Triple Punch Knocks Down Major Market ETFs – International Sell Signal Generated

Ulli Market Commentary 2 Comments

The day started out to the downside, as a triple punch took the starch right out of yesterday’s rebound rally, which at this point looks like a dead cat bounce.

Industrial production barely grew in May, manufacturing in the New York region unexpectedly fell and consumer prices rose 0.2%, which was slightly ahead of expectations.

Add to that a falling home builders housing market index and a downwardly revised number for capacity utilization, and you are finally seeing the emperor without clothes, i.e. real data of an economy without stimulus.

The Greek debt saga shifted into overdrive pushing the euro to its lowest level in a month against the dollar. The EU is deadlocked on a second rescue package for Greek, and it appears at this time that a default in the near future has become a distinct possibility.

In regards to our trailing sell stops, energy (VDE), which was on the trigger list prior to yesterday’s rally, has now dropped into sell territory again and will be liquidated tomorrow, unless we again see a substantial rebound.

As I wrote in Friday’s commentary, the International TTI (Trend Tracking Index) had slipped below its long-term trend line, but barely, causing me to hold off another few days to make certain that this break would hold.

Well it did hold and got worse with today’s sell off. Here’s how both of our TTI’s are situated (in regards to their long-term trend lines) after today’s close:

Domestic TTI: +1.94%

International TTI: -1.46%

This drop below the line means that, effective tomorrow, the international TTI has moved into bear market territory and a sell signal has been generated.

To be clear, the international TTI covers only “broadly diversified international funds/ETFs.” It does not include country funds/ETFs, which need to be tracked based on their own respective sell stops and/or trend line breaks.

Domestically, we are still in bullish territory but are not adding any new positions due to the proximity of the price line to the trend line. The Total Stock Market Index (VTI) has come off its high by -7.21% and will be sold unless a rally materializes.

Technically speaking, the S&P 500 violated some major support at the 1,272 level and is in danger of breaking its widely followed 200-day moving average. Currently, it rests above that level by only +0.20%.

International markets are more volatile than domestic ones and tend to take the lead on market advances as well as declines. While we’re still above the trend line domestically, there is a good chance that, given the current state of economic and global affairs, the Domestic TTI will succumb to bearish forces as well. Watch your sell stops and implement them when necessary!

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Comments 2

  1. Ulli
    I see that you gave the International TTI some wiggle room below the trend line before you issued a sell. Do you use a 1% drop or a 3 days below or a combination of time and percentage?
    Thanks for what you do
    Robert Rich

  2. Yes Robert, you are correct. In order to avoid an imediate whip-saw signal, I use a 1% band aroud the trend line. I want to see the TTI move and close about 1% below the line before issuing the sell signal. I use the same approach on an upside breakout. It’s important to note, however, that by the time the International TTI signal a sell, most holdings in that arena had alrady triggered their respective trailing sell stops and were liqidated.

    Ulli…

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