In the same manner as I did with the prior post about indexes, I wanted to offer some reflections on what I think recent ETF action might mean for markets in general. Below are seven major ETFs, in alphabetical order of their symbols.
The first, based on the Dow Industrials, has had an interesting failed bullish breakout. A few weeks ago, it looked like the Dow was going to finally smother the bears to death, once and for all. What has happened instead is that, twice, the bulls have tried to launch this thing, and it failed spectacularly on Thursday and Friday. In spite of all the trillions of dollars that pig Yellen has provided, the bulls have apparently run out of gas.
Broadly, the worldwide equity markets have persistently stayed beneath their failed long-term trendline. The unhinged price ascent of the first half of 2023 push prices back into the same price range as the major top, but, for months now, the EFA has largely been marking time, thrusting into nominally higher highs and yet not showing the kind of momentum that was so evident about half a year ago.
Although it isn’t directly related to regular equities per se, the miners fund is indicative of general asset strength, since most assets tend to move more or less the same direction. Precious metals lost their mojo earlier than other equities, and the failure of this intermediate trendline is quite telling.
Although EFA and IEFA have similar compositions, it is worthwhile to observe the nuanced differences. The bearish argument is quite strong with this view of worldwide equities, since the face-off between the opposing forces has resolved in favor of the bears, and price action has sunk back within the bowels of the bullish tinted zone.
Perhaps the most potent sign that the bears’ fortunes may be turning is by way of interest-sensitive items. Municipal bonds, corporate bonds, and, as below, high-yield “junk” bonds are breaking important support lines.
The boys down in Gainesville have a line I like – – corporate bonds are just equities in drag – – and it’s common market knowledge that bonds figure out reality before stocks do. Thus, the diminishment of corporate bonds is yet another signal that the drug-induced lunacy of stock prices may be, let’s say, wrong-headed.
Lastly, we have the good old S&P 500 fund. The Fibonacci level was cleanly rejected today, and even if bulls maintain their outlandish grip on the market for the rest of the year, we sill have a real chance at getting the SPY back down to $421.
