1. Moving the markets

After Monday’s brutal sell-off, the major indexes managed to halt the bearish momentum by staging a modest rebound that peaked mid-day and then faded into the close. However, we ended the day with modest gains as cautious sentiment over trade policy remained on traders’ minds. To me, the session had the feel of a dead-cat bounce to it.

I consider this day an inconclusive one, as far as the status of our International TTI is concerned (see yesterday’s post). While I was looking for a sharp rebound to justify holding off with selling our international holdings, that did not materialize. On the other hand, more downside momentum would have confirmed our “Sell” signal, but that did not happen either.

In the end, I liquidated only 50% of our affected ETFs. I am now in a waiting position to see where there the markets go next. If the rebound continues, and our International TTI crosses back above its trend line, the “Sell” signal was a false one, and we will participate in the recovery with the remaining position. If, however, more downside weakness comes into play, it would confirm the “Sell,” and I will liquidate the leftover balance.

To be clear, the above only applies to “broadly diversified international ETFs.”

There was a lot of see-sawing going on in today’s session. While the major indexes stayed in the green all day, the Dow scrambled back above its 200-day M/A, only to lose it later in the day. The FANGs rebounded and so did the dollar. The odd man out was Crude Oil, which spiked and took out the $70/barrel level.

Traditionally, you could expect a quarter-ending rally for the next few days, as the window dressing factor comes into play but, with current global uncertainties, this is not a foregone conclusion.

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1. Moving the markets

The trade war rhetoric continued unabated with the Chinese President now vowing that “no more turning the other cheek” was the new mantra. Equity markets finally got the hint that many things could change for the worse when it comes to global trading, and that there may be more losers than winners, contrary to early expectations.

The major indexes took a dive right after the opening bell and headed south for the entire session threatening to take a dive into the close. To limit the damage, Trump’s trade advisor emerged to utter some soothing words by saying “that there were no plans to impose investment restrictions,” contrary to Mnuchin’s view, “and that today’s slide is an overreaction.”

This halted downward momentum, and we saw a rebound during the last hour, with the Dow recovering some 100 points, to limit the damage. However, it did break below its 200-day M/A for the first time in 2 years. Looking at the bigger picture, the S&P 500 is still positioned slightly above of where we started the month and is remaining above its own 200-day M/A by +2.02%.

To sum it up, there was no place to hide. The tech sector got hammered, the US Dollar headed south, FANG stocks were freefalling, Europe gave back Friday’s gains, and the overall mood was simply, well, sour.

We’ll have to wait and see, if this down day was just an outlier or the beginning of more downside action. Recent activity seems to point to the latter, but you can’t be sure until it happens.

The immediate effect of today’s downward swing was reflected in the International TTI, which last week had already broken slightly below its trend line but bounced back to keep the bullish theme intact.

The break today was a sharp one with the International TTI ending up -1.36% below its trend line, which is a clear and decisive move. Again, I will play it the same way as last week.

If I see a sharp rebound tomorrow, I will hold off with taking any action. However, if there is continued weakness, I will take that as new “Sell” signal for “broadly diversified international ETFs” and liquidate the affected positions. Stay tuned!

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1. Moving the markets

It appears that finally the U.S. equity markets got the message that not all is well with the world, as the gloomy trade news and a host of other events combined forces to not only push the major indexes below the unchanged line right after the opening bell, but also keep them there for the entire session.

The Dow has now closed in the red for 8 straight days, which ties its worst losing streak in some 40 years. The “most shorted” stocks found some relief by ending up having a long hoped for down day. The FANG stocks dipped and ripped but ended lower for the day.

The VIX supported the bearish mood by rising above the 15 level (rising VIX is bearish and vice versa), a point at which in the recent past dip-buyers have stepped in, however, today, they were conspicuously absent.

Regarding important data points, the headlines were simply not conducive to bring out the bulls, maybe in part due to some of these reasons:

1. The Philly Fed (business optimism/pessimism) crashed the most in 4 years
2. Italian fears back on the front burner with the appointment of 2 Euro skeptics to their parliament
3. Internet stocks skidded as SCOTUS rules in favor of internet tax collection
4. Dollar plummeted but limited losses late in the session

In the end, I suspect that maybe, just maybe, today the reality became clear that the actual implementation of trade tariffs will cause retaliations of equal or greater impact.

Our Trend Tracking Indexes (TTIs) slipped again with the Domestic one remaining on the bullish side of its trend line. The International one slipped below its dividing line between bullish and bearish territory by a small -0.36%. See section 3 for my plan of action.

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