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Friday, March 29, 2024

ETF Periscope: On the Verge or on the Edge?

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On the Verge or on the Edge?

by Daniel Sckolnik of ETF Periscope

“Experience: that most brutal of teachers. But you learn, my God do you learn.” ~ C.S. Lewis

The strange beauty of the markets is that every trade has to have someone on the other side. For every “glass half-full” proponent there is, by necessity, at least a single “glass half-empty” advocate. Interpreting market data, both fundamental and technical, really is, to paraphrase Shakespeare, “in the eye of the beholder.”  So while the past week’s market action appears to be an obvious confirmation of those who stand on the side of the Bull encampment, a closer inspection is certainly warranted. Lurking Bears are always to be found close by, ready to pounce, or perhaps more accurately, to lunge.

The Dow Jones Industrial Average (DJIA) ended the week up 1.4%, at 10,607, winning 4 out of 5 sessions this past week.  That makes it 10 out of 12 sessions to the upside for the month of September to date. Impressive stuff. Likewise, the benchmark S&P Index (SPX) had a similar weekly gain, ending on Friday slightly higher at 1,125, also up 10 out of 12 for the month so far. The Nasdaq Composite Index (COMP) is in the midst of an equally strong run, on something of a mini-tear of eight consecutive winning sessions, its best streak of the year. The Nasdaq finished the week at 2,315, giving it a 3.3% gain on the week. Awesome action.

Gold hit an all-time high this week as well, with the December contract finishing at $1,277 an ounce on the New York Mercantile Exchange (NYME). That puts gold up for the week at 2.5%, adding to its upside streak of four out of five past week’s winners. As noted here previously, an uptrend in gold has historically indicated a descent in the equity markets, but that negative correlation just doesn’t seem to be holding water right now. And silver? In some ways it’s accomplishing the stunning task of shining brighter than gold, at least momentarily. The December contract ended Friday at $20.82, the highest point it’s been in 30 years.

Maybe the glass is actually more than half-full. The Dow sits comfortably above both its 50-day and 200-day moving averages. It continues to move north of trend lines drawn from late April’s highs. Technically speaking, the S&P 500 pretty much mirrors the Dow’s position in regard to its current chart. The markets seem to shrug off most of the current version of bad news, such as the release on Friday of Reuters/UMich’s consumer sentiment survey. The index revealed that sentiment fell to 66.6 in mid-September, an ominous number in so many ways, including the fact that it found itself at the lowest levels since August of 2009. It was several points below the expectations of the polled economists. Still, the markets soldiered on into positive territory.

So is this a market on the verge of a serious lift-off? Or is this just another variation of a bait-and-switch play that goes down as often in the markets as in a used car lot?

Though getting a consensus out of a gang of economists is akin to herding cats, there does seem to be general agreement that double-digit unemployment levels are unsustainable if any true national recovery is to occur. There doesn’t seem to be a whole lot of positive movement in that direction, and confirmation to the downside could possibly serve as a rude reminder that corporate profits are not translating to Main Street in any meaningful way. Thursday’s jobless claims report shall be closely watched by a wide swath of investors, for exactly this reason.

Another indication of the deeper degree of poor economic health was the announcement at week’s end that the 125th U.S. bank failure has occurred already for the year. The latest victim to fall was Maritime Savings Bank out of Wisconsin. More undoubtedly will follow, the only question is how many and how fast. So far, the numbers have been “acceptable,” if in fact bank failures can ever be considered such.

The government report on housing sales will be released on Thursday, and has the potential to give the markets a hardy push in either direction. So far this month, the mix of news and government reports has been within the realm of expectation, a positive thing for sure, as the unexpected is fear inducing. But a few pieces of bad news laced together could snowball fast and furiously, gaining speed on a downward trajectory.

And finally, speaking of fear, a point worth considering is the chart of the VIX, the S&P Volatility Index, that’s almost always referred to as the “fear index.” Right now, it sits at 22, a strong level of support for a good part of the year. However, upon a close review, that level could be interpreted as a “blast-off” point to higher levels, and higher levels for the VIX means downward trends for the equity markets. So don’t be too surprised if you notice that the markets are on the edge, and be prepared to pull back, or at least have a parachute with a fast-release ripcord in hand.

ETF Periscope

Full disclosure:  The author does not personally hold any of the ETFs mentioned in this week’s “What the Periscope Sees.”

Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.

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