ETF Tracker Newsletter For September 14, 2018

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TRADE WAR FEARS WIPE OUT EARLY GAINS

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

An early rally ran into a brick wall, reversed with the major indexes heading south and below their respective unchanged lines. Causing this sudden change in sentiment was a report, released mid-day, indicating that Trump still intends to impose tariffs on China, despite recent words of reconciliation and apparent lessening of tensions.

That’s all it took to take the starch out of upward momentum, however, the indexes managed to crawl back with the Dow and S&P 500 ending up slightly in the green. For the week, the Dow gained +0.9%, the S&P added +1.2%, while the Nasdaq scored +1.4%.

On the economic front, the latest data points show mixed numbers. Retails sales missed across the board with auto sales sliding. Sentiment soared with economic optimism hitting a 14 year high while industrial production surged the most since 2010.

Summing it up, Treasury yields rose with the 10-year bond briefly touching the 3% level during the session before backing off and closing at 2.99%. While the US dollar ended the week lower, it remains stuck in a trading range when looking at the big picture. Some Emerging Market currencies rebounded but others stayed below their unchanged lines, as you can see here with especially Brazil and Argentina showing sharp losses.

Despite the ups and downs from the verbal ping pong, generated by the seemingly never-ending trade tug-of-war, we gladly accept this having turned out to be a positive week.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 09/13/2018

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ETF Data updated through Thursday, September 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: 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 +5.35% after having generated a new Domestic Buy signal effective 4/4/2016 as posted.

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Bulls Dominate For Fourth Straight Day

Ulli Market Commentary Contact

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

The bulls dominated again and pushed the major indexes higher with the S&P 500 scoring its fourth straight win. Yesterday’s laggard turned into today’s leader, as the tech sector picked up steam with the Nasdaq adding +0.75%, after spiking during the last few minutes of the session.

Helping set the bullish tone were reports suggesting that China was more receptive to the latest propositions from the US regarding trade talk issues. Of course, as we’ve seen in the past, these types of headlines tend to come and go and have, so far, not produced any tangible results.

In Europe, the ECB made no change to interest rates and announced that it has no plans to do so till summer 2019. That seemed to sooth markets despite them trimming the GDP forecast for 2018 and next year as well. Market reaction was muted.

Looking at the big picture, we see that US stocks continue to decouple from the rest of the world. That simply means that the US markets are still considered the least dirty shirt in the dirty laundry basket.

Again, as trend followers, we don’t really care about that. We are only concerned with one thing, which is the major direction of the domestic markets, as calculated by our Domestic TTI (section 3), and that remains “up,” so we’ll stay invested until that fact changes.

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Hanging On To The Unchanged Line

Ulli Market Commentary Contact

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

After yesterday’s rebound, the major indexes struggled to crawl above their respective unchanged lines after a weak start to the session. The Dow and S&P 500 succeeded, while the Nasdaq lagged and closed slightly in the red due to Apple’s struggles. Overall, it was simply a lackluster day with neither bulls nor bears showing any interest in flexing their muscles.

Apple was the center of attention presenting new products, but the “lack of innovation” sent the shares to a -1.24% loss. Other areas of the tech sector got clobbered too, namely semiconductors (SMH), which used to my favorite holding until we sold it back in February. SMH not only gave back -1.15% but also broke below a 4-month support line, although it managed to close above it.

In the financial arena, Goldman Sachs stood out by recording its 11th down day in a row, a new record losing streak that helped the GSIBs (Global Systemically Important Banks) to drop -23% from January.

Not to be outdone, the Asia Pacific Stock Index fared only slightly better by having fallen 10 straight days, which equals the longest losing streak in its history. Looks like that record will be beaten…

Treasury yields dropped modestly, while the dollar headed south after a weaker CPI reading and renewed hopes that trade talks will begin again in earnest.

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Snapping A 4-Day Losing Streak

Ulli Market Commentary Contact

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

An early rally weakened mid-day with the Dow slipping back into the red, while the S&P 500 and Nasdaq showed more staying power and managed to end a 4-day losing streak, as the tech sector showed signs of life again. 9 of the 11 primary industry groups closed above the unchanged line making this ‘rebound’ a broad based one.

MarketWatch reminded us that “both the S&P and the Nasdaq are coming off four straight daily declines. Last week was the S&P’s first negative week of the past four, and it represented the biggest weekly percentage drop since June. The Nasdaq suffered its biggest weekly drop since March.” Given that, a bounce was overdue.

Despite the sell-off, we are still near all-time highs, but the causes of last week’s pullback remain the same. This is the time to be aware as to what’s going on not just in the financial arena but also on a global scale regarding unexpected events and whether they will have an immediate domini effect or possibly a delayed one. The Emerging Markets’ currency crisis is just one occurrence, that may not be spreading right now, but it will eventually.

Additionally, tariffs, trade disputes, interest rates, US dollar strength/weakness and economic data points are all moving parts that can combine forces and swing the pendulum from bullish to bearish at some point. The timing of this process is the challenging part, but our Trend Tracking Indexes (TTIs) will contribute in identifying the major trend of equities.

On the other hand, the see-saw effect of the past few weeks could very well blow over leading to much higher prices by the end of this year.

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