- Moving the markets
With the benefit of hindsight, yesterday’s hope-based snap-back rally has now assumed the smell of a dead-cat bounce, with the major indexes getting hammered, as the Dow touched the commonly recognized bear market territory, which is a 20% drop from recent highs.
A few headlines combined to eradicate any remaining bullish sentiment:
- Core CPI jumps the highest in 12 years with services costs soaring
- The WHO finally declares the coronavirus a Pandemic
- Mnuchin says that broad economic response will have to wait
Globally, the urge to “do something” accelerated with the Bank of England delivering an emergency 0.25% interest rate cut while pledging more fiscal stimulus. Germany’s Merkel promised to do “whatever is necessary,” while at the same time the ECB President warned of an economic shock like the 2008 financial crisis.
Sure, markets are pricing in an easing of Central Banks, but the question remains how much firepower is really left, after having been in easing mode for the past 10 years.
In the meantime, the non-reported crisis in the overnight repo lending market continues unabated with the Fed having to increase the liquidity bailout to a stunning $175 billion per day, and the market still keeps collapsing (hat tip to ZH/Bloomberg for this data). Something is seriously broken, which the Financial Conditions Index clearly shows.
With the Fed summit next week, the implied rate-change for the March FOMC meeting is about 82 basis point, as Bloomberg’s chart demonstrates. That means interest rates are heading to the zero level.
And here’s something I have been commenting on over the years, namely that during times of extreme market stress, such as we are witnessing right now, the bond portion in a portfolio will not be able to “save” the equity portion.
Bloomberg’s chart shows that the weekly stock and bond combined return was the worst in 11 years (-7.80%), or more specifically since Leman went bankrupt. That supports my belief that only 100% cash on the sidelines will prevent serious portfolio damage.
2. ETFs in the Spotlight
In case you missed the announcement and description of this section, you can 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.
For this past domestic “Buy” cycle, which ended on 2/27/2020, here’s how some our candidates have fared:
Click image to enlarge
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%.
3. Trend Tracking Indexes (TTIs)
Our TTIs plunged with the markets leaving no doubt that we are deeply entrenched on the bearish side of the trend line.
Here’s how we closed 03/11/2020:
Domestic TTI: -15.25% below its M/A (prior close -10.41%)—Sell signal effective 02/27/2020
International TTI: -15.18% below its M/A (prior close -12.61%)—Sell signal effective 02/26/2020
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 specified guidelines.
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