ETF Tracker Newsletter For December 21, 2018

Ulli ETF Tracker Contact

ETF Tracker StatSheet

https://theetfbully.com/2018/12/weekly-statsheet-for-the-etf-tracker-newsletter-updated-through-12-20-2018/

MARKETS END A MISERABLE WEEK IN A SEA OF RED

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

Here we go again. An early bounce ran into resistance, as bears upheld their dominance and sent the major indexes into a tailspin with the Dow registering another 400-point loss leaving some traders stunned and speechless. That’s no surprise to me, as most participants haven’t been around long enough to know what causes bear markets, how to identify one and how to stay out of harms way.

It was an ugly week with the Dow and S&P 500 down around -7% (yes, that is for the week!) while the Nasdaq (and SmallCaps) tumbled a more dramatic -8.4%. The tech index has now officially slipped into a bear market, which is defined as a drop of at least 20% from its recent high.

ZH adds that this was the worst week for the Dow and Nasdaq since October 2008 and the worst week for the S&P 500 since August 2011. All three indexes have now closed lower the last 5 out of 6 weeks:

From the 52-week highs:

  1. Dow -16%
  2. S&P -17%
  3. Nasdaq 100 -21% – BEAR
  4. Nasdaq Composite -22% – BEAR
  5. Trannies -23.6% – BEAR
  6. Small Caps -26% – BEAR

The culprits taking the starch out of the early rebound were the same with fears of a partial government shutdown, slowing global growth and rising interest rates taking top billing.

Then Fed governor Williams came out to try to jawbone the markets higher, which worked for a while until his comment “the balance sheet runoff is on auto-pilot,” reversed the modest rally.

Not to be outdone, Trump’s trade advisor Peter Navarro chimed in that a “trade pact with China within 90 days may prove to be difficult.” That appeared to be the final nail in the bullish coffin and down we went. This graph depicts precisely the market reaction to Williams and Navarro.

At this time it seems that the Smart Money indicator is spot on meaning things could get really ugly from here. Sure, we’re bound to see a rebound with legs that holds short-term, but the major trend remains bearish until my TTIs prove otherwise.

As of today, the S&P 500 has tumbled -11.84% since the effective date of our Domestic “Sell” signal on 11/15/2018.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 12/20/2018

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, December 20, 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: SELL — since 11/15/2018

Click on chart to enlarge

Our main directional indicator, the Domestic Trend Tracking Index (TTI-green line in the above chart) is now positioned below its long-term trend line (red) by -11.08% after having generated a new Domestic “Sell” signal effective 11/15/18 as posted.

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Ferocious Bears In Charge: Markets Get Mauled

Ulli Market Commentary Contact

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

There was simply no hope at all for the bulls today, as we headed south right after the opening bell. Not helping the anxiety among traders were news that Trump was reluctant to sign a bill that would extend funding for the government to avoid a partial shutdown. That remark took the major indexes down another notch.

The edgy market mood continued when the Nasdaq dropped some -2.1% and came within striking distance of touching its bear market level, defined as a drop of -20% from recent highs.

I am sure that critical point will be breached, especially since the Fed announced the shrinkage of its balance sheet to be on “auto pilot.” Translation: Stocks are on their own for the first time in a decade, as the Fed pursues its Quantitative Tightening. Not a good outlook for the bulls…

Then hedge fund guru David Tepper opined that the “Fed’s lifeline is gone,” referring to the assumed Fed “put” that allowed markets to only sink to a certain level, before they would step in and rescue equity investors via their various QE programs. That’s one of the reasons why we have not seen any bear markets since 2009. During that period, I identified several of them, but they all were magically saved by sudden bullish sentiment.

Adding to the miserable mood on Wall Street was the Fed’s Dudley when he chimed in by adding that “The Fed is not there to take away the market’s pain,” and that “The Fed does not care about market prices for themselves.”

Wow, you can’t be any more direct than that…

In the end, it was another ugly day with the major indexes now down -10% for the month, while Transportations and SmallCaps fared even worse.

How low can we go?

This chart of the tightening of financial conditions index suggests another 300 points on the S&P, at least for right now. However, other forecasts I have seen point to much lower levels.

It’s good not to participate in this financial disaster with $16.7 trillion of market cap having been erased from global stock markets this year. Ouch!

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Fed Hikes And Bulls Strike, As Markets Tank—Again

Ulli Market Commentary Contact

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

The Fed did not cave to recent public pressure exerted by politicians and Wall Street traders but stayed the course and hiked rates ¼%, while also predicting another possible two increases next year down from the previously announced three.

While two is better than three, at least in the minds of traders, this was not as dovish an announcement as was expected, so the markets took the path of least resistance, which was “down.” In the process, not only were the early hopeful gains (the Dow traded in a 900-point range) wiped out “again,” but the S&P 500 also made new lows for the year while killing any remaining bullish sentiment for the time being.

The Transportation ETF (IYT) was the latest victim to plunge into bear market territory, as it gave back -3.11% to close -20.9% below its September record. Maybe that’s why a FedEx outlook suggested a severe global recession to be on the horizon.

Across markets, banks were clobbered to their lowest since November 2016 and high-yield bond prices got hammered the most in 8 months to the lowest since April 2016, according to ZH. This is the market’s worst year since 2008, worst quarter since Q4 2008 and worst December since 1931!

As Trend Trackers, we’re happy to watch this debacle from the sidelines. As a point of interest, since the effective date of our domestic Sell signal on 11/15/18, the S&P 500 has now lost -8.05%.

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Another Rally Bites The Dust

Ulli Market Commentary Contact

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

Today was a repeat of what we’ve seen a lot of lately. An early rally reversed mid-day, headed south below the unchanged line, but a last-minute bullish push shoved the major indexes back into the green, but only by a tiny margin.

The walls of worry remain a deterioration in global growth and the upcoming results tomorrow of the Fed’s two-day meeting on interest rates. Will the Fed cave and become dovish or stay the course set on a hawkish path?

A more dovish view could ignite the bulls—at least on a temporary basis and create the much-desired Santa Claus rally. What exactly is it? Trader’s Almanac defines it as follows:

The Santa Claus rally is a “short, sweet, respectable rally within the last five days of the year and the first two in January” with an average gain of 1.3%. It warns, however, that “Santa’s failure to show tends to precede bear markets”.

If that were to happen, the average gain would not be enough for the markets to climb out of their bearish range, at least the way I define it as per my Trend Tracking Indexes (TTI). It would merely represent a bounce in an ongoing bear market.

So far, and that is hard to believe, December has extended its worst performance since, get this, 1931! With global markets showing weakness wherever you look, today it was Crude Oil that got spanked at the tune of -7.34% with a hard landing at $46.22/barrel. Oil prices have now collapsed 40% from recent highs, and the Fed is scheduled to hike rates?

Hmm…

It promises to be an interesting day tomorrow.

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Markets Get Hammered—More Fireworks Ahead?

Ulli Market Commentary, Uncategorized Contact

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

The Dow dropped some 300 points right after the opening but managed to recover and return to the unchanged line, before a massive selling bout sent it back down some 500 points. All 3 major indexes lost in excess of 2%.

Intra-day, the S&P 500 took out its February low for the year (2,532.69) but managed to close above it by a fraction. As I mentioned before, the odds have now increased that this low point will be taken out on a closing basis. Other stats show that more than half of the S&P 500 stocks (53%) are now in a bear market, meaning they have come off their highs by more than 20%, which is a clear sign that the decline has been broad.

To add insult to injury, one historian remarked that this is the worst start to a December since 1950. Ouch! Selling accelerated in the afternoon, as hedge funds went into liquidation overdrive with “computer buying algos” being conspicuously absent, which can cause prices to fall without much resistance.

And that’s when the exit doors can get really crowded, as I have warned about on various occasions. That means you need to be out before mass hysteria sets in. While we have not seen outright capitulation, it could happen at any time.

For context, ZH summed up the day as follows:

  1. Dow -12.7% from highs (correction)
  2. S&P -13.7% from highs (correction)
  3. Nasdaq Composite -17.3% from highs (correction)
  4. Dow Transports -19.4% from highs (correction)
  5. Russell 2000 -20.6% from highs (bear market)
  6. S&P’s lowest close since October 2017…taking out the intra-day lows from February…

 What could turn this bearish trend around?

On deck is the final Fed meeting of the year, with the results being announced this Wednesday. I don’t recall the Fed being so scrutinized as they are these days with traders wondering whether they will hike ¼ point or not. The hike was a foregone conclusion a few weeks ago. However, recent statements by Fed head Powell indicated a more “dovish” tone making the outcome of their meeting questionable.

My view is this: Should they hike in the face of a weakening domestic and global economy, you will see the markets take another dive. However, if the Fed blinks and not hike, you might see the bulls appear again trying to dig themselves out of a hole via a relief rally. Whether this rally will be enough to re-establish the bullish trend is doubtful, but you can never be sure.

It’s good to watch this movie from the sidelines…

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