China Trade Deal Optimism Turns Into A False Alarm

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

1. Moving the markets

I had to laugh this morning, when I saw the early market spike explained as having been a grammatical error. According to an early CNBC headline saying that Treasury Secretary Mnuchin said a trade deal “IS” 90% complete, and repeated by Bloomberg, pushed the computer algos into buying mode.

As it turned out, CNBC made an error, because instead of saying “is,” Mnuchin was actually using the past tense and said that we “were” about 90% on the way to a China trade deal. Ouch! Therefore, the early buying spree turned into a false alarm with the algos back peddling and the market slipping and sliding into the close.

In the end, not much was gained, expect the Nasdaq closed in the green, thanks to a 14% pop in Micron stock.

Not helping matters was a sudden jump in bond yields with the 10-year gaining 6 basis points to close back above the 2% level. As a result, the low volatility ETF SPLV, which we own, had a down day, but it remains ahead of SPY for this domestic ‘Buy’ cycle.

With the widely anticipated G-20 meeting on deck for this weekend, I expect market direction to be predominantly sideways for the next couple of days. For sure, we’re bound to see more clarity this coming Monday.

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Skidding Lower As Fed Disappoints

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

1. Moving the markets

While equity markets can’t get enough dovishness from the Fed, to keep the rally going, today we saw some disappointment kick in, as traders translated the Fed’s comments as too hawkish.

Fed chief Powell offered a “wait-and-see” posture on interest rates, which means that they prefer to continue monitoring the economy for signs of weakness, in order to avoid a knee-jerk reaction in terms of cutting interest rates. He also added that he won’t bow to political pressure.

If that wasn’t a rally killer, the St. Louis Fed head Bullard chimed in by opining that he is not in favor of a ½ point rate cut in July. Ouch! That hurt, because expectations had been 40% and subsequently collapsed to 16% before moving back up to 26%.

And the hits kept coming:

  1. Reuters reported that no broad trade deal was expected at the upcoming meeting and that talks could take months, years to complete.
  2. Consumer Confidence dropped to 2-year lows, New Home Sales crashed -7.8% in May to the weakest since 2018, which was a surprise as expectations saw a 1.6% MoM rise.
  3. The Case-Shiller Home Price Appreciation index showed a slowdown for the 13th straight month.

So, it was no surprise for the 10-year bond yield to tumble below the 2% level, and it closed slightly below it confirming that an economic slowdown has arrived or is in the making.

What was a surprise to me was the fact that the equity markets did not drop more than they did given that there was no positive news?

With the 0.5% expected July interest rate drop endangered at this time, ZH posted the question “if the Fed does not pay up and give in to the market’s demands, will the jaws of death snap shut?”

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Losing Some Altitude

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

1. Moving the markets

As was to be expected, the major indexes wandered aimlessly slightly above and below their respective unchanged lines with only the Dow being able to eke out a green close.

With no news from the Fed expected, and the G-20 meeting on deck next weekend in Japan, we may seem some more bobbing and weaving and a lackluster view until a new driver appears and drives equities higher.

Trump and his Chinese counterpart Xi are set to meet on Friday and Saturday with traders worldwide looking for signs of a truce, as global markets are struggling with lack of growth prospects. These already have impacted various economies negatively, even those that are considered economic export powerhouses like Germany. Their forecasted GDP is down to an anemic 0.6%.

Even worldwide negative bond yields have not done much to stem the southerly tide in economic activity, while here in the US, the White House is trying to push the Fed to implement lower rates.

Why? The state of the current economy is so poor, that only continued stimulus will be able to keep things moving and assist in keeping equities at elevated levels. We saw what happened in 2018 when stimulus was dropped, and the markets crashed.

My view is confirmed by the latest data showing that the Dallas Fed Manufacturing survey collapsed from -5.3 to -12.1, while the Activity Outlook, aka ‘hope,’ has plunged into negative numbers.

In other words, things are continuing to slow down, which makes me wonder what the justification for these elevated stock prices is. But, as I said before ‘bonds’ represent the smart money, and their crashing yields are indicative of what’s coming. Equities have simply not priced in any bad news on earnings and the economy.  

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ETFs On The Cutline – Updated Through 06/21/2019

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 267 (last week 244) 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 June 21, 2019

Ulli ETF Tracker Contact

ETF Tracker StatSheet          

You can view the latest version here.

A SLOW FINISH ENDS A STRONG WEEK

[Chart courtesy of MarketWatch.com]

1. Moving the markets

Quadruple witching day occupied the traders on Wall Street, as the 3rd Friday of every quarter can produce added volatility due to the simultaneous expiration of single-stock options and futures and index options and futures.

A mid-morning sudden spike was not caused by any option juggling but was merely a reaction to VP Pence’s conciliatory comments about the trade meeting. It did not take long for the Chinese to pour some cold water on his remarks via things like “the Chinese side is concerned about the fairness of a trade deal,” followed by “the US side must remove all newly imposed tariffs.”

This took the starch out of the upward move, and the Pence spike was erased in short order. The major indexes managed to tightly roam around their respective unchanged lines for the remainder of the session, seemingly unfazed by another set of weak econ data. A dive into the close pulled us back into the red, but the losses were minor. However, for the week, the S&P 500 managed a gain of some 2.2%.

We learned that existing home sales continued their downward spiral, as the rise of 2.5% MoM in May does not tell the entire story. When looking at it longer term, this data set has tumbled YoY for the 15th month, which is the worst since the housing crisis.

At the same time, US manufacturing (PMI) plunged to 10-year lows in June, with both indexes (Manufacturing and Services) edging closer to contraction.

Since bond yields have been getting most of the attention lately, as the 10-year is threatening to drop below the 2% level, worldwide, the picture looks even gloomier. Global negative yielding debt soared by $700 billion in one day to a record $13 trillion.

Look at the yield disaster that Europe is showing, especially when you review the comparative data as of year-end 2018. This kind of a collapse in yields is not a bullish indicator. It’s the opposite, as it clearly points to collapsing global growth and a potential slide into a recession.

Makes me wonder when the equity markets will figure this out…

In the meantime, we will ride this trend until it ends, when it bends and our Trend Tracking Indexes (TTIs) signal to get us out of equities and to the safety of the sidelines.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 06/20/2019

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, June 20, 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 +6.73% after having generated a new Domestic “Buy” signal effective 2/13/19 as posted.

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