ETF Tracker Newsletter For March 8, 2019

Ulli ETF Tracker Contact

ETF Tracker StatSheet

https://theetfbully.com/2019/03/weekly-statsheet-for-the-etf-tracker-newsletter-updated-through-03-07-2019/

ABYSMAL JOBS REPORT SENDS EQUITIES LOWER

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

Today, it was a dismal jobs number that put equity markets on the defensive, as an ‘ugly’ payroll report showed that only 20k jobs were generated during February. It was filed in the “just bad enough” category that even computer algos did not register it as good news for stocks, which otherwise would have sent markets surging.

Why?

Because this was for sure another nail in the coffin of any future rate hikes. And not just that, it may very well be pointing in the direction of potential rate decreases and possibly the implementation of more QE (Quantitative Easing). In other words, it confirms what I have been posting about, namely that a continued global slowdown is a real possibility, and the U.S. will not be isolated from it.

Even President Trump’s attempt to ‘juice’ the markets by declaring that, as soon as the China deal is done, “we will see a very big spike” fell on deaf ears and had no effect. Wiping out the mid-day rebound were news that China’s Xi had cancelled his future meeting with Trump at the Mar-A-Lago estate, where allegedly the trade deal was supposed to be signed.

The major indexes bobbed and weaved below their respective unchanged lines, until a late rally wiped out most of the earlier losses and pushed the Dow almost into positive territory. However, we fell short of that goal but recovered nicely.

The exception was the Transportation Index (IYT), which has been down for 11 straight days, it’s worst losing streak since Nixon reigned in 1972. This is significant only in the sense that this gauge is closely watched due to it representing the health of the overall economy.

The gap between reality and stock prices is far too wide, as this chart shows, leaving me pondering: Will earnings move up to justify current prices or will the S&P move down to meet earnings levels?

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 03/07/2019

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, March 7, 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 +1.09% after having generated a new Domestic “Buy” signal effective 2/13/19 as posted.

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Global Growth Fears Smack Equities

Ulli Market Commentary Contact

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

Right after the opening bell, equities hit the skids with the Dow dropping some 300 points before finding some footing. Causing this upheaval was the European Central Bank’s (ECB) Draghi, who unveiled a massive monetary easing program and an extended NIRP (Negative Interest Rates) period.

While that should have been a positive for equity markets, it wasn’t! Stocks stumbled, which was a reaction the market has rarely ever seen before considering that a Central Bank announced a surprisingly dovish move, even though it was in the face of a ‘substantial’ downward revision to EU growth from +1.7% to +1.1%.

So, what does that mean? Some analysts think this adverse reaction is a clear sign suggesting that Central Banks are losing control over markets by attempting to push stocks too far. The fallout was worldwide with U.S. equities following the bearish trend.

The ECBs surprise policy move sent shivers through global markets. It remains to be seen whether this is just an outlier, or a sign of things to come, but worries about a slowing global economy just reached a new high.

Since all countries are inter-connected to varying degrees, the U.S. will not be able to decouple and will experience some slowdown as well. Judging by the recent weakness in econ data points, we already have seen this process in motion; the financial markets, however, have so far been oblivious to it.

Domestically, the S&P 500 dropped below its 200-day M/A, managed to crawl back above it but ended up succumbing to bearish forces by closing slightly below it. Remember, for many Wall Street traders, this line represents the divider between bullish and bearish territory and therefore is currently seen as a critical support level which, once clearly broken, could signal the end of this current bullish phase.

Finally, ZH just couldn’t help themselves but pose the question: “It can’t be this easy, right?”

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Trade Optimism Slips—Equities Follow Suit

Ulli Market Commentary Contact

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

The major indexes were unable to touch the plus side of the unchanged line, as the historic Christmas rebound struggled for the second day with the S&P 500 not being able to decisively cross above its apparent glass ceiling, namely the 2,800 level.

Global markets slipped as well with investors waiting for new catalysts either from the trade arena or dovish comments from the monetary authorities. Neither was forthcoming throughout the session, so we traveled the path of least resistance, which was lower.

Regarding economic data, ADP reported dramatically slowing employment gains for February with the print coming in at 183k, which was slightly below the expected 190k. However, January’s gains were upwardly revised to 300k, which make the February reading even more disappointing. Small businesses noted the biggest drop in jobs since 2013.

We also saw the US trade deficit soar to $621 billion, which was its highest since 2008 and is not exactly a positive for the pending U.S.-China trade negotiations. To add insult to injury, Chines equities are soaring while U.S. markets are not.

SmallCaps got spanked (3% this week) and dropped below its 200-day M/A,  while Transportations were down the 9th day in a row making it its longest losing streak since February 2009. High yield credit (HYG) has dropped 5 days in a row, meaning that rates have been rising.

On the other hand, 10-year bond yields have been doing an about face by fading after last week’s sharp rally, but there has been no positive fallout for the stock market.

Things appear a little topsy-turvy right now, and we’ll have to wait and see which way this will play out. However, could it possibly be that global money supply, which has started to roll over, is the real culprit for this weakness in equities?

If that trend continues, watch out below.

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Clinging To The Unchanged Line

Ulli Market Commentary Contact

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

Aimless meandering probably best describes today’s session during which traders looked in vain for catalysts to establish market direction. There were none, so we bounced around the unchanged line in a narrow range, as neither bulls nor bears could find some footing.

In the end, the major indexes closed slightly in the red; not a bad result considering the violent moves we witnessed yesterday. While some reports noted that a trade solution between the U.S. and China maybe close, there was no market reaction. This makes me think that this type of news may already have been priced in.

It looks like a new driver is needed to attempt another breakthrough of the S&P’s 2,800 level, since it seems that trade optimism has taken us as far as it could. As I posted before, this was the 4th attempt over the past few months with 3 of them having been rebuffed and ended with a sell-off.

We’ll have to wait and see if “it’s different this time,” otherwise the bears might be able to gain the upper hand—again.

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Losing Support And Dumping Into The Red

Ulli Market Commentary Contact

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

Sure, eventually there had to be a market pullback, as only hype and euphoria surrounded the U.S.-China trade talks with hard evidence of progress still seeming to be nebulous. This is what we saw today, as optimism about a concrete resolution simply faded.

An early rally vanished in a hurry with the Dow sinking at one point over 450 points, before a slow and steady comeback sharply limited early losses. I took the opportunity to add some sector ETFs to our holdings, as the major indexes were hovering deeply in the red.

The S&P 500 surrendered its hard fought for 2,800 level but only closed 8 points below it. However, more importantly, the index was threatening to break below its 200-day M/A, now seen as a support level, but it managed to reverse course and close safely, at least for the time being, above it by ~1.5%, as the afternoon bounce-back came to the rescue.

At this point, the S&P 500 is stuck in a quadruple top formation, and it is critical for this index to not only to regain its 2,800 marker but also to create further upside momentum. Otherwise, we might see a repeat downside performance, as shown by the previous 3 attempts, of which the third one was the most devastating, which led to the disastrous Q4 2018.

A variety of analysts and newsletters like ZH present this chart from time to time to serve as a reminder of where we might be and what could occur. Look at it and notice how close we are of repeating history.

Will it happen again? Who knows, but I feel that it is imperative to have an exit strategy in place, just in case a similar outcome sneaks up on us with the potential to absolutely pillage investment portfolios. After all, economic realities are far detached from current elevated equity levels.

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