Fed Head Powell’s Dovish Comments Power The Markets

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Today, only one topic mattered and that was what Fed chief had to say about interest rates. His comment that they are “just below where they won’t stimulate the economy” was enough to get the buying spree going with the major indexes scoring solidly, as the chart above shows.

The Wall Street crowd interpreted this not only as a softening tone (dovish) regarding future rate hikes but also that we may be close to the “neutral” rate, a level where its alleged effect on economic growth would be neither positive nor negative. These words appear to be a turnaround from comments made in October, when Powell opined that the “central bank may go past neutral, but we’re a long way from neutral at this point, probably.”

That indeed appears to be a change of heart, still, Powell did not mention anything about the expected rate hike at their next meeting in December. Some analysts argued that Powell was not as dovish as was interpreted, as he did not mention any expectations for slower growth or weaker inflation.

In the end, the US Dollar dumped on Powell’s apparent flip flop, but caution is warranted, as one analyst noted:

“The markets are overreacting to what Powell said, perhaps partly because some of the newswire headlines don’t quite accurately convey the nuance of what he said…”

With today’s advance, the S&P has now wiped out its huge Thanksgiving week losses, but it’s too early to tell if this is just one big head fake, especially with China’s trade negotiations on deck in a few days. Again, if these turn out to be positive, our Domestic TTI (section 3) may very well be pushed to the bullish side of its trend line getting us back in the market.

  1. ETFs in the Spotlight

In case you missed the announcement and description of this section, you can read it here again.

It features 10 broadly diversified and sector ETFs from my HighVolume list as posted every Saturday. Furthermore, they are screened for the lowest MaxDD% number meaning they have been showing better resistance to temporary sell offs than all others over the past year.

The below table simply demonstrates the magnitude with which some of the ETFs are fluctuating regarding their positions above or below their respective individual trend lines (%M/A). A break below, represented by a negative number, shows weakness, while a break above, represented by a positive percentage, shows strength.

For hundreds of ETF choices, be sure to reference Thursday’s StatSheet.

Year to date, here’s how our original candidates have fared:

Again, the %M/A column above shows the position of the various ETFs in relation to their respective long-term trend lines, while the trailing sell stops are being tracked in the “Off High” column. The “Action” column will signal a “Sell” once the -8% point has been taken out in the “Off High” column. For more volatile sector ETFs, the trigger point is -10%.

  1. Trend Tracking Indexes (TTIs)

Our Trend Tracking Indexes (TTIs) improved with the especially the Domestic one moving closer to its long-term trend line.

Here’s how we closed 11/28/2018:

Domestic TTI: -0.55% below its M/A (last close -2.33%)—Sell signal effective 11/15/2018

International TTI: -3.36% below its M/A (last close -4.79%)—Sell signal effective 10/11/2018

Disclosure: I am obliged to inform you that I, as well as my advisory clients, own some of the ETFs listed in the above table. Furthermore, they do not represent a specific investment recommendation for you, they merely show which ETFs from the universe I track are falling within the guidelines specified.

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