From Feast To Famine: A Dead-Cat Bounce Dies

Ulli Market Commentary Contact

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

Follow through momentum from yesterday’s modest rebound ran into a brick wall mid-day, the bears took over and down we went with the major indexes diving decisively into the red and closing at the lowest level of June.

It sure looked like an early dead-cat bounce died suddenly and selling accelerated, as sentiment was influenced by the usual suspect, namely the ever-present anxiety over trade policy.

Only 3 of the primary S&P sectors ended on the plus side, while tech dropped -1.5%, which was followed by consumer discretionaries with -1.3%. The financial sector (-1.3%) set a new dubious record by extending the number of its successive daily declines to 13.

The Dow continued to bounce around its 200-day M/A but closed below it for the 3rd day as the VIX headed higher to top the 18 level. The massacre in Emerging Markets continued after a pausing for a few days, caused in part by a renewed surge in the US dollar with UUP gaining +0.60%.

Our International TTI slipped again and is confirming that the bears have won the battle for the time being. This indicator is now sitting -2.07% below its long-term trend line and therefore in bear market territory. As posted, I already liquidated some of our “broadly diversified international equity ETFs” and will sell the remaining balance tomorrow.

Again, I will watch the market action early on and, should there be a huge rebound in the making, I will hold off taking any action. Otherwise, the effective date for this international “Sell” signal will be 6/28/2018.

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Trade Uncertainty Remains; Indexes Rebound Modestly

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]
  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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More Trade Threats Rattle Markets; International TTI Moves Into Bear Market Territory

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]
  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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ETFs On The Cutline – Updated Through 06/22/2018

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 136 (last week 168) 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.

ETF Tracker Newsletter For June 22, 2018

Ulli ETF Tracker Contact

ETF Tracker StatSheet

https://theetfbully.com/2018/06/weekly-statsheet-for-the-etf-tracker-newsletter-updated-through-06-21-2018/

 TRADE JITTERS PULL MAJOR INDEXES DOWN FOR THE WEEK

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

The markets staged a nice rebound today with the Dow snapping its 8-session drop, but weakness occurred late in the day with the indexes diving into the close, and the Nasdaq ending in the red.

The international ETFs recuperated, thereby making my call, whether to validate yesterday’s dip below its trend line and selling some of our affected holdings, an easy one. I selected option 1 of 3, which I pointed out in yesterday’s post:

Once the markets open tomorrow and seem to be steady or rebounding, I will hold off liquidating our international positions for another day.

That’s how it played out for the time being, but it’s far from certain that this rebound will hold, so we must be prepared to switch gears again should market conditions warrant such a move.

Dangers to more weakness in global markets lurk everywhere. One example is Trump’s latest announcement to slap 20% tariffs on all cars coming into the U.S. from Europe. Ouch! Should this threat turn into a reality, we can be sure that our International TTI will be testing its trend line to the downside again (currently +0.15%).

In the larger scheme of things, on a worldwide basis, there has only been one asset that has been outperforming, as this chart shows, which makes me wonder how long this discrepancy can last.

Summing up the week, we find this (thanks to ZH):

  1. Dow’s worst week in 3 months (ends 8-day losing streak, worst in 40 years)
  2. Trannies’ worst week in 3 months
  3. S&P worst week since early April
  4. Nasdaq ended the week lower – first down week in a month
  5. Small Caps up (barely) for 8th week in a row

Tomorrow is June 23rd, which is the 10-year anniversary of our epic call to get out of domestic equities on 6/23/08 just prior to the crash. Here’s what the chart looked like at that time:

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 06/21/2018

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, June 21, 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 +2.46% after having generated a new Domestic Buy signal effective 4/4/2016 as posted.

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