An early rally ran out of steam, but the major indexes
managed to eke out a small gain thanks to a positive spin on social media and
entertainment stocks.
Economic news was not awe inspiring, as the NY manufacturing
survey crashed the most on record, from +17.8 to -8.6 in June, which was the first
negative print since late 2016. It’s also its biggest
MoM drop in its history.
Not to be outdone, homebuilder sentiment slipped for the
first time this year, indicating that lower mortgage rates have not had the desired
effect of boosting the housing market. Of course, we need to keep in mind that property
prices remain out of reach for many buyers.
As I mentioned Friday, I expect this non-directional
meandering in the markets to continue until the Fed’s release on interest rate policy
this Wednesday at 11 am PST. No matter what their verdict is, I don’t think they
will be able to meet the high expectations (1. Lower rates, 2. ASAP) Wall Street
has put on them.
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 244 (last week 239)
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.
In case you are not familiar
with some of the terminology used in the reports, please read the Glossary of Terms.
If you missed the original
post about the Cutline approach, you can read it here.
All
week long, the markets lacked some serious upward momentum with any rally attempts
being rebuffed and cut short. As a result, the major indexes vacillated around
their unchanged lines and failed to make much headway but managed to close slightly
higher for the week.
Disappointing
Chinese economic data weighed on sentiment, as it appeared that signs of further
cooling of business activity took their toll. The tech sector lagged, as Broadcom
lowered its outlook for the rest of the year, which dashed hopes for a rebound
in Semiconductors.
Tensions
in the mid-East increased with the blame game, as to who was responsible for the
attack on 2 oil tankers, continuing. The U.S. blamed Iran, while Teheran denied
any responsibility.
On
the domestic front, good news was bad news again, as the lame duck of the year,
namely retails
sales, rose +0.5% in May, just a little below expectations of +0.7%.
However,
April sales were revised to a +0.3% increase from a previously reported -0.2% decline.
That did not sit well with the markets. Why? Traders were disappointed, as stronger
economic data could potentially sway the Fed from lowering rates. Go figure…
Another
reason for the lackluster market environment is two important events scheduled
for next week. First, the two-day Fed meeting with the release of their interest
rate policy set for Wednesday. Second, the G-20 meeting during which Trump and
Chinese Premier Xi may meet ‘to solve or not to solve’ the ever-escalating
trade war.
Depending
on the various outcomes, markets could be rallying sharply or, if disappointed
by, say, a too hawkish Fed, sell off and pull bond yields much lower. However, wherever
yields may end up, it will far better than in Europe where the German 10-year
yield hit a new negative record of -0.27%. Ouch!
No
one knows how things will play out, but it promises to be a highly volatile week.
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 +4.84% after having generated a new Domestic “Buy” signal effective 2/13/19 as posted.
Equities managed a small rebound, after 2 days of modest
losses kept the major indexes in check. Oil prices spiked as two oil tankers were
damaged in suspected attacks off the coast of Iran, increasing tensions between
Teheran and Washington.
Of course, by default, no matter if it makes sense or
not, Iran is suspected to be the guilty party—at least for the time being. Be
that as it may, the energy sector was the beneficiary of this event with Crude
Oil reclaiming its $52 marker.
Trade tensions with China saw a tiny positive development
when Trump mentioned that he “doesn’t have a deadline” for imposing additional
tariffs and adding that he had a “feeling” a deal could be reached. I am
sure, the jawboning is far from being over…
In the end, it turned out to be a roller coaster ride,
with the major indexes giving back most of their early gains. However, during
the last 30 minutes of trading, a sudden burst of upward momentum pushed the
indexes close to the opening high, but the Nasdaq was unable to get back above its
50-day M/A.
There was not much gained or lost regarding our Trend
Tracking Indexes (TTIs).
Upward momentum was conspicuously absent during this session,
which had stocks drift aimlessly lower, interrupted by the occasional bounce to
nowhere. The major indexes followed yesterday’s theme by slipping moderately.
On the menu was the Consumer Price Index (CPI), which showed
prices advancing by an expected +0.1% in April, while the cost of living over the
past year slowed to 1.8% from 2%. This slowing of price growth was another feather
in the cap of those hoping that the Fed will cut rates sooner rather than
later.
The already declining bonds yields, as well as mortgage rates,
have created a new Refi boom, as mortgage applications surged impressively by
26.8% WoW, which was its largest jump since 2015. 30-year
rates have now tumbled below 4%, a level last seen in January 2019.
Regarding China, Trump came out and said that he was the one
“holding up a trade deal with China,” adding that the two countries
would “either do a great deal…or we’re not doing a deal at all.”
You may be wondering what, other than Fed jawboning, has
been driving stocks higher during the past week, but this chart
(thanks to ZH) clearly shows that, after an interruption in May, the global
money supply has been rising again and thereby lifted stocks out of the May
doldrums.
