Markets Under Pressure; Earnings Season On Deck

Ulli Market Commentary Contact

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

Throughout today’s session, equities were under pressure due to the looming earning season. Traders were a bit anxious to find out if some of the poor economic data points of the last quarter, or the U.S.-China trade war, are having an impact on companies’ bottom lines.

The major indexes spent most of the day below their respective unchanged lines, although by only a tiny margin, but managed to close in the green thanks to the usual last 30-minute pump.

China posted its weakest economic growth in 27 years by growing only 6.2%. One analyst did not see this as a cause for concern, since “a further round of monetary-policy stimulus has helped to soften the impact of a relatively weak GDP print.”

On the domestic side, it’s interesting to note that SmallCaps are continuing to collapse relative to LargeCaps, which this long-term chart makes abundantly clear.

This is somewhat strange when considering the negative effects of the U.S.-China trade war should weigh far more on large-cap multinational companies rather than on more domestically oriented small-cap companies.

Be that as it may, right now, the focus is on earnings season, and it will be interesting to see what directional market effect it might have.

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ETFs On The Cutline – Updated Through 07/12/2019

Ulli ETFs on the Cutline Contact

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 278 (last week 279) 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.

Take a look:                                                                   

The HV ETF Master Cutline Report

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.      

ETF Tracker Newsletter For July 12, 2019

Ulli ETF Tracker Contact

ETF Tracker StatSheet          

You can view the latest version here.

BANKING ON A FED RATE CUT

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

Yesterday’s rally continued this morning and accelerated throughout the session, as traders were now convinced that a rate cut by the Fed is a sure thing, so front running was the name of the game.

Since Fed chair Powell’s 2-day congressional testimony did not include any negatives, but rather words like the U.S. economy is in a “very good place,” traders felt invigorated that a cut was coming, so the bullish theme continued.

Even a stronger-than-expected U.S. inflation print in core producer prices could not put a dent in current enthusiasm, with further support coming from hopes the global economy will slow even more, forcing the Fed’s hand for a possible 0.5% reduction in rates.

One analyst summed it up like this:

This is one of those mornings where bad news is good news for stocks, while good news is bad news for bonds… or in other words, any news is good for stocks.

The bullish view did not carry through all investment arenas. Chinese, European and Small Caps all lost for the week. Bond yields suffered, especially in Germany where the 10-year spiked the most since the middle of 2017, as prices collapsed.

Same here in the U.S. with specifically the 30-year yield jumping to 7-week highs, as the dollar corrected back down after its surge following the payroll announcement.

Things appear very uncertain and confusing, when looking at the big picture, which led BofA to release the following statement:

“…we anticipate an “overshoot” in credit & equity prices in coming months, followed by an overshoot in gold (US$ devaluation) before big H2 top in asset prices (as bond bubble pops & policy impotence visible).”

That prompted ZeroHedge to update this chart, which suggests that a picture is worth a thousand words.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 07/11/2019

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, July 11, 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 +7.78% after having generated a new Domestic “Buy” signal effective 2/13/19 as posted.

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Hitting New Milestones

Ulli Market Commentary Contact

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

While the Dow managed to conquer its new milestone marker of 27,000 with relative ease, and close above it, the S&P 500 struggled with its record 3,000 level. It managed to trade above it for a brief period but fell just short of defeating that hurdle by ending the day at 2,999.91.

It was another day of trading in a wide range, as an early rally lost steam with equities taking a sudden dive towards the unchanged line after Trump tweeted his dissatisfaction with China’s efforts about the trade truce.

Market disappointment was short lived with the rally resuming only to lose steam again with the indexes summersaulting but this time below the unchanged line. This was due to a poor bond auction, as the 30-year yield exploded to 6-week highs. However, as if by magic, the third attempt to take out the old highs was accompanied by some staying power with only the Nasdaq ending slightly in the red.

Some pain for Fed head Powell’s dovish ideas arrived in form of a hotter than expected core inflation rate, which rose 0.3% from the prior month to 2.1%, which is not just the most since January 2018 but also above the Fed’s 2% target.

How does a higher inflation rate compute with the intention of lowering interest rates? Not very well, in my opinion. The Fed will have some hard decisions to make when it meets later this month.

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Fed Pledges To ‘Do Whatever It Takes…’

Ulli Market Commentary Contact

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

The markets opened higher, pulled back but maintained its presence safely above the unchanged line. The S&P 500 succeeded in briefly crawling above its 3,000-milestone marker, retreated in a hurry but managed to close in the green, as did the other 2 major indexes. The Nasdaq fared the best by sporting a +0.75% gain.

All eyes were on Fed chief Powell, who acknowledged that the U.S. “is suffering from a bout of uncertainty caused by trade tensions and weak global growth,” but he promised to “do whatever it takes” to prop up the economy. Of course, traders took that as a sign that lower interest rates are on deck, which helped the bullish cause for the day.

The Fed illuminated things even further by stating that they will “act as appropriate to sustain the expansion,” which lent further support to those hoping for a rate cut. Powell also kept repeatedly emphasizing the effect of trade tensions and a slower growth around the world.

Again, the entire scenario appears to be backwards to me. Here we have the S&P 500 hugging the 3,000-milestone, yet Powell indicates that rate cuts are on the horizon. To be clear, rate cuts are usually implemented to support a sagging economy and not pump up markets.  

On the other hand, it could very well be that, as I posted before, the economy is in such bad shape that lower rates are required to keep it alive, yet the stock market (the ‘dumb’ money as opposed the bond market representing the ‘smart’ money), is as usual the last one to get the message.

When will these jaws of reality finally snap shut?

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