Despite several attempts, the bulls were not able to
sustain Friday’s upward momentum, and the major indexes pulled back to close moderately
in the red, but the dive into the close could be cause for concern.
Trade negotiations were in focus again ahead of the looming
deadline on US-China tariffs, along with a variety of updates from global
central banks.
First, the Fed is set to do its 2-day meeting starting Tuesday,
while the ECB, under the new leadership of Christine Lagarde, is scheduled to
hold its convention on Thursday.
Of course, traders are cautious never being 100% certain
as to the outlook for interest rates and what some commentary on the state of
the global economy might contain. That uncertainty will continue into the weekend
when on December 15, Trump will decide whether to implement $156 billion in Chinese
tariffs or grant an extension.
For now, according to Bloomberg, the S&P 500 in 1919
is tracking its performance from the year 2013 with amazing accuracy, as this
chart shows. We’ll find out soon if that performance will deviate in the last
few weeks of 2019, or not.
Below, please find the latest High-Volume ETF Cutline
report, which shows how far above or below their respective long-term trend
lines (39-week SMA) my currently tracked ETFs are positioned.
This report covers the HV ETF Master List from Thursday’s
StatSheet and includes 322 High Volume ETFs, defined as those with an average
daily volume of more than $5 million, of which currently 277 (last week 276)
are hovering in bullish territory. The yellow line separates those ETFs that
are positioned above their trend line (%M/A) from those that have dropped below
it.
JOBS REPORT POWERS MARKETS—THE WEEK ENDS UP UNCHANGED
[Chart courtesy of MarketWatch.com]
Moving the markets
The
headline jobs report did not disappoint and showed that 266k new jobs were
created vs. 180k expected, while the unemployment rate dipped to 3.5%.
As
I keep mentioning, it’s only the headline number that matters, because it forms
the basis for the computer algos to ‘buy’ or ‘sell.’ When looking under the
hood, we saw a one-time surge in manufacturing workers, with 54k being added in
November, which was the most in over two decades. However, nearly all of those
were the result of 41k striking GM workers returning to their jobs.
In
other words, the November surge was simply an offset to the 43k slide in
October. But those details don’t matter in today’s environment, since only
headlines are the driver of markets.
Still,
healthcare along with leisure and hospitality were on top of the list showing solid gains.
With the latest jobs report also came the revisions for the prior two months, which
showed an increase in jobs from what was originally reported.
It
was wild rollercoaster of a week, which started ugly with two days of selloffs,
as the S&P experienced its worst December start since 2008. Optimistic trade
news was chased by pessimistic ones leaving the markets in limbo until today’s
jobs report restored bullish upward momentum. The S&P 500 only gained a meager
5 points since last Friday, but it was a remarkable recovery given where the index
was at.
ZH
added this for color:
There was another reason for
the return of the stock rally: this week the Fed’s balance sheet rose once
again, and as we have shown, in the past 9 weeks ever since the Fed resumed
repos and eventually POMO, the stock market is up every single week when the
Fed’s balance sheet is higher; the only week the S&P was lower was when the
Fed’s balance sheet also shrank. Surely, it’s just a coincidence…
And
then this:
So, after this week’s fireworks is it now safe to assume that stocks won’t deliver any more major surprises for the balance of 2019? Keep an eye on the Dec 15 tariff deadline: because today’s super strong job number merely assured that Trump now thinks he has even more leverage to demand concessions from China, while the Fed’s fears that trade war is hurting the economy and thus has to be vigilant to the downside, were blown away. Finally, this was and remains a market where one Trump tweet can mean the difference between a successful and catastrophic year for countless traders, and something tells us the coming three weeks, which see both the culmination of trade discussions and Trump’s impeachment, will be anything but quiet.
Based
on the above, I believe that volatility is bound to pick up again, something the
bears will be excited to see. However, when looking at the longer term, the fact
that the Fed, along with the other global banks, is set to continue with its
money printing efforts to monetize the debt, and solve the ever growing issues with
the overnight repo operations, the resulting liquidity is bound to flow into
the stock market thereby supporting the bullish scenario.
ETF Data
updated through Thursday, December 5, 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 Termsand 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 +5.35% after having generated a new Domestic “Buy” signal effective 2/13/19 as posted.
An early morning pop gave way to a drop,
which gave way to a slow but steady recovery with the major indexes managing to
reclaim their respective unchanged lines by a small margin.
What caused the comeback? Nothing noteworthy, other than a
China trade spokesperson uttering the words that computer algos thrive on, namely
that the so-called phase 1 negotiations designed to cease tariff hostilities, are
“progressing.”
But the spokesman emphasized China’s desire to make
existing tariff rollbacks a part of any resolution, which may not sit well with
the White House. As a result, the tug-of-war to save face is bound to continue.
On deck tomorrow will be the always eagerly anticipated jobs
report with the consensus forecast calling for a gain of 180k new jobs. Anything
close to that number will likely give the markets a boost, unless bad trade
news provides the bears with something to cheer about.
Today was reversal day, as the trade soap opera story was
changed again based on an unsourced rumor that a phase-1 deal was still in the works.
Even though nothing of substance was offered, it was enough hope for the computer
algos to shift in reverse and pull the markets out of the doldrums.
One analyst summed up the trade story like this:
President Trump stated he is
in no rush and “in some ways I think it’s better to wait until after the
election” to make a trade deal with China. Not September, as we were told by
those ‘in the know’ at certain financial media; not October, as were again
told; not November, as we were still told; and not December, and perhaps not
early 2020 – but after the US presidential election….which might as well be
forever for markets.
Especially as Trump will not
have any electoral concerns at that point so might just dump the whole idea and
go ‘all-in’. Indeed, Commerce Secretary Ross also made clear if “substantial
progress” isn’t seen soon then the final 15% tariff tranche is indeed going to
happen on 15 December.
And so, the saga goes on. The major indexes popped nicely
but gave back some of their early gains, as momentum faded into the close. The market-implied
odds of a trade deal rebounded and are now at about 50/50, which is more or
less a coin-flip, while they were at 70% just in early November, according to ZH.
Helping today’s rebound was a double whammy short
squeeze, while the decoupling
of stocks and bonds, which I posted yesterday, continued despite stocks almost touching
the 10-year bond yield, which gained 5.3 basis points to end the day at 1.772%.
Since the Fed has made its policy of lower interest rates
clear, the stock indexes are now dependent on the latest rumors from the trade
front. And I am sure, they will continue to be full of surprises.
