1. Moving the markets

A meager attempt of an early bounce was rebuffed, and the major indexes continued to head south towards bear market territory. I pondered yesterday whether the sell-off was overdone and might produce a quick rebound, or whether we were heading much lower and ending this bullish cycle.

The latter transpired as bouts of selling were interrupted by hopeful bounces, but the bears did not let up, and we dove into the close, just a tad off the session’s low point, as the chart above shows.

It was not just the US showing red numbers. Europe got hammered while the Asia indexes got crushed losing more than -3%, as China took the downside lead with -5.22%. Adding insult to injury was the fact that trading in some 1,000 Chinese companies was halted due to them hitting the 10% limit down rule. Ouch!

All of this is not surprising, as our International TTI already had crossed into bear market territory with the Domestic one now joining in. See section 3 below for more details.

In my advisor practice, I took the opportunity to liquidate most of our holdings, with the remainder being scheduled for tomorrow, unless I see a sharp rebound in the making. In that case, I will hold off for another day.

The ‘red’ October has clearly exacted a heavy toll with Transportations, Nasdaq and SmallCaps being down 9%—in only 9 trading days! The S&P has its own problem by not only being down for the 6^th straight day in a row, but it has also sliced through its 200-day M/A for the first time since April.

Clearly, most technical indicators have been violated for most of the major indexes as well as for most of the sector ETFs. Some are now showing negative returns YTD, while for others, gains are quickly evaporating.

Interest rates eased a tad with the 10-year bond yield sliding 2.6 basis points to close at 3.14%. Consequently, the 20-year bond ETF (TLT) managed to close +1.22%, finally throwing an assist to those investors who hold TLT as a “risk” manager in their portfolios.

Does this mean that US markets are finally accepting reality by syncing up with the rest of the world? This chart seems to confirm that possibility, but if so, there is a long way to go.

The action of the past 2 days confirms the adage that “markets take the escalator up and the elevator down.” So, it’s quite possible that we will see a recovery, maybe by the end of this month that, after the mid-term elections, may very well accelerate and boost the S&P 500 to the 3,000 level by year-end as this fund manager seems to think.

Of course, before that happens, our Domestic TTI will have signaled a new “Buy,” which will let us participate in this year-end rally, should it materialize.

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1. Moving the markets

A slow deterioration of equity prices, which started last week, accelerated today with the broad markets plummeting, as the chart above shows. There was simply no place to hide and those investors, counting on the bond portion of their portfolios for safety, were disappointed as the 20-year bond ETF (TLT) dropped in sympathy with stocks bringing the YTD loss to over 10%.

Rising bond yields continue to be culprit causing uncertainty and extending this month’s losses while giving new meaning to the term “Red October,” The S&P 500 not only extended its slide for the 5^th consecutive day but also fell below its 5-day M/A for the 4^th session, creating doubt as to whether this level could serve as one of support.

The index has also reached a point that is only 20 points away from breaking through its 200-day M/A which, if broken, would very likely confirm more downside action and a return to bear market territory. What is concerning is that the magnitude of today’s correction, as opposed to the ones in February and March, happened in just one day.

Usually, you’d see some bobbing and weaving, along with a slow deterioration of prices, followed by more accelerated selling. Today, all happened at once which, to my way of thinking, could only mean 2 things:

1. The sell-off was an outlier and simply overdone and is quickly followed by a rebound, or
2. The bullish crowd just disappeared and computer algos will push this market lower and into bear market territory ending the current bullish cycle, which has only lasted this long due to the Fed’s QE and lower rates, both of which may now be a thing of the past

When looking at charts of the sectors that are fundamentally important for the economy, we see nothing but bearish trends in the following areas: Financials, Semiconductors, Home-builders, Autos, Materials, Copper, Lumber and credit markets. There is only one stock that appears to be holding up no matter what. This chart tells the story.

Our International Trend Tracking Index (TTI) went south again for the 4^th day in a row and is now firmly entrenched on the bearish side of its trend line, thereby generating a “Sell” signal effective tomorrow.

The Domestic TTI just broke below its respective trend line today but only by a small margin. I will watch to see if the downward slide continues tomorrow but will for sure liquidate those positions that have triggered their trailing sell stops.

Be sure to see section 3 below for the exact positions of our Trend Tracking Indexes (TTIs).

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1. Moving the markets

The major indexes tried to get out of their foul mood by staging an early rally, which was rebuffed with the trend for the session being predominantly sideways. The S&P 500 not only extended its losing streak for the fourth day, but also bounced around its 50-day M/A leaving open the possibility that this might serve as a support level.

Keeping a lid on upward momentum were bond yields, which spiked again early on with the 10-year touching 3.26% before fading into the close at 3.20% and creating a bond rally. Despite this intra-session pullback, I think the cat is now out of the bag and higher rates and yields will be our future companions. That also means that these loftier yields, with bonds being perceived to be more risk-free than equities, will compete against them for investor dollars.

Of course, those having been invested in bonds during the lowest of rates are seeing plenty of red numbers, as bond prices got crushed with higher yields. Case in point is the widely held 20-year bond ETF (TLT), which finally bounced back today but still shows a YTD loss of -11.19%, hardly soothing for a “conservative” investment.

In the end, despite equities displaying some chaotic characteristics during this session, the major trend remains bullish based on our Domestic TTI (see section 3).

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