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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ETFs On The Cutline – Updated Through 12/14/2018

Ulli ETFs on the Cutline Contact

Below, please find the latest High-Volume ETF 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 322 High Volume ETFs, defined as those with an average daily volume of more than $5 million, of which currently 48 (last week 51) 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 December 14, 2018

Ulli ETF Tracker Contact

ETF Tracker StatSheet

https://theetfbully.com/2018/12/weekly-statsheet-for-the-etf-tracker-newsletter-updated-through-12-13-2018/

MARKETS ON EDGE: MAJOR INDEXES GET CLOBBERED AGAIN

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

As hard as I tried, there was simply no news item to be found anywhere to support the cause for the bulls. US PMI plunged and confirmed a near-record streak of disappointing global data, US Manufacturing disappointed and has stagnated for the 2nd month in a row, while Johnson & Johnson shaved over 100 points off the Dow.

JNJ tanked 10% after reports that the company knew that its baby talcum powder was contaminated with asbestos, a fact that they allegedly had known for decades but failed to disclose to regulators. Ouch!

Poor economic data from China to Europe set the stage early on, as global markets headed south and uncertainty over the unresolved issues of the US/China trade dispute made its presence felt, while growth concerns were coming back into focus.

To no surprise, the major indexes took the path of least resistance and dove with the Dow giving back almost 500 points. The S&P 500 closed at the critical support level of 2,600 and, if  broken, will likely make new lows for the year.

ZH summed up the week like this:

  1. Dow -10.5% from highs
  2. S&P -11.3% from highs – lowest weekly close since March 2018
  3. Nasdaq Comp -14.6% from highs
  4. Trannies -17.8% from highs – Nov 2017 lows, worst 2-week drop since Aug 2011
  5. Russell 2000 -18.5% from highs – lowest since Sept 2017

Faring even worse were the S&P Banks and Financials, which are both down over 20% off their highs confirming that they are firmly engrained in bear market territory.

For the time being, I believe we are only in the early innings of an impending bear market. While things could turn on a dime, should the bulls find some new ammo, fundamentally global economies have moved into stagnation mode.

Until that changes, and our Trend Tracking Indexes (TTIs) give a new bullish signal, it’s best to be out and stay on the sidelines rather than watch your portfolio potentially get decimated. On that note, since the effective date of our latest Domestic Sell signal (11/15/18), the S&P 500 has dropped -4.60%.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 12/13/2018

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, December 13, 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 -4.84% after having generated a new Domestic “Sell” signal effective 11/15/18 as posted.

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