Escalating Trade Tensions—Markets Recover

Ulli Market Commentary Contact

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

It was weak start to the 3rd quarter with the major indexes diving right after the opening bell, with the old stand-by, namely escalating trade tension, being the culprit and weighing on sentiment.

Despite this negative influence, a mid-day recovery, on the back of a rally in technology, turned things around and early losses were reversed, and we ended up seeing green numbers at the close.

Despite a positive finish, the trade battles go on, as the European Union (EU) has now threatened to respond with tariffs of $300 billion in US goods after Trump’s warning to slap a 20% tariff on auto imports from the EU.

And the game goes on: Tit for tat until eventually hopefully cooler heads will prevail and establish fair and just deals that everyone can agree to. In the meantime, the markets will remain in roller-coaster mode and react to the latest headline du jour.

On deck, and widely ignored, is the fact that the Fed’s QT program (Quantitative Tightening) will increase to $50 billion/month late in July from its current $30 billion. Makes me wonder how the markets will react, because, at the same time, the EU is fiddling with its reduction in QE (Quantitative Easing)?

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ETFs On The Cutline – Updated Through 06/29/2018

Ulli ETFs on the Cutline Contact

Below please find the latest High Volume ETFs 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 366 High Volume ETFs ETFs, defined as those with an average daily volume of more than $5 million, of which currently 119 (last week 136) 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 29, 2018

Ulli ETF Tracker Contact

ETF Tracker StatSheet

https://theetfbully.com/2018/06/weekly-statsheet-for-the-etf-tracker-newsletter-updated-through-06-28-2018/

GAINING FOR THE DAY, LOSING FOR THE WEEK AND CLOSING MIXED YTD

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

 An early rally flamed out as money managers squeezed in some quarter-ending window dressing causing volatility to the up- and downside, as the major indexes barely edged out some green numbers.

With the first half of 2018 now in the books, things did not turn out very well when considering that global stocks lost over $10 trillion. This chart demonstrates the distribution of winners and losers with the latter clearly leading, while the major indexes showed a mixed picture.

Domestically, YTD, the Dow lagged with -1.8%, followed by the S&P 500 (+1.7%), only thanks to a 2-day rebound yesterday and today. Taking top billing were the Nasdaq (+8.8%) and the Russell 2000 with +7.7%.

On the global stage, it appears that things have calmed down, at least for the moment, with China reportedly easing restrictions on foreign investment in certain sectors. Today, the EU leaders announced a deal over the crisis of migration, a tug-of-war that had been especially hard fought by the embattled German chancellor Merkel.

We’re now facing the second half of 2018 and future market performance will depend on a variety of conditions. These questions are on my mind currently:

  1. Can the economy continue to grow, or will it start sputtering as some reports suggest?
  2. Will employment conditions stay healthy with inflation being offset by wage growth?
  3. Will intended interest rate hikes be absorbed by a sufficiently growing economy?
  4. Will an EU banking crisis occur (Black Swan event) and can it be contained before spreading across the Atlantic?
  5. Will inflation accelerate to a point where rates need to rise sharply and affect stock markets negatively?

While no one has the answers, one thing is for sure. The second half promises to be anything but boring.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 06/28/2018

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, June 28, 2018

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 4/4/2016

Click on chart to enlarge

Our main directional indicator, the Domestic Trend Tracking Index (TTI-green line in the above chart) is positioned above its long-term trend line (red) by +1.55% after having generated a new Domestic Buy signal effective 4/4/2016 as posted.

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Financials And Tech Show Strength; International “Sell” Signal Confirmed

Ulli Market Commentary Contact

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

Another slow start followed by a bounce back, which had legs for a change, gave the major indexes a victory session, although a modest one. Whether this was just another dead-cat bounce remains to be seen, but bullish momentum was not overwhelming thereby confirming our Domestic “Sell” signal affecting “broadly diversified international equity ETFs.”

I sold our last holding this morning, and we will not re-enter this arena until our International TTI (section 3) crosses solidly back above its long-term trend line.

All of Europe, except for Great Britain, got spanked and deep red was the preferred color on their stock exchanges. Domestically, the Dow’s troubles with its 200-day M/A continued as it closed the 4th day below it, which is not a good sign for the bullish crowd.

Scanning across markets, we see that the dollar slipped while Bond yields rose modestly. Foreign exchange markets (FX) showed a mixed picture with the Argentine Peso collapsing to a new low, while the Mexican Peso rallied ahead of elections. Not to be outdone, the Chinese Yuan continued its swan-dive like imitation by slumping for the 11th straight day.

Regarding domestic markets, we have simply been stuck in a trading range for the first half of this year. Look at this chart of the S&P 500:

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From Feast To Famine: A Dead-Cat Bounce Dies

Ulli Market Commentary Contact

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

Follow through momentum from yesterday’s modest rebound ran into a brick wall mid-day, the bears took over and down we went with the major indexes diving decisively into the red and closing at the lowest level of June.

It sure looked like an early dead-cat bounce died suddenly and selling accelerated, as sentiment was influenced by the usual suspect, namely the ever-present anxiety over trade policy.

Only 3 of the primary S&P sectors ended on the plus side, while tech dropped -1.5%, which was followed by consumer discretionaries with -1.3%. The financial sector (-1.3%) set a new dubious record by extending the number of its successive daily declines to 13.

The Dow continued to bounce around its 200-day M/A but closed below it for the 3rd day as the VIX headed higher to top the 18 level. The massacre in Emerging Markets continued after a pausing for a few days, caused in part by a renewed surge in the US dollar with UUP gaining +0.60%.

Our International TTI slipped again and is confirming that the bears have won the battle for the time being. This indicator is now sitting -2.07% below its long-term trend line and therefore in bear market territory. As posted, I already liquidated some of our “broadly diversified international equity ETFs” and will sell the remaining balance tomorrow.

Again, I will watch the market action early on and, should there be a huge rebound in the making, I will hold off taking any action. Otherwise, the effective date for this international “Sell” signal will be 6/28/2018.

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