U.S.-China Trade Mayhem Crushes Equities

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

It was clear to me on Sunday afternoon, that today would be bad day in the markets when China’s Premier Liu He tweeted that China is planning to retaliate, and three core concerns would have to be addressed:

China has made public 3 core concerns that must be addressed &it won’t make concessions on. From perspective of China’s politics, there is little room for compromises. They will insist. This political logic won’t be changed no matter how much additional tariffs the US will impose.

Trump did not back down and upped the ante with:

….The only problem is that they know I am going to win (best economy & employment numbers in U.S. history, & much more), and the deal will become far worse for them if it has to be negotiated in my second term. Would be wise for them to act now, but love collecting BIG TARIFFS!

That pretty much set the negative tone in the futures market, and subsequently at the opening of the regular session this morning, with the major indexes doing their best imitation of a swan dive.

Since the beginning of the year, markets had priced in a best-case trade scenario, helping the rebound rally going. That theme has now, however, shifted towards a worst-case scenario pushing up volatility and giving the bears the upper hand.

The shock that trade retaliation materialized, will most likely change the bullish theme we’ve witnessing since Christmas. Unless, of course, the Fed changes its mind again and follows the White House’s suggestion to lower interest rates by a full 1%. Then we could see a sudden reversal in sentiment and, at least temporarily, a resumption of the prior uptrend.

It was an ugly day with the Dow being down some 700 points but managed to crawl off its lows thanks to selected jawboning by Mnuchin and Trump. ZH reports that this was not only the worst day for stocks since January 2nd, but we’re also marching towards the worst May in 50 years.

The losses were broad with the FANG stocks getting hammered, while AAPL gapped down and got smashed below its 200-day M/A.

Bond yields dropped helping the low volatility ETFs, like SPLV, hold up far better than the indexes. To wit, SPY lost -2.51%, while SPLV gave back a modest -0.64%.

None of our trailing sell stops were triggered, but the International TTI pierced its long-term trend line to the downside by -0.66%. I will wait and see if this drop into bearish territory will hold before issuing a ‘Sell’ signal for that arena. 

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ETFs On The Cutline – Updated Through 05/10/2019

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 245 (last week 273) 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 May 10, 2019

Ulli ETF Tracker Contact

ETF Tracker StatSheet          

https://theetfbully.com/2019/05/weekly-statsheet-for-the-etf-tracker-newsletter-updated-through-05-09-2019/

ENDING THE WORST WEEK OF 2019 ON A POSITIVE NOTE

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Again, stocks opened to the downside and slid sharply lower during the early going with the Dow sinking some 300 points at its low. The culprit was the fact that the higher China tariffs went into effect today causing traders more anxiety, as hope for a last-minute settlement vanished.

Things looked pretty dicey with all major indexes ‘losing’ their 50-day M/As, while the S&P 500 broke below the week’s lows.

Apparently, the powers to be did not like how this day was shaping up, so Trump stepped up the plate by tweeting soothing comments like “talks were proceeding in a very congenial manner,” and “there was no need to rush.” This was followed by Mnuchin muttering “constructive” and other words designed to put some lipstick on that trade pig.

That was sufficient to turn sentiment around, and the 4th biggest buy program of the month, maybe it was interference by the Plunge Protection Team, got activated and bearish momentum was replaced by an all-out bullish attack, which not only wiped out all the day’s losses but pushed the major indexes to a green close.

As ZH posted, this is the 7th Friday in a row where a sudden buy panic lifted stocks out of trouble. Still for the week, the major indexes ended down with the S&P giving back some 2.21%.

I am sure, we have not seen the end of this trade movie, which most likely will continue with full force next week. So far, the wild swings have not affected our positions, however, the International TTI (section 3) has moved closer to a potential ‘Sell’ signal, but we will have to wait and see if it materializes. 

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 05/09/2019

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, May 9, 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 +4.05% after having generated a new Domestic “Buy” signal effective 2/13/19 as posted.

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An Early Slump Followed By A Late Pump

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Another jaw dropping opening had the Dow down some 400 points early in the day, as anxiety increased over the deepening trade dispute with China, which continued to squash any bullish sentiment not just here in the U.S. but globally as well.

Wall Street traders tend to operate by the well-known adage “by the rumor, sell the fact,” but all week it has been almost impossible to figure out what is the rumor and what is the fact in the ever worsening U.S.-China trade tug-of-war.

Today was no exception, but to stop the markets from accelerating their plunge, Trump came out mid-day and jawboned that “a trade deal this week is still possible, but he has an ‘excellent alternative’ to the China deal.”

That pulled the markets out of their doldrums and got the rescue rebound started, causing ZeroHedge to tweet Trump’s new strategy (tongue-in-cheek, of course):

White House new trading strategy: deny trade deal is dead during US hours sending US stocks higher, confirm no deal ahead of China open crashing Shanghai Composite.

Not helping the mood of the warring trade parties was news that the FCC had barred China Mobile from providing telecom services in the U.S. market—over espionage concerns.

In the end, the major indexes cut down their early losses substantially, but I must wonder if this is just a temporary halt on the way towards a new visit in bear market territory.

I have on several occasions posted this chart showing the effect global money supply (blue line) has had on the direction of equities (S&P 500 green line).

In today’s update, the money supply has clearly rolled over begging the question “will the S&P 500 follow?”

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Markets In Search Of Support—U.S.-China Trade Deal Collapses

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

It’s now official. The planned tariff increases from 10% to 25% on imported Chinese goods are scheduled to go into effect this Friday. According to Reuters, China has made “systematic edits” to a nearly 150-page draft trade agreement by deleting commitments made previously.

That caused the White House to lose patience with the process, as it appeared that China’s original gesture to compromise was replaced with unwillingness to proceed. So, all the optimistic trade rhetoric we heard over the past few months, that assisted the markets to reach higher levels, vanished instantly as the “reneging” shifted into high gear.

I was surprised to see the markets to react as calmly as they did by bouncing higher throughout the session and showing some green numbers. But, it’s never over till it’s over.

This became clear at the end, when a sudden sell-off brought the indexes back to their unchanged levels, and we closed on a sour note, thereby leaving tomorrow’s market direction wide open to speculation.

Bond yields did an intra-day reversal and spiked after softness early on. The 10-year closed the day 3 basis points higher at 2.49%. Right now, it looks to me that the markets are mired in uncertainty with traders trying to figure out how to deal with the trade dilemma.

Sure, there is always the chance that it will be resuscitated, but that may be more wishful thinking than reality, as the warring parties appear to be digging in their heels. 

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