Struggling For Direction While Waiting For The Fed

Ulli Market Commentary Contact

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

Not even poor earnings by Harley-Davidson, which dropped some 5%, as well as a collapse in consumer sentiment, with both current and future expectations plunging, could get the attention of Wall Street Traders.

As a result, the major indexes struggled for direction with the Dow eking out a small gain, while the Nasdaq led to the downside by surrendering -0.81%.

There was one thing, and one thing only that mattered and that was the answer to “what will the Fed do?” when it concludes its monthly meeting on interest rates to be released late morning tomorrow. Speculation ran rampant, and several analysts projected the outcome for the markets to be negative, despite Fed head Powell’s recent U-turn into dovish territory.

Of course, nobody knows for sure, but the pre-programmed computer algos will be the first ones to arrive at a conclusion and can push the markets in either direction, depending on their interpretation of the news headline.

It promises to be an interesting session.

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Earnings Misses Sour Market Mood

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]
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We started the day in the red after China set the sour mood by reporting another month of declining industrial profits. Things got worse when Caterpillar (CAT), an economic bellwether conglomerate, missed earnings by a huge margin, its worst performance in 10 years, causing its stock price to decline by -9.13%; a dead CAT bounce did not materialize.

Then it was Nvidia’s turn to support the bearish momentum after slashing guidance and fourth quarter revenue. Despite blaming China and worsening global economic conditions, the punishment was instant with the stock losing some -14%, which affected the Nasdaq more than the other 2 major indexes.

So, it’s no surprise that nervousness among traders prevailed. Not helping matters are an upcoming 2-day Fed meeting, a barrage of delayed economic data (due to the shutdown) and a huge week for earnings with 126 S&P 500 companies set to release their quarterly report cards. Keep in mind that earnings expectations are at 6-month lows…

All 3 events have the potential power to wreak havoc with the markets, and it is totally uncertain whether the bulls or the bears will come out ahead at Friday’s close. That makes it a more comfortable week for us trend followers by being on the sidelines, as our Trend Tracking Indexes (TTIs) still remain in bear market territory.

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ETFs On The Cutline – Updated Through 01/25/2019

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 84 (last week 70) 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 January 25, 2019

Ulli Market Commentary Contact

ETF Tracker StatSheet

https://theetfbully.com/2019/01/weekly-statsheet-for-the-etf-tracker-newsletter-updated-through-01-24-2019/

MAJOR INDEXES GAIN FOR THE DAY BUT PULL BACK FOR THE WEEK

[Chart courtesy of MarketWatch.com]
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The markets simply ignored Intel’s poor results from yesterday, as optimism about the earnings season kept the bullish theme alive, despite reports that global growth has slowed. While this eventually will affect earnings of multi-national companies, right now, however, traders are looking past those concerns as well as disregarding the divisions in Washington or the fact that GDP may slow down to zero.

The major indexes headed higher right after the opening bell but gave back some of their early gains throughout the session. We ended up on the plus side, but the S&P 500 fell short of recovering some of its losses sustained early in the week.

Still, the headlines were anything but awe inspiring with the all-important durable goods report missing in action due to the government shut-down.

ZH had this succinct comment:

While ‘bad news’ has been signaling ‘good news’ recently (the worse the economy gets, the more dovish Powell becomes… so buy stocks?) – the circular logic of that goldilocks argument is starting to crumble as ‘hope’ has crashed in recent weeks and it is ‘hope’ that keeps the dream alive (e.g., in the short term, economic weakness is bullish for stocks; but in the longer-term, ‘hope’ remains that a dovish Fed will lift the economy and everything will be awesome and the economy will catch up to stocks).

 The death of hope… the spread between ‘soft’ survey data and ‘hard’ real economic data has collapsed – removing ‘hope’ from the equation…

That leaves the major driver of the market as being the Central Bank balance sheet expansion. I have featured the chart before but it’s worth looking at again, if you are still unsure as to what prompts these rallies out of nowhere and with lightening speed. To be clear, there are other factors coming into play as well, such as another giant short squeeze that helped elevate the SmallCap sector.

We remain in bear market territory, but our Trend Tracking Indexes (TTIs) have improved markedly and are moving closer to a potential new “Buy” signal (see section 3).  Stay tuned…

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 01/24/2019

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, January 24, 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.

  1. 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: SELL — since 11/15/2018

 Click on chart to enlarge

Our main directional indicator, the Domestic Trend Tracking Index (TTI-green line in the above chart) is now positioned below its long-term trend line (red) by -2.90% after having generated a new Domestic “Sell” signal effective 11/15/18 as posted.

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The Battle Between Positives And Negatives

Ulli Market Commentary Contact

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

It was another volatile and directionless day with the indexes rallying and selling off depending on negative or positive headlines. We closed mixed with the Dow dropping a tad and the S&P 500 gaining a fraction. The Nasdaq fared better by adding +0.68%, although that may reverse tomorrow, as Intel just announced a revenue miss causing its stock to plunge 7% in after-hours trading.

The trade battle with China remained mired in uncertainty, especially after Wilbur Ross came out swinging by announcing that “U.S. and China are miles and miles away from a trade resolution” but acknowledged that a large China delegation will arrive next week to talk trade. You can be sure that hype and hope will be our constant companions.

Interest rates dropped with the 10-year bond settling at 2.712%, down 3 basis points from yesterday. Make no mistake, the direction of bond yields will determine the direction of the stock market, which always benefits from lower rates. The S&P 500 is in perfect sync with yield expectations, as this chart clearly shows. That’s why I watch interest rates closely, since they tend to forecast the path of equities in general.

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