ETF Tracker Newsletter For June 1, 2018

Ulli ETF Tracker Contact

ETF Tracker StatSheet

https://theetfbully.com/2018/05/weekly-statsheet-for-the-etf-tracker-newsletter-updated-through-05-31-2018/

 STILL STUCK IN ‘NO MAN’S LAND’

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

The above weekly chart demonstrates the 4-day roller coaster ride we just went through. While this clearly points to the ever present uncertainties, as perceived by the markets, the S&P 500 and the Nasdaq managed to close a tad higher, but the Dow lagged and closed lower at week’s end.

Throwing the big assist, after yesterday’s plunge, was a stronger-than-expected jobs report showing 223k new jobs created vs. 200k expected, while the unemployment rate fell to 3.8%, an 18-year low. Impressive was that gains were more broad based, and not just minimum wage, but also covering sectors such as Professional Services, Manufacturing, Education and Healthcare.

On the other hand, the numbers seem confusing and do not add up, as there are some 102 million Americans who are either unemployed or out of the labor force. Be that as it may, the markets did not care and the headline number simply ruled, giving the major indexes a chance to dig themselves out of yesterday’s hole.

While trade wars and concerns about Italian politics are still alive, some alleged progress was made last night, as the populist parties struck a deal to form a coalition government ending months of gridlock. That propelled the European markets and spilled over into the U.S. right after the opening bell.

The fact that markets tend to ignore realities, and prefer focusing on the headline du jour, is best illustrated by ZH’s summary:

  1. New anti-establishment Italian government? Check.
  2. New anti-establishment, socialist Spanish government? Check.
  3. Trade war between the US and Europe, Mexico, & Canada? Check.
  4. Deutsche Bank (most systemically risky bank in the world at one point) downgraded to a B-handle? Check.
  5. Fed Tightening as rate-hike odds rise after good jobs data trumps EU risk? Check.

In the end, while weakened during the roller-coaster ride, our Trend Tracking Indexes (TTIs) remain in bullish territory. Even the International one, which had come to within 0.02% of crossing into bear market territory, bounced off its trend line showing signs of a modest recovery.

I expect this type of wild ride to continue until some massive event appears that will push the markets out of its current trading range. The only question remains “will it be to the upside or to the downside?” We have to be prepared for either one.

In a way, Morgan Stanley is already prepping its clients for the next stock market  crash using sophisticated technology and advising them to Hold On For Dear Life (HODL) at a time when bullishness is the prevailing theme not only on Wall Street but around most parts of the world as well.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 05/31/2018

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, May 31, 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 +1.81% after having generated a new Domestic Buy signal effective 4/4/2016 as posted.

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The Roller Coaster Ride Continues

Ulli Market Commentary Contact

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

While worries about Italy’s politics faded for the moment, they were quickly replaced by news of a new Spanish PM, with a very critical view of the European Union, causing more uncertainties in the markets.

However, taking top billing was the Trump administration’s confirmation imposing steel and aluminum tariffs on the EU, Mexico and Canada beginning at midnight tonight. The response by the EU was quick and angry and counter balancing measures were said to be on its way.

Not helping the bearish mood were headlines that the housing rebound is slowly dying with new, existing and pending home sales tumbling in April.

As a result, the major indexes headed south again, after an encouraging rebound yesterday, but they managed to close in the green for the month with the S&P 500 adding 2.2%.

Despite sliding bond yields, with the 10-year dropping 1 basis point to close at 2.83%, we’ve seen as of late a variety of risk scenarios that have kept a lid on market advances.

Looking back to the beginning of the year, we’ve struggled with a range of issues, namely higher interest rates and inflation, which was followed by trade/geopolitical fears and now Italian and Spanish politics.

And, let’s not forget the potential downgrade and/or possible demise of Deutsche Bank (DB), AKA the mother of all derivatives. Making its situation even more critical was today’s disclosure by the Fed that DB had been placed on a “troubled condition” status a year ago. Ouch!

It promises to be an interesting summer…

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When Bad News Is Good News

Ulli Market Commentary Contact

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

The Italian bond panic subsided somewhat as their 2-year yield dropped sharply from yesterday’s 5-year high of 2.84% to as low as 1.925%, which reassured wobbly markets that life still goes on as it helped a rebound in equities.

Here in the U.S. the old “bad news is good news” scenario emerged with a vengeance pulling the major indexes out of the doldrums and providing the spark to switch back to the bullish meme.

The bad news was that Q1 GDP was revised down to 2.2% (from 2.3%) indicating that the US economy grew slightly less than expected. That, along with Italy’s constitutional crisis, however, caused the odds of the Fed hiking interest rates 3 more times this year to drop sharply to 15%, which was all that was needed to spark today’s rally.

At day’s end, Zerohedge summed up today’s activity like this: “US stocks soar…because nothing is fixed in Europe and US growth slows.”

It makes you wonder if this chart provides a glimpse of the future…

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Financial Chaos In Italy = Dumping Equity Markets

Ulli Market Commentary Contact

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

Italy’s political turmoil, along with its banking crisis, which I alluded to last Friday, continued over the weekend and into today pushing worldwide markets to the downside. The major indexes took a hit as well but recovered slightly late in the session, which some observers thought to be an appearance by the Plunge Protection Team to limit the damage.

As always, ZeroHedge succinctly summarized the meltdown best:

  1. Italian 2Y Yield biggest spike ever
  2. Italian risk curve inverted
  3. Italian ‘redenomination risk’ record high
  4. Spanish 2Y bond yields spike to 2Y highs
  5. Spanish ‘redenomination risk’ record high
  6. EU banks crash 11% in last 4 days to 18-month lows
  7. US banks plunge 4% to 6-month lows
  8. VIX back above 200DMA
  9. US 5Y Treasury yields plunges over 18bps – most since March 2009
  10. US 30Y Yield back below 3.00% – lowest in 7 weeks
  11. Dollar Index spiked to 6-month highs

While Italy may face fresh elections later on this year, Spanish markets were hit as well with the parliament starting the process for a no confidence vote against PM Rajoy creating a sea of red numbers in exchanges around the world.

Then Deutsche Bank (DB), long caught in a downside spiral, and facing a possible S&P downgrade, saw its stock price sink another -6.22% to $11.30 and within striking distance to the red line in the sand, namely the $10 level. Remember, with DB’s large exposure to Italian bonds, and being the world’s largest holder of derivatives, a potential demise would have a domino effect around the world.

Benefiting from all this panic around the world were Treasury Bonds, which rallied sharply with their yields dropping some 13-18 basis points, as the hunt for perceived safety continued. The 10-year yield closed down 16 basis points to end at 2.77%, far away from the danger zone known as the 3% level.

Also gaining from this turmoil was the US dollar (UUP), which closed up 0.69% to make new 6 month highs. If these events prove to be contagious, and further affect equities, we may be heading for the safety of the sideline in the near future, but the jury still out. At the same time, these uncertainties may make the Fed’s next planned 3 rate hikes obsolete.

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ETFs On The Cutline – Updated Through 05/25/2018

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 168 (last week 185) 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.