ETF Tracker Newsletter For May 31, 2019

Ulli ETF Tracker, Uncategorized Contact

ETF Tracker StatSheet          

You can view the latest version here.

TRADE WAR #2 CAUSES A SEA OF RED

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The markets got ambushed last night after Trump’s announcement that tariffs on Mexico will be imposed as of June 10th in order to force the country to stem the tide of the ever increasing number of immigrants crossing the border into the U.S.

The tariff penalty was dramatic in magnitude starting at 5% in June and increasing monthly by that same amount until a level of 25% is reached, or until illegal immigration across the southern border is stopped substantially.

This event was black-swan like in that nobody saw it coming. Wordwide, markets reacted accordingly and sold off with major indexes surrendering over 1.25% on the last day of an already miserable month. The S&P 500 not only broke and closed below its 200-day M/A but also had its biggest weekly drop since December, while Europe scored its worst month since early 2016.

The risk has now increased that the bears may have gained the upper hand, as bullish bumps have made room for bearish selloffs, which means that a world-wide recession could very well be on the horzion. Our International TTI has led the way so far and has crossed into bear market territory with that ‘Sell’ signal being effective as of 5/30/19.

The bond market continued its freefall with the yield on the 10-year plunging to 2.13%, a level last seen in September 2017. Worldwide, the divergence between yields and equities continues, as this chart shows. A synching up will occur at some point. However, if equities end up “syncing down” to yields, that would mean a correction of some 29%. Ouch.

In the meantime, our Domestic TTI has also crossed its trend line to the downside and into bear market territory alerting us to a potential ‘Sell’ signal. See section 3 for details.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 05/30/2019

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, May 30, 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 +0.37% after having generated a new Domestic “Buy” signal effective 2/13/19 as posted.

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Selloff In Pause Mode

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

For a change, the markets opened slightly to the upside, before a slow and steady decline pulled the major indexes into the red, however, a last hour buying effort saved the day and we ended up modestly in the green.

While the trade war battle continued in full swing, Wall Street traders apparently decided to take a break from the constant stream of news, including the accusation by China that the U.S. uses “naked economic terrorism,” “economic bullying” and the assertion that they will “fight until the end.”

Regarding economic news, we learned that after weakness in new- and existing-home sales in April, the pending ones were expected to do better, but no dice. Instead pending sales slipped -1.5% MoM, its worst decline since the financial crisis in 2008.

The bond market continues to paint an ugly picture with the 10-year yield plunging again after a late rebound yesterday. This prompted ZH to post this chart with the at this point unanswerable question “will the relationship between the S&P 500 and the 10-year yield revert like in 2016 (higher rates) or 2007 (lower equity prices)?”

With a little bit of patience, we will find out.

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Dropping Below Critical Support—International TTI Signals ‘Sell’

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Yesterday’s market dive into the close had indeed dire consequences, as the major indexes opened down without their usual morning bump. The Dow at one time had given back some 400 points but managed to recoup some of these losses late in the session, as did the S&P 500 and Nasdaq.

It was a one-two punch with trade tensions and global growth uncertainties combining to spook Wall Street, while bonds benefited from fears that the bears may get the upper hand. Global stocks have started to roll over as bond yields collapsed indicating economic weakness.

The Dow lost its 25k marker but managed to recover and close above it. The S&P 500 dropped below its widely watched 200-day M/A but was able to recoup that technically important level by a few points.

As I mentioned yesterday, our International Trend Tracking Index (TTI) had already been meandering below its long-term trend line, and it fell sharply during today’s session. Along with another lower close, this confirmed a new ‘Sell’ signal for that arena, which is defined as “broadly diversified international ETFs and mutual funds.”

For tracking purposes, the effective date will be tomorrow, May 30, 2019, although I already took the opportunity today to liquidate clients’ holdings.

There are stresses in bond markets wherever you look, including here in the U.S. as the 3-month/10-year spread has collapsed to new cycle lows, as this chart shows. What that simply means is that a 3-month T-bill will give you a higher yield than a 10-year bond. Huh?

These oddities usually occur at major inflection points in the markets, which our TTIs are already pointing to. Even our Domestic TTI, which a week ago was in solid bullish territory, has reached a point that is now within shouting distance of signaling a ‘Sell’ signal as well. (see section 3 for details)

What could turn these deteriorating markets around? Right now, there are two things. First, an announcement by the U.S. and China that a trade settlement has been reached and second, a move by the Fed declaring that interest rates will be sharply slashed. And let’s not forget that the PPT (Plunge Protection Team) could always be called upon to drive equities back up.

I will not wait around for either to happen and will execute our ‘Sell’ signals as they are being generated, because currently the downside risk looks far greater than the upside potential.

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An Early Bounce Bites The Dust

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

An early bounce, which looks to have been of the dead-cat nature, lost momentum, first slowly and then quickly. The major indexes ended up diving into the close and scoring their low of the day as the final bell rang—not a good omen for tomorrow’s opening.

Early in the session, we saw some misplaced optimism regarding the ever-dangling China trade carrot, but as tensions between the warring parties heated up, supported by tit-for-tat escalations, the bulls threw in the towel and down we went.

Helping to put the final nail in the trade coffin was Trump’s comment during a news conference in Japan that the U.S. wasn’t ready to make a deal with China. That was followed by “tariffs on Chinese products could go up very substantially.” Even the speed-reading computer algos could not misinterpret what had been said.

On the econ data front, we learned that while home prices rose in March by +0.1%, it was, however, the slowest annual pace since August 2012. For a positive change, we saw Consumer Confidence rise to 134.1 from 129.2 in April, which was above economists’ expectations of 130.

In the bigger picture, it’s interesting to note that the U.S. stock market ended up far worse than Europe and China, as this chart demonstrates. And that despite expectations that month-end pension rebalancing might spark new buying but, there are still a few days left.

On the other hand, the picture of a slowdown in global money supply, and its effect on stocks, continues to worsen, which is showing up in our International Trend Tracking Index (TTI). This indicator has already moved into bearish territory, but just not yet to a large enough margin, to push the ‘Sell’ button. However, this picture could change quickly.

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ETFs On The Cutline – Updated Through 05/24/2019

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 203 (last week 221) 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.