1. Moving the markets

Friday’s market weakness continued through today with the major indexes getting spanked and surrendering just about all last week’s gains, which makes Wednesday’s robust bounce suspicious in terms of resumption of the bullish trend.

At least for right now, it appears to have been a giant head fake, just enough to generate a new “Buy” signal, as our Domestic TTI crossed its long-term trend line to the upside by a solid margin. As mentioned before, we got our feet wet via some conservative low-volatility ETF exposure, which has held up better than the S&P 500.

Several events have contributed to this sudden turnaround from bullish to bearish sentiment. For one, oil prices haven doing their best imitation of a swan dive and have reached a point that is 20% off their recent highs with prices barely hanging on to the $60 handle. That has been a shock to investors and brought up the so far unanswered question as to whether this is simply a result of a slowing global economy.

And, as we all know, the markets have elevated during the bullish periods of this year by a handful of big hitters like Amazon and Apple, along with the FANG stocks, all of which have seen corrections, which are magnified in the varies indexes due to their enormous market capitalizations.

Our Domestic TTI crossed is trend line to the downside by -1.52% (section 3) making it questionable whether the current “Buy” signal can be maintained. I will watch the market for a day of two, but will act quickly to liquidate our position, should more downside come into play.

This entire situation of directionless trending reminds me of the dot-com bubble, which burst in 2000, when we had 3 whip-saw signals before the bear market finally established itself and lasted around 17 months. As frustrating as it is to some, this is exactly why we must participate in all “Sell” signals, so that we have a chance of avoiding financial disaster whenever it strikes.

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1. Moving the markets

There was not much follow through from yesterday’s massive rally, but there was not much of a sell-off either, meaning that our new domestic “Buy” took effect today. We got our feet wet with some conservative exposure to “broadly diversified domestic ETFs,” while acknowledging that at any time momentum could turn around and head back the other way.

The danger of a such a head fake is always the greatest at the beginning of a new cycle where bulls and bears are still engaged in a tug-of-war. Such was the case today, as the Dow ventured above the unchanged line, although not very convincingly, while the S&P 500 and Nasdaq hovered below theirs leaving us with a mixed picture at the end of the session.

The Fed came out and did what was expected, namely not hiking rates this month but indicating that an increase will likely be in the cards for December. Market reaction was muted but some analysts, dissecting the Fed’s statement, saw hawkishness in their remarks, which contributed to the major indexes slumping.

The US dollar index was the beneficiary and popped while continuing its rise off yesterday’s bottom. Crude oil sank for the 9^th day in a row and is now entrenched in a bear market, down -21.25% from October highs to 7-month lows. If it drops another day to 10 in a row, it will a dubious record in that this would represent the first time in 33 years of futures trading. Ouch!

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1. Moving the markets

Right out of the starting gates, bullish momentum ruled, and the major indexes staged an impressive come-back rally. With the results of the elections confirming a political gridlock, you may be wondering why that would be a good thing for stocks.

The Daily Bell provided this answer:

Republicans expanded their majority in the Senate, and Democrats took the House.

Surely this will cause more gridlock. Less will get done. Fewer bills will pass. Each side’s agenda will be watered down.

And that is about the best results we could hope for.

The less that gets done the better. For everyone.

Calvin Coolidge was the last President to understand this… or at least to care.

Every President tries to leave his mark on the country. But usually, it is a blemish.

President from 1923-1929, Calvin Coolidge said, “It is much more important to kill bad bills than to pass good ones.”

Apparently, the computer algos were programmed this way and pushed the markets out of their doldrums, however, on low volume. Whether this will turn into the anticipated year-end rally remains to be seen.

However, this morning, during the early stages of the rebound, our Domestic Trend Tracking Index (TTI) crossed above its long-term trend line into bullish territory. I took the opportunity to start moving a portion of clients’ assets back into equities. Usually, my action point is generated after the close, but the handwriting of a huge move was apparent. This gave us a head start on what might be a return to the bullish theme.

By the end of the day, this turned out to be the correct decision, as our Domestic TTI raced ahead and triggered a new “Buy” effective tomorrow, unless a huge correction is in the making. Absent of that, I will cautiously proceed with adding to our current holdings.

The Fed is due out tomorrow to give a verdict on interest rates. While a hike is assumed for December, none is expected tomorrow. Should that expectation turn out to be false hope, markets will likely head south and give back today’s gains.

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