US/China Trade Wars Back In Focus

Ulli Market Commentary Contact

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

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]
  1. Moving the markets

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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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 09/20/2018

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, September 20, 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 +6.01% after having generated a new Domestic Buy signal effective 4/4/2016 as posted.

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Records Are Made To Be Broken

Ulli Market Commentary Contact

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

It took a while, but the Dow finally managed to take out its January high to close in record territory, while the S&P 500 scored its first record since August. The Nasdaq fared well today and moved to within 1.3% off its all-time high, made in August as well.

Economic data took some of the credit for the bullish burst with first-time jobless claims falling and the Fed manufacturing index jumping more than expected. Existing homes sales were the laggard by remaining unchanged in August from the prior month, which was a disappointment as this occurred during the height of the “selling” season. But, as we’ve seen before, bad news will/can be simply ignored in order not upset the bullish theme.

Never mind that nothing has changed regarding the US/China trade war but, here too, it’s more convenient for traders to remain complacent and disregard the mounting frictions. I think that the tariff problems will not go away and most likely move to front and center again when least expected. However, right now they have not been able to take the starch out of upward momentum, so we’ll stay aboard and enjoy the bullish ride for as long as it lasts.

Assisting upward momentum were interest rates, which dropped for a change with the 10-year bond yield coming off its recent high by closing down 2 basis points to 3.065%. The US dollar continued its recent slide by round-tripping but ending off the lows for the day.

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Markets Diverge As Bond Massacre Continues

Ulli Market Commentary Contact

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

Yesterday’s divergence continued with bond yields spiking once more while the markets rallied, although the advance was mixed at best. While the Dow sprinted ahead by over 200 points intraday, the S&P barely held on to the unchanged line, while the Nasdaq hovered below it but managed some damage control towards the end of the session.

Cleary, the bond bears were in charge again with the 10-year yield rising 2 basis points to close at 3.08%, while testing seven-year highs. This 2-day yield spike was not a particularly well-kept secret, as global yields followed suit and surged as well reaching its highest level in 5 years, as this chart from ZH shows.

The fallout from all this was that bondholders got spanked, as the widely held 20-year Bond ETF, (TLT) slipped again and is now showing a loss of some -4.5% over the past few weeks—and this bearish trend may not be over yet.

For sure, the simultaneous advance in equities and bond yields can’t continue forever. Something is bound to give, which means that either bond yields continue to rise, and equities will head south or vice versa. To me, it shows that things are clearly out of whack, but they will surely correct—the timing of it is the big unknown.

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