1. Moving the markets

Another slow start followed by a bounce back, which had legs for a change, gave the major indexes a victory session, although a modest one. Whether this was just another dead-cat bounce remains to be seen, but bullish momentum was not overwhelming thereby confirming our Domestic “Sell” signal affecting “broadly diversified international equity ETFs.”

I sold our last holding this morning, and we will not re-enter this arena until our International TTI (section 3) crosses solidly back above its long-term trend line.

All of Europe, except for Great Britain, got spanked and deep red was the preferred color on their stock exchanges. Domestically, the Dow’s troubles with its 200-day M/A continued as it closed the 4^th day below it, which is not a good sign for the bullish crowd.

Scanning across markets, we see that the dollar slipped while Bond yields rose modestly. Foreign exchange markets (FX) showed a mixed picture with the Argentine Peso collapsing to a new low, while the Mexican Peso rallied ahead of elections. Not to be outdone, the Chinese Yuan continued its swan-dive like imitation by slumping for the 11^th straight day.

Regarding domestic markets, we have simply been stuck in a trading range for the first half of this year. Look at this chart of the S&P 500:

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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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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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