Slipping Off The Mid-Day Highs

Ulli Market Commentary Contact

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

An early rally was rebuffed mid-day when bullish momentum faded, and the indexes headed south. For a while, it looked like we’d be ending up in the red again, but last hour buying halted the S&P 500’s 4-session skid, and we closed modestly in the green.

Some of this weakness was a hangover from yesterday; more specifically the Fed’s decision to stay the course on hiking interest rates. Some economic data released this morning did not help the bullish theme, such as Pending Home Sales dropping 1.8% MoM, which was just about 4 times worse than expected and reaching their lowest level since Oct. 2014.

This was followed by a surge of the Trade Deficit, which ballooned to $75.8 billion in August vs. expectations of $70.6 billion. In historical context, this is close to the all-time 2008 record high deficit of $76,025 billion. You think this might add some fire or urgency to the current trade war talks?

Italy made headlines today, as they defied Europe’s regulation on budget deficits, which are pegged to a maximum of 2% of GDP. However, the Italian governing parties agreed on a 2019 budget deficit of 2.4%, clearly above the agreed upon ceiling setting up a potential skirmish with an unknown outcome.

The immediate consequence was a drop in the Euro and a surge in the US Dollar, which extended its bounce back to 2-week highs. US bond yields were not affected and dropped slightly.

Tomorrow is the last trading day of September, and we’ll be staring October in the face, a month which has demonstrated in the past that it can be a bull market killer. It does not necessarily have to turn out that way, but in my view, it pays to be prepared by having an exit strategy should a major hiccup occur.

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An Early ‘Hope’ Rally Runs Out Of Steam As Fed Hikes Rates

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]
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The Fed stepped up to the plate and delivered the 3rd 25 basis point interest rate hike this year, which was widely expected but hope for ‘accommodation’ still powered an early rally that ran out of steam once reality hit the markets.

The major indexes reversed course, headed south and closed marginally in the red. Furthermore, the Fed indicated that a 4th hike in December would be a distinct possibility and that 3 more might follow in 2019.

Bond yields took a dive and shaved off 5 basis points to close at 3.05%; a level last seen on September 19th. The US Dollar swung wildly intra-day, but the closing price of UUP was only +0.04% higher, which did not reflect the see-saw action of the session. The Bloomberg Dollar Index demonstrates the irrational exuberance shown over the past week as ZH quipped: “Does this remind you of a penny stock?”

We’ll have to see how the markets will digest the interest hike hangover over the next few days. It very well may simply present an additional uncertainty in the basket of “things to worry,” with tough trade talk, a weakening housing market and bloating federal debt rotating to compete for the headline of the day.

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Aimless Meandering

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]
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The markets diverged a little bit as the Dow and S&P 500 ended up in the red, while the Nasdaq bucked the trend and closed in the green. However, aimless meandering best describes today’s session with anxiety rising ahead of the Fed’s decision on interest rates tomorrow.

Ignoring the continued trade tensions between the US and China, the markets so far have managed to hover around all-time highs, even though this verbal mudslinging could spiral into a full-blown trade war, which would then result in reduced profits for international corporations and be a supporting meme for the bearish crowd.

With the Fed’s verdict on the directions of interest rates being out due tomorrow, the 10-year bond yield jumped 3 basis points to close at 3.10% and is now in striking distance of taking out its 7 year high. While a hike is somewhat priced in, a lot of hope exists that the Fed will skip this one and enact another one in December. We’ll find out tomorrow around 11:15 AM…

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US/China Trade Wars Back In Focus

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]
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If you followed the news over the weekend, you would have gotten a pretty good indication as to today’s market direction. Trade war talk made the headlines Saturday morning as Trump’s fresh round of tariffs caused a reaction from  the Chinese, as they now refused to send two delegations to Washington while elaborating that “pressure tactics won’t induce them to cooperate” and pledging that Beijing will “avoid negotiating under threat,” and ending with “we hope that the US side will take measures to correct its mistakes.”

That was enough to kill some of last week’s exuberance in the markets and south we went with the Dow faring the worst, while the Nasdaq managed to crawl out of an early hole. However, in the bigger scheme of things the losses were modest and did not impact our investing strategy, but interest in stocks was sapped, at least for this session. It remains to be seen if there is more fallout to come as this verbal tug-of-war is sure to continue.

The US Dollar was in for a wild ride with ZH describing the action as follows: The Dollar index was sliding lower as Europe opened (China closed), spiked lower on EUR gains after Draghi inflation comments, only to surge higher for the rest of the day on safety concerns following Rosenstein’s resignation headlines…

The 10-year bond yield rose a tad but remains stuck in its recent trading range. I think the odds have now increased of a further breakout to the upside, since it appears that the markets have ‘gotten used to’ a plus 3% yield without much slippage to the downside. Eventually, that picture will change, but for right now the bullish theme for stocks remains intact.

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ETFs On The Cutline – Updated Through 09/21/2018

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 366 High Volume ETFs ETFs, defined as those with an average daily volume of more than $5 million, of which currently 191 (last week 172) 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 September 21, 2018

Ulli ETF Tracker Contact

ETF Tracker StatSheet

https://theetfbully.com/2018/09/weekly-statsheet-for-the-etf-tracker-newsletter-updated-through-09-20-2018/

SLIDING INTO THE WEEKEND

[Chart courtesy of MarketWatch.com]
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A follow through rally ran into resistance today and slowly but surely petered out with S&P 500 and Nasdaq sliding into the red for the session, while the Dow managed to hang on to a modest gain, which was enough to set another record high. Adding a bit uncertainty was the fact that today was quadruple witching day, along with a massive index reclassification, which caused an increase in volume to a level last seen in July of 2010.

The tech sector was the laggard with technology and internet components creating the drag and pulling the Nasdaq down by -0.51%. That turned out to be a break even for the week, while the Dow and S&P 500 added +2.1% and +1.1% respectively. Of course, given Thursday’s impressive advance across the board, it came as no surprise that a “pause” was coming.

The US Dollar continued heading south and coming off its August highs. It has now seen its biggest 2-week drop since January, which helped the Emerging Markets currencies to have their best week since February with the Argentine Peso showing signs of life and soaring.

Looking at the global picture, it confirms what I have been saying for a while, which is that the US market, compared to the rest of the world, is the place to be invested in. This chart makes it abundantly clear.

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