[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.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

There was nothing for the computer algos to be optimistic about, as far as uplifting news headlines was concerned. There simply weren’t any, and the Dow started the session with a 400-point drop and ended up below its 200-day M/A for the first time since the beginning of the year.

Even a hint of a rebound was quickly wiped out, as traders worldwide seemed to have finally gotten the idea that the widely touted trade deal had bitten the dust, and a protracted U.S.-China confrontation has morphed into a lengthy standoff. These increased frictions weighed heavily on the markets in general and on the tech sector specifically.

The jawboning between the countries went on with China stating the talks would only continue when the U.S. adjusts its “wrong actions,” etc., etc., etc. with the tit-for-tat sinking to new lows.

None of this helped equities, which were struck be several economic data misses. New home sales collapsed in April, despite a soaring median price, even though they were expected to slide only -2.5% but instead plunged -6.9% MoM after an upward revision for March.

Business Confidence followed suit by tumbling to 7-year lows, while Crude Oil crashed to 2-month lows, likely as a result of trade tensions reducing hope for a revival of global growth.

The bond market was in panic mode, as yields plummeted with the 10-year touching 2.29%, the lowest since December 2017, as traders moved out of equities and into the perceived safety of bonds.

During the last 30 minutes of trading, some dip buyers showed up to pull the indexes off their lows, but it was not enough to affect the sea of red we witnessed all day.