ETF Tracker Newsletter For September 27, 2019

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ETF Tracker StatSheet          

You can view the latest version here.

SLUMPING INTO THE WEEKEND

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

An early 100-point gain on the Dow evaporated in a hurry and turned into a 150-point loss at one point, after a report that the White House had thrown down the gauntlet by contemplating delisting Chinese stocks from US Exchanges.

Of course, such a crackdown on capital flows does not bode well for softening the intensity of the tariff battle being waged. This news comes in the face of the warring parties having set an Oct. 10-11 date to meet to resolve their trade differences. I don’t see how this ratcheting up of tensions will be of any value but, it could be simply a negotiation ploy. In the end, the odds of a China deal slipped this week.

Economic data points were mixed with consumer spending growth showing disappointing estimates, while orders for durable goods rose 0.2% in August vs. expectations of a 0.7% decline. But the consumer sentiment was revised upwards in September from 92 to 93.2, however, the index remains on a downward trajectory.

On the week, equities fell with Small Caps leading the drop and having its worst week since May 2019. As ZH pointed out, all the major indexes tested or broke below key technical levels: The Nasdaq below 50 and 100 DMA; Russell 2000 below 200 DMA; S&P testing 50 DMA.

10-year yields attempted several times to break out above the 1.70% level, but the efforts were rebuffed, and we closed the week around the 1.68% area.  

This was the second losing week in a row for the S&P 500, but it’s still hanging on to a gain for the month. For sure, it looks like a very positive trade headline is needed next week to get the bulls going again.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 09/26/2019

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, September 26, 2019

Methodology/Use of this StatSheet:

1. From the universe of over 1,800 ETFs, I have selected only those with a trading volume of over $5 million per day (HV ETFs), so that liquidity and a small bid/ask spread are assured.

2. Trend Tracking Indexes (TTIs)

Buy or Sell decisions for Domestic and International ETFs (section 1 and 2), are made based on the respective TTI and its position either above or below its long-term M/A (Moving Average). A crossing of the trend line from below accompanied by some staying power above constitutes a “Buy” signal. Conversely, a clear break below the line constitutes a “Sell” signal. Additionally, I use a 7.5% trailing stop loss on all positions in these categories to control downside risk.

3. All other investment arenas do not have a TTI and should be traded based on  the position of the individual ETF relative to its own respective trend line (%M/A). That’s why those signals are referred to as a “Selective Buy.” In other words, if an ETF crosses its own trendline to the upside, a “Buy” signal is generated. Since these areas tend to be more volatile, I recommend a wider trailing sell stop of 7.5% -10% depending on your risk tolerance.

If you are unfamiliar with some of the terminology, please see Glossary of Terms and new subscriber information in section 9.     

1. DOMESTIC EQUITY ETFs: BUY — since 02/13/2019

Click on chart to enlarge

Our main directional indicator, the Domestic Trend Tracking Index (TTI-green line in the above chart) is now positioned above its long-term trend line (red) by +3.82% after having generated a new Domestic “Buy” signal effective 2/13/19 as posted.

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Headline Ping Pong

Ulli Market Commentary Contact

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

The markets were trading in the red for most of the session, as the latest trade headlines pushed equities further south and then gave traders hope that optimism is warranted.

When things looked bleak at mid-day, Reuters managed to provide the algos with some ammo to drive the indexes out of the doldrums and back up to their respective unchanged lines using the following:

  • CHINA’S WANG YI SAYS HOPES BOTH SIDES CAN TAKE ‘MORE ENTHUSIASTIC MEASURES,’ REDUCE PESSIMISTIC LANGUAGE AND ACTIONS IN TRADE DISPUTE – RTRS
  • CHINA’S WANG YI SAYS ‘IF EVERYONE DOES THIS, TALKS WILL NOT ONLY RESUME, BUT WILL PROCEED AND YIELD RESULTS’

Despite that effort, the unchanged lines proved to be overhead resistance, and we sold off into the close, but with only modest losses.

Adding to the negative early sentiment was the Trump Administration confirming that it’s “unlikely to extend temporary wavers to supply Huawei.” That reinforced that the US-China trade deal is simply not getting closer to an agreement, even though other headlines attempt to prove that a deal is close.

Real Estate provided some optimism when Pending Home Sales rose 2.48% YoY, which was the biggest annual jump since April 2016, but it was simply not enough firepower to restore bullish momentum.

The overnight liquidity shortage, also known as the funding disaster, keeps getting worse with the Fed as lender of last report supplying some $60 billion in liquidity after yesterday’s $92 billion.

No one has really come out to explain the source of the problem and if it might be just a quarter ending issue. MSM does not report about it, but somewhere the financial plumbing in our system has sprung a leak.

One analyst posed the thoughts that have been on my mind as well:

  • It’s great that the Fed is pumping liquidity into the system, however, why were the existing operations insufficient?
  • As of today, the Fed had injected $105 billion in liquidity into the Repo market, but rates were still stubbornly high. Whatever changed last week to cause the funding spikes is clearly still a problem.

If this problem is not resolved quickly but spreads even further, equity markets will eventually be negatively affected.

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No Market Commentary Today

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Just a note to let you know that I will be out of the office all day and will not have a chance to write today’s market commentary.

Regular posting will resume on Thursday.

Ulli…

Triple Whammy Smashes Equities

Ulli Market Commentary Contact

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

Early hopes, that successful trade talks might be on deck during October, were dashed today when Trump criticized China in no uncertain terms during his UN speech.

The result was that the early rally shifted in reverse with the pullback accelerating and pushing the major indexes deeper in the red.  Things worsened when Speaker Nancy Pelosi put some new lipstick on an old pig, namely impeachment proceedings, which rattled traders and algos alike leaving the bears in charge for this session.  

Despite an afternoon attempt to revive some bullish momentum, the damage was done, and the S&P 500 moved further away from its psychologically important 3k milestone marker.

Not helping at all was the latest report on Consumer Confidence showing the index falling to 125.1 from a previous 134.2. Analysts were quick to point out that the trade tensions with China were a contributing factor.

Even plunging bond yields, which saw their biggest drop in a month, couldn’t do anything to counter the triple whammy: Trump being negative on China, Consumer Confidence tumbling and impeachment headlines.

On a personal note, I want to let you know that I will be out of the office all day tomorrow and won’t be able to write the market commentary. Regular posting will resume on Thursday.

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Stuck In A Rut

Ulli Market Commentary Contact

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

Early aimless meandering turned into a modest rally mid-day, but positive momentum faded in the end with the major indexes diving into the close with nothing to show for.

It came as no surprise that defensive sectors, such as consumer staples, led for most of the day, as the ‘weaker growth’ meme was present. This became abundantly clear as manufacturing data in the Eurozone contracted sharply in September and notching its worst reading in almost 7 years.

The data was simply awful for Germany, which is seen by many as Europe’s economic engine, but a report indicated that business conditions continue to deteriorate with the no end in sight. This obviously was known to the ECB when the lowered interest rates again last week. Things indeed look bleak for the Eurozone when their historically best performer and exporter is mired in what appears to be a recession.  

And it’s not just Europe that is showing poor numbers, we also learned that powerhouse South Korea saw its exports collapse the most since 2009. Overall, it was the worst global data disappointment day since May and pushed the index back into contraction.

There was no short squeeze today, as the most shorted stocks did what they’re supposed to—namely head south, which they did for the 5th day in a row.

Since the indexes are within striking distance of hitting new all-time highs, we need a better driver to accomplish this than constantly worsening global economic data.

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