Earnings Misses Sour Market Mood

Ulli Market Commentary Leave a Comment

[Chart courtesy of MarketWatch.com]
  1. Moving the markets

We started the day in the red after China set the sour mood by reporting another month of declining industrial profits. Things got worse when Caterpillar (CAT), an economic bellwether conglomerate, missed earnings by a huge margin, its worst performance in 10 years, causing its stock price to decline by -9.13%; a dead CAT bounce did not materialize.

Then it was Nvidia’s turn to support the bearish momentum after slashing guidance and fourth quarter revenue. Despite blaming China and worsening global economic conditions, the punishment was instant with the stock losing some -14%, which affected the Nasdaq more than the other 2 major indexes.

So, it’s no surprise that nervousness among traders prevailed. Not helping matters are an upcoming 2-day Fed meeting, a barrage of delayed economic data (due to the shutdown) and a huge week for earnings with 126 S&P 500 companies set to release their quarterly report cards. Keep in mind that earnings expectations are at 6-month lows…

All 3 events have the potential power to wreak havoc with the markets, and it is totally uncertain whether the bulls or the bears will come out ahead at Friday’s close. That makes it a more comfortable week for us trend followers by being on the sidelines, as our Trend Tracking Indexes (TTIs) still remain in bear market territory.

  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 from the last cycle 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) headed south and slipped deeper into bear market territory.

Here’s how we closed 01/28/2019:

Domestic TTI: -2.24% below its M/A (last close -1.86%)—Sell signal effective 11/15/2018

International TTI: -2.68% below its M/A (last close -2.00%)—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.

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