Friday’s Melt-Up Evaporates As The Dead Cat Bounce Dies

Ulli Market Commentary Contact

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

Friday’s month ending bounce-back is now in the rear view mirror as the floodgates opened this morning, and the major indexes headed straight south just about uninterruptedly until they found a support point this afternoon, which softened the damage for the day.

Nevertheless, chart damage was done with the S&P dropping below it’s widely watched 200-day M/A (-0.28%). This is the first time in about 18 months and generally a sign of weakening momentum that could invite further selling unless a quick bounce back recovers that level. That attempt fell short this afternoon.

There was simply no place to hide other than in gold. Tech took the lead down the elevator shaft again with FANGS getting hammered joined by bank stocks. Interest rates dropped with the 10-year bond yield hitting a two-month low at 2.73% while the US Dollar managed a slight rebound.

In terms of our Trend Tracking strategy, one of our trailing sell stops was triggered and will be liquidated tomorrow unless the markets stage a solid turnaround rally. The Domestic TTI has remained on the bullish side of its trend line but only by small margin. The International one has slipped barely below its own trend line, but by not enough of a margin to pull the trigger and declare this “Buy” cycle to be over.

However, we are very close. Should the markets show considerable weakness again tomorrow, I will then consider the International “Sell” to be validated and liquidate the appropriate holdings.

For details, please see section 3 below.

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ETFs On The Cutline – Updated Through 03/29/2018

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 173 (last week 109) 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.

Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 03/29/2018

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, March 29, 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 +1.28% after having generated a new Domestic Buy signal effective 4/4/2016 as posted.

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A Broad Rally Ends A Poor Month

Ulli Market Commentary Contact

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

A solid and broad rally right after the opening bell pulled the major indexes out of the doldrums with the bulls finally managing to reduce some of the losses sustained not only in March but YTD as well. Today’s leaders were the dogs of the month, namely tech and energy.

We’ll have to wait and see if the recent spanking of company’s like Facebook, Tesla, Twitter and Amazon will fade into the background come April or will be brought back on the front burner. But there were other culprits as well that contributed to weakness in equities, and those issues are far from being over. Global trade war concerns and a new Fed chairman, not afraid to raise rates at an accelerated pace, combined to bring stock prices down from their euphoric levels reached in 2017 and may continue to do so.

In the end, volatility and investor confusion have reach new heights but nobody can actually accurately forecast how this next quarter will play out. That’s why I believe it’s best to stick with our Trend Tracking strategy, which allows us to keep our emotions in check by only following the direction of the major trend along with our trailing sell stops. These two indicators will serve as our guide to calmly make buy/sell decisions especially when the market heat is on. This prevents us from making irrational moves when the media’s “headline hockey” game reaches ridiculous levels.

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Tech Leads Markets Lower In Choppy Session

Ulli Uncategorized Contact

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

Choppy and sloppy best describes today’s session, as the major indexes vacillated around their respective unchanged lines with the Nasdaq showing the most weakness as tech shares continued their swoon. It was a tug-of-war between good economic growth data along with home sales on one side and the bearish forces still in play from the beaten up tech complex on the other side. In the end, the sagging tech sector won but only by a small margin.

One thing that seems to be sorely missing from the current market activity is the buy-the-dip phenomenon that we’ve been almost taken for granted over the past year. All of a sudden, sharp market corrections without much subsequent lasting buying have occurred. While last Friday’s market dump saw a recovery on Monday, it was short-lived, which almost puts us back to Friday’s level. It will be interesting to see of the widely watched S&P’s 200-day M/A will hold for the third time, come next week.  Any break below will surely invite more selling.

We may very well be close to an inflection point where the major trend could reverse and send us back into the bearish camp. Our Trend Tracking Indexes (TTIs) are both within striking distance of crossing below their long-term trend lines and confirm this viewpoint (see section 3 below).

With one more trading session to go in this Holiday shortened week, it remains to be seen if the bulls can gain the upper hand and recuperate some of March’s losses.

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Tech Sector Imitates A Swan Dive

Ulli Uncategorized Contact

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

And it all started so peacefully. The markets opened on the plus side, after Monday’s euphoric rebound, when, after hugging the unchanged line for a while, the bottom suddenly dropped out, and the tech sector (-3.5%) did its best imitation of a swan dive pulling the entire equity arena with it. In the end, most of yesterday’s broad gains were given back.

Headlines engulfed the tech sector ranging from self-driving car issues, Tesla probe, Facebook hearings and reports that Google and Twitter may be pulled into the social media frenzy as well.

The S&P 500 tumbled -1.73% and is now again within striking distance of reaching its widely watched 200-day M/A, a break below of which might have dire consequences and could accelerate downside momentum.

As the VIX spiked, US banks got hammered after a nice showing yesterday. Commodities and Energy were hit hard. Bond yields tumbled with the 10-year giving back 7 basis points to 2.78%, its lowest since early February. The US Dollar (UUP) rebounded sharply overnight, pulled back and settled for a gain of +0.47%.

While none of our trailing sell stops were triggered, our Trend Tracking Indexes (TTI) slipped again closer to a potential “Sell” signal with especially the international one getting close. Please see the details in section 3 below.

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