1. Moving the markets

The markets did not show us a rebound this morning, so the Domestic “Sell” signal stands—at least for the time being.

We’re living in such uncertain times, that we can never be sure, nor does anybody know, if this was just one more head fake or the beginning of another devastating down trend, that could take out the March lows.

As a result, we are going the safe route and follow our signals. Some analysts contribute this week’s sell-off to quarter-ending rebalancing, but that is nothing but a guess.

Should the bullish theme prevail via another rally next week, we will pick a new entry point in accordance with our Trend Tracking Index. I believe in this environment of total uncertainty it is better to be safe than sorry, however, we will hang on to our current gold/sector positions subject to their respective trailing sell stops.

An early 200-point Dow drop was recouped with the indexes mainly vacillating around their unchanged lines in a tight range until, during the last 30 minute of the session, a massive Buy program kicked in and ignited a spectacular short-squeeze, which lifted the major indexes solidly in the green.  

Reader Gary suggested that “you can’t fight the Fed plus we are going into election. The market is being controlled by the government so normal movement is gone.”

This is correct, but you also must consider that there are opposing forces that want to make sure at all costs that the incumbent President will not be re-elected. That means we are engaged in a tug-of-war with the outcome being impossible to predict.

I follow our TTI signals, because I don’t mind erring on the side of caution, which is far better than going down with a sinking ship—just because it wasn’t supposed to be sinking.

1. Moving the markets

Yesterday, I was talking about the markets being stuck in a neutral zone regarding our Domestic Trend Tacking Index (TTI) and that more evidence of either bullishness or bearishness would determine our next cause of action.

We got that signal today when the major indexes plunged right after the opening bell with the Dow being down over 800 points at its worst, before recovering to close deep in the red and surrendering some -710 points.  

As the markets slipped early on, I took the opportunity to lighten up even more on our holdings and locking in some profits, while leaving us only with sector exposure and gold.

Here’s how our Domestic TTI has performed recently relative to its long-term trend line:

Increased worries, that continued rising coronavirus cases in many states would at least set back the nascent economic recovery, created such anxiety that all 11 sectors in the S&P index closed lower. Florida and California set records for new cases, while intensive-care unit beds were reported to reach the 97% capacity in Houston.

Not helping matters were news that Apple was re-closing another 7 stores in Texas due to the coronavirus spike.

The headline hit at time when stock uneasiness was “morphing into fright” as Bloomberg put it, after data showed virus cases spiking in Florida and Texas, California reporting a record 7,149 new cases, while New York, Connecticut and New Jersey said visitors would face a mandatory quarantine. The news sent the S&P sliding 2.7%.

“The latest coronavirus news is not positive for the stock market which was betting the worst of the pandemic recession was behind us,” said Chris Rupkey, chief financial economist for MUFG Union Bank. “Hopes of investors looking for a better economy to improve the bottom lines of companies shut down in the recession have been dashed.”

In the end, our Domestic TTI confirmed the weakness it had shown for the past 10 trading days and generated a “Sell” signal for “broadly diversified domestic equity ETFs/Mutual funds.”

This “Sell” signal will be effective with the close of the market tomorrow, June 25^th, unless a strong rebound is in the making, in which case I will postpone the effective date.

Have we now reached the point where stocks finally will catch down to bond’s reality, as ZH/Bloomberg posted in this chart?

1. Moving the markets

Yesterday was one of those moments, while watching the futures markets, when I had to laugh out loud. The major indexes were creeping higher when suddenly the bottom dropped out with the Down plunging over 500 points in minutes.

Turns out that Trump’s trade advisor Navarro responded during a Fox News interview regarding the China trade deal: “It’s over. Yes.” The fallout was imminent, and it appears that Navarro got a tap on the shoulder and hastily walked his comments back as “having been taken wildly out of context” pushing the futures back up.

Thanks to ZH, here’s a graphic representation of the events:

And the summary:

Navarro dump – US-China trade deal “is over”

Trump pump – US-China trade deal “fully intact”

Kudlow pump – “absolutely, definitely” no second lock-down due to virus

Fauci slump – “disturbing surge” in infections

Fauci pump – “promising” vaccine is imminent

The regular session had bullish undertones helped by US New Homes Sales, which soared in May, but the manufacturing and service sectors disappointed, as Labor weakness continued.

While the broad market continues to linger, the main story is all about the tech sector with Apple and Netflix scoring to new highs, as the Nasdaq notched a new intra-day record.

Despite the re-opening efforts with business trying to play catchup, Covid-19 is still on everyone’s mind, as MarketWatch reports:

Dr. Anthony Fauci, the nation’s top infectious disease expert, warned on Tuesday that the “next couple of weeks are going to be critical” in terms of the addressing a “disturbing surge” in COVID-19 cases across the United States, while also vowing to ramp up, not slow down, testing for the virus, in testimony before Congress on the federal response to the pandemic.

Again, broad markets lagged, which also explains why our Domestic TTI has not crossed back above its long-term trend line into bullish territory but lingers slightly below it.

This indicates that we continue to be stuck in the neutral zone, meaning we’re holding on to our positions until more evidence of either bullishness or bearishness emerges, which will then signal our next cause of action: Buy more or Sell all.  

1. Moving the markets

An early choppy ride turned out better than expected, as the bullish theme increased momentum and pushed the major indexes to a green close, with especially the Nasdaq showing a solid gain and scoring a new all-time high.

The Dow added a more modest +0.59% but was able to recapture its 26k milestone marker.

The advance was a mixed bag, however, with relentless optimism over a quick recovery for the economy colliding with an increase of Covid-19 infections in about half of the states and in many other parts of the world. This may turn into an ongoing tug-of-war, but at least for today, dreams of a fast recovery prevailed.

As we know, the actual referee deciding this revival will be the Fed and its supporting policies which, however, are limited in scope as financial author Charles Hugh Smith pointed out:

1. It can’t reverse the unprecedented wealth inequality its policies have pushed to the point of social disintegration and breakdown.

2. It can’t make people take on the risks and heartaches of starting new businesses.

3. It can’t force employers to hire more employees.

4. It can’t make unprofitable businesses profitable.

5. It can’t force people to buy assets at prices that no longer make financial sense.

6. It can’t make insolvent businesses and local governments solvent.

7. It can’t force people who now realize their priority is to save money to spend their cash, even if the Fed forces negative interest rates.

8. It can’t lower the unaffordable cost structure of the entire economy.

9. It can’t de-link all the financial dependencies in the financial system that make it so vulnerable to the first domino falling.

10. It can’t stop people from selling their assets.

After the opening last Friday, we saw a different type of decoupling, as ZH points to in this chart from Bloomberg in that Gold and stocks seem to have gone separate ways.

We’ll have to wait and see if this is just an outlier or a realization that reckless money printing will assist the precious metal, the price of which is now within striking distance of taking out Mays’ multiyear highs.