Markets Drift, Then Shift Modestly Higher

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

1. Moving the markets

One of the most eagerly watched events, namely the Fed’s verdict on interest rates, came and went without much of a market hiccup. A gentle early slide gave way to a modest bounce late in the session, with the major indexes notching another green close and moving within striking distance of taking out their old all-time highs.

The Fed decided to hold interest rates steady and motioned that it’s unlikely that they would cut borrowing costs for the remainder of the year. Of course, judging by their past actions, nothing is ever chiseled in stone, and they left themselves a little wiggle room by pronouncing to “closely monitor” inflation and growing “uncertainties.” The latter appeared to be a jab at the escalating trade tensions between the U.S. and China.

In other words, if things change, they may change their mind…

While the White House might not be too pleased with this outcome (Trump has been advocating an interest-rate cut for months), market reaction was kind of muted, but we did zig-zag higher after the Fed announcement.

Bond yields were the beneficiary, as yields dropped with the 10-year heading towards the 2.01 level, while the U.S. Dollar tumbled after the Fed released its statement.

Could the markets take off from here and push into record territory? For sure, “if” at the upcoming G-20 meeting in Japan, Trump and his Chinese counterpart Xi agree to a trade deal, or at least pronounce progress in negotiations. That should do the trick and give a boost to the major indexes.

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Trump Dangles The ‘Trade Carrot’—Markets Pump

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

1. Moving the markets

Trump got the markets pumping this morning after tweeting that there will be an “extended meeting” with China’s Xi at the upcoming G-20 meeting in Japan. Bloomberg also added that the two leaders had confirmed a plan for meeting on the sidelines.

That was enough hype for the headline-scanning computer algos to drive the markets out of last week’s trading range, with the S&P 500 now hovering within 1.25% of its record high. Never mind that various reports later-on toned down the Trump/Xi meeting, but that no longer mattered. The bulls were up and running.

The other positive for equities was what appeared to be a policy turnaround, when the head of the European Central Bank (ECB), Draghi, hinted at lower rates and more stimulus. I recall that, only a few weeks ago, Draghi announced no policy changes in the foreseeable future. Hmm, things must have really taken a turn for the worse…

His dovishness was just what global traders wanted to hear with the instant result that stocks pumped and yields dumped, widening the already substantial divergence between the S&P 500 and the 10-year yield.

Bond yields crashed globally, as you can see here, here and here. Other than the U.S., most bond yields on the face of this earth have now slipped into negative territory. For example, if you invest in a German 10-year bond (called ‘Bund’), your annual interest rate is now -0.32%. In other words, you lose -0.32% every year for 10 years. How is that for insanity?

For further contemplation, ZH posted the question: Who’s right? Global Bonds, Global Stocks or Global Macro? This chart shows the divergence. Eventually, we will find out the answer to that question.

My guess is that bonds will prove to be right, with stocks ultimately having to correct down to fair value.

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Stuck in Limbo

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

1. Moving the markets

An early rally ran out of steam, but the major indexes managed to eke out a small gain thanks to a positive spin on social media and entertainment stocks.

Economic news was not awe inspiring, as the NY manufacturing survey crashed the most on record, from +17.8 to -8.6 in June, which was the first negative print since late 2016. It’s also its biggest MoM drop in its history.

Not to be outdone, homebuilder sentiment slipped for the first time this year, indicating that lower mortgage rates have not had the desired effect of boosting the housing market. Of course, we need to keep in mind that property prices remain out of reach for many buyers.

As I mentioned Friday, I expect this non-directional meandering in the markets to continue until the Fed’s release on interest rate policy this Wednesday at 11 am PST. No matter what their verdict is, I don’t think they will be able to meet the high expectations (1. Lower rates, 2. ASAP) Wall Street has put on them.

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ETFs On The Cutline – Updated Through 06/14/2019

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 244 (last week 239) 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 14, 2019

Ulli ETF Tracker Contact

ETF Tracker StatSheet          

You can view the latest version here.

STUMBLING INTO THE WEEKEND

[Chart courtesy of MarketWatch.com]

1. Moving the markets

All week long, the markets lacked some serious upward momentum with any rally attempts being rebuffed and cut short. As a result, the major indexes vacillated around their unchanged lines and failed to make much headway but managed to close slightly higher for the week.

Disappointing Chinese economic data weighed on sentiment, as it appeared that signs of further cooling of business activity took their toll. The tech sector lagged, as Broadcom lowered its outlook for the rest of the year, which dashed hopes for a rebound in Semiconductors.

Tensions in the mid-East increased with the blame game, as to who was responsible for the attack on 2 oil tankers, continuing. The U.S. blamed Iran, while Teheran denied any responsibility.

On the domestic front, good news was bad news again, as the lame duck of the year, namely retails sales, rose +0.5% in May, just a little below expectations of +0.7%.

However, April sales were revised to a +0.3% increase from a previously reported -0.2% decline. That did not sit well with the markets. Why? Traders were disappointed, as stronger economic data could potentially sway the Fed from lowering rates. Go figure…

Another reason for the lackluster market environment is two important events scheduled for next week. First, the two-day Fed meeting with the release of their interest rate policy set for Wednesday. Second, the G-20 meeting during which Trump and Chinese Premier Xi may meet ‘to solve or not to solve’ the ever-escalating trade war.

Depending on the various outcomes, markets could be rallying sharply or, if disappointed by, say, a too hawkish Fed, sell off and pull bond yields much lower. However, wherever yields may end up, it will far better than in Europe where the German 10-year yield hit a new negative record of -0.27%. Ouch!

No one knows how things will play out, but it promises to be a highly volatile week.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 06/13/2019

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, June 13, 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 +4.84% after having generated a new Domestic “Buy” signal effective 2/13/19 as posted.

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