidify a solution to the long-running trade disagreement.

Assisting the bullish theme was another short-squeeze, which helped the indexes to stay in the green and kept the mood upbeat.

In the meantime, the Brexit saga continues full force with UK’s PM Johnson experiencing a setback, which traders liked, since some are of the opinion that a Brexit without a trade agreement could disrupt global markets even further.

On the earnings front, we learned that 75 of the S&P 500 companies have reported with 82.7% showing better-than-expected results. Of course, the bar has been lowered considerably, but when it comes to headlines, a “beat is a beat.” This weak, we have 130 more candidates presenting their report cards, and we will have to see if the above numbers hold up.

On a personal note, I’d like to thank all of you who have emailed and wished me a speedy recovery from my eye surgery last Friday night. It was successful, and I thank you for your kind words.

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ETFs On The Cutline – Updated Through 10/18/2019

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 250 (last week 224) 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 October 18, 2019

ETF Tracker StatSheet          

You can view the latest version here.

GLOBAL GROWTH FEARS STOP BULLISH MOMENTUM

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

This is an early and short version of Friday’s commentary, since I will be tied up this afternoon. The markets are still open and will be for another 3.5 hours.

We saw early weakness in part caused by China’s worst GDP growth in 30 years registering 6%. As a result, stocks worldwide pulled back modestly but appear on track to close out the week on the plus side.

Not helping matters was ECB’s Mario Draghi, who will leave office later this month, but couldn’t help himself to issue a warning that he sees “mild signs of over-stretched valuations in markets,” contributing to the early softness in stocks.

Despite relatively upbeat earnings so far, it seems that a fresh stimulus for equities is needed considering slowing Chinese activity and the ever-changing stories about the upcoming Brexit and the US-China trade saga. After all, for the S&P to break through its overhead glass ceiling, I believe it will take more than your hyped news headlines to bring about a push of this bullish trend to new all-time highs.

On a personal note, and the reason for this early release commentary is this. I saw my ophthalmologist a couple of days ago, and he performed an office procedure to fix a partially detached retina. At this time, it appears that it was not successful, and I will have to undergo surgery tonight. The final call will me made this afternoon. I expect to resume posting on Monday again.

Please note that section 2 and 3 below contain yesterday’s data, and I hope to make the update sometime this weekend.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 10/17/2019

ETF Data updated through Thursday, October 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.

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 +3.17% after having generated a new Domestic “Buy” signal effective 2/13/19 as posted.

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S&P 500 Struggles With The 3,000 Level—Brexit Deal Looms

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The major indexes edged higher early on, as the S&P500 fought hard to reclaim its 3,000-milestone marker. The index fluctuated all day slightly around that level but ended up slightly below it.

Helping the bullish enthusiasm were news of a potential Brexit deal, which turned out to be more of a rumor than a fact. Keep in mind that any new agreement still would need to be ratified by the British PM and the U.K. Parliament.

Economically speaking, the news provided a continued mixed picture, as Soft Survey data have completely decoupled from stock market levels, while the US Macro Surprise Index did an about face, causing ZH to quip “use it or lose it.”

Industrial Production hit the skids and, on a YoY basis, shrunk for the first time since Trump’s election in November of 2016.

As I pointed out before, the US is not an island and, unless there is progress in global trade disputes, domestic econ data will hit the skids even more, which eventually will affect the direction of equities. Same trade disputes may impinge on earnings as well, just as last month, when bellwether FedEx cut its profit outlook in part due to trade and economic circumstances.

Given that, it’s almost a certainty that not only the Fed, but also other Central Banks (CBs) as well, will endorse more rate cuts in coming months to combat economic weakness. And that is exactly the fly in the ointment: Rates are already so low that CBs don’t have much room to act and put a bottom under equities. That means, eventually, bad economic news will be bad news for stocks.

From a technical point of view, a breakout above the September highs and then above the July all-time highs could, against all fundamental odds, bring a resumption of the bull market back into play. These days, anything is possible, meaning that we need to be prepared to deal with the unexpected.  

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No Market Commentary

Due to a variety of obligations, I will not be able to write today’s commentary. Regular posting will resume tomorrow.

Ulli…

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