An Early Struggle Followed By A Late Rebound

Ulli Market Commentary Contact

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

A sudden mid-morning drop pulled the major indexes further south, after an already weak opening caused by Google’s poor report card, which showed that revenue growth cooled off in Q1 and all major sales categories performed worse than projected. The punishment was immediate with the stock price being down some 8%.

Not helping the markets was White House Chief of Staff Mulvaney’s comment that the U.S. won’t do a deal with China, unless it’s “great.” The major indexes took it as a negative and south we went.

Not to be outdone, President Trump then reaffirmed his position towards interest rates by demanding the Fed slashes rates by 1%. And that after he called for QE4 and rate cuts earlier this month. Let’s see what happens with the outcome of the FOMC (Federal Open Market Committee), which just started its two-day meeting. We should have an answer by noon tomorrow.

The economy offered a mixed set of numbers. Consumer Confidence spiked and beat expectations. This was offset by a continued slump in home prices nationwide and a crash of the PMI data (manufacturing and services), which was its biggest 2-monthly drop in some five years.

In the end, 2 of the 3 major indexes staged a magic V-shape type of recovery back above the unchanged line, while the Nasdaq lagged and gave back -0.66%, thanks to Google’s disappointing numbers.

Tomorrow’s outcome of the Fed meeting could set market direction for the near future despite seasonal headwinds.

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A Green Monday

Ulli Market Commentary Contact

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

While the major indexes closed in the green to start the week, the gains were minor despite the Nasdaq scoring back to back record closes. The S&P 500 managed to notch a new intra-day high but slipped into the close barely finding support above the unchanged line.

The index has now reached an extremely overbought level, the most since January 2018, which was a moment in time that signaled an upcoming sudden and sharp correction. Complacency is high with VIX showing record short positions, which means traders are betting on a continued stream of low volatility. That is absolute insane and will not end well, as markets can turn suddenly and violently when extreme levels are reached.

Rising rates pulled interest rate sensitive sectors, such as low volatility equity and Real Estate ETFs a little lower, with the US Dollar joining the party and losing some of its luster as well, although the slide was modest.

On the economic front, we saw that consumer spending jumped 0.9% in March, its largest monthly gain in almost 10 years. Allegedly, core inflation weakened, leading traders to conclude that the Fed will not yet be motivated to change its interest rate policy.

Yet, at the same time, the US savings rate plunged, while YoY spending has accelerated beyond income growth. Yes, that is only possible because of the never-ending use of credit.

Go figure…

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ETFs On The Cutline – Updated Through 04/26/2019

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 273 (last week 267) 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 April 26, 2019

Ulli ETF Tracker Contact

ETF Tracker StatSheet

https://theetfbully.com/2019/04/weekly-statsheet-for-the-etf-tracker-newsletter-updated-through-04-25-2019/

Q1 GDP Blows Through Expectations

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

The Q1 GDP number blew through expectations by soaring 3.2% annualized, which was some 50% higher than the 2.3% forecast. However, when looking under the hood, analysts realized that one-time items such as a surge in inventories and a smaller trade deficit are simply not sustainable making this number suspect as far as future advances is concerned.

The core drivers, namely consumption and fixed investment were weak and dropped from Q4. According to ZH, the internal numbers showed that this was the weakest quarter for household spending in five years. Tweeted econ guru David Rosenberg:

This was a low-quality GDP report. All one-offs – lower imports, higher inventories & Pentagon spending. Real final private sales a puny 1.3%. Removing more lipstick from this pig shows cyclically-adjusted GDP contracting at a 2% annual rate; deepest decline in nearly a decade.

Maybe that’s why market reaction was almost muted with stocks pulling back early on. Not helping the lurking bulls was a big miss in earnings and production by Exxon, which tumbled 3% and weighed heavily on the Dow. Intel followed suit and its stock price was punished -10%, as its outlook fell way below estimates contributing to the Nasdaq’s early decline.

Seeing a strong GDP number, you would have expected bond yields to rise, but no, the exact opposite occurred with the 10-year dropping 3.3 basis points. It seems that dovishness prevailed, despite the stronger than expected GDP number, which I think is a clear sign that Wall Street traders consider this to be an economy in contraction and not one in expansion mode.

Be that as it may, at the end of this week, two of major three indexes closed in the green with the S&P 500 and Nasdaq notching record closes, while the Dow had its first down week in 5. On the other side of the globe, Chinese equities puked and had their worst week in 6 months.

Looking at the big picture, I noticed that this chart has changed in that global money supply, one of the main drivers of the current rally, has tumbled? Does that mean the current rebound is about to end?

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 04/25/2019

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, April 25, 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: 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 +5.93% after having generated a new Domestic “Buy” signal effective 2/13/19 as posted.

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Markets Under Pressure

Ulli Market Commentary Contact

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

The markets came under pressure this morning with the Dow dropping some 250 points right at the opening. 3M was the contributor to this downside move as earnings disappointed, but more importantly, the company slashed forward guidance for 2019 and reduced its workforce by 2,000. The punishment was immediate with the stock skidding some 13%, its worst day since 1987’s Black Monday.

While the Dow bounced back, thanks to dip-buying rescuers, the index fared the worst of the 3 major ones by losing -0.51%. The Nasdaq closed slightly in the green, and the S&P hugged its unchanged line throughout the day but gave back a fraction in the end.

While we’ve seen a decent advance in equities this week, there are mounting signs of economic weakness throughout the world, ranging from Europe to Australia where rate cut expectations have increased. The Bank of Canada and the Bank of Japan are both projected to assume a more dovish stance (lower rates) in preparation of combating a further slowing of economic activity.

Domestically, we saw initial jobless claims surge the most in 18 months, thereby wiping out the drop we saw over the past 5 weeks. Does that mean we are now seeing the “real” and not seasonally adjusted economy appear on the horizon?

Again, bond yields ticked down causing a more favorable close to the low volatility SPLV vs. its more aggressive cousin SPY. See yesterday’s post for details.

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