ETF Tracker Newsletter For August 17, 2018

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ETF Tracker StatSheet

https://theetfbully.com/2018/08/weekly-statsheet-for-the-etf-tracker-newsletter-updated-through-08-16-2018/

TRADE TALK OPTIMISM CONTINUES

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

While we were off to a slow start, market direction changed in a hurry on continued optimism over the upcoming trade talks with China pushing the major indexes in the green for the second straight day. The Nasdaq lagged while the Dow closed at its highest since February.

The upcoming trade talks with China were reinforced by optimism that a mutually beneficial solution will eventually be found, which proved to be again the force that supported upward market momentum. Especially, news of a road map to reach a deal that could lead to a summit between Trump and Xi Jinpin later this year helped the positive sentiment.

Putting a bit of a downer on the mood on Wall Street were the latest headlines from Turkey, as their currency headed south again at the tune of 4%. It appears that the story is far from being over and will continue to create market headwinds, the severity of which will depend on the magnitude of the events.

Not helping matters was Moody’s, which joined S&P and Fitch in downgrading Turkey’s long-term foreign debt rating to Ba3 from Ba2 and shifting their outlook to “negative” from “watch negative.” Then S&P unleashed the truth by forecasting “a recession next year. Inflation will peak at 22% over the next 4 months, before subsiding to below 20% by mid-2019.” Ouch!

Despite global turmoil in the markets, with global stocks being down 14% from their all-time highs in January, US equities have been dominating YTD as this chart shows. That means we are still the cleanest dirty shirt in the dirty laundry basket, which to me begs the question is “how long can we remain isolated?”

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 08/16/2018

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ETF Data updated through Thursday, August 16, 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 +2.57% after having generated a new Domestic Buy signal effective 4/4/2016 as posted.

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Hope Of Trade Talk Resumptions Powers Markets

Ulli Market Commentary Contact

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

It didn’t take much to get the markets going after yesterday’s drubbing and the see-saw action we’ve seen over the past week. Strong earnings from Walmart and Cisco set the tone early on, and reports of a resumption of US/China trade talks next week provided the ammo to push the major indexes up with the Dow having its best day in some 4 months.

Please note the absurdity in that the trade wars with China have not been resolved in any way, shape or form. It was merely the mention of these talks being reopened again that helped boost overall sentiment and motivated the bulls to come out full force.

The Turkish currency turmoil subsided somewhat as the lira rallied for a 3rd straight session against the dollar. Throwing an assist was Qatar, which provided a lifeline by investing $15 billion in Turkey, after Turkey’s FinMin soothed raw nerves by announcing that “capital controls would be ruled out as a policy option.” That’s a good thing as these would likely promote broad capital flight from an Emerging Market space.

Not all stocks participated in today’s rebound as the FANGs resumed their downtrend thanks to a 3% stumble in Facebook. The FANGs are now within shouting distance of touching their 10% correction level, as you can see here.

Looking at the big picture, there is only one thing that has been responsible for the recent weakness in the markets as well as for the strength over the past 3 years. Take a guess and then see the answer presented in this chart.

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Turkey Turmoil Returns; A-Dead-Cat Bounce Dies

Ulli Market Commentary Contact

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

I felt that yesterday’s rebound had the smell of a dead-cat-bounce and, based on today’s carnage, that seems to have been accurate—at least for the time being. Despite assurances to the opposite, the “C” word, as in contagion, was suddenly on investors’ minds, as concerns about Turkey’s currency crisis and US/China trade tensions made their presence felt.

The damage was not limited to equities but also to energy, which was the worst performing sector in the S&P with crude oil getting pounded at the rate of over 3%. The major indexes, while off to a poor start after the opening, managed to limit some losses by crawling back but not reaching the unchanged line.

Globally, the outcome was similar with stocks not just falling to 6-week lows but also breaking below major averages, which affected our Domestic TTI by confirming that a new “Sell” signal indeed has been triggered. More in section 3 below.

Contagion is a distinct possibility as a result of the fallout from Turkey’s currency destruction, which already has affected the European banks and, which are now in bear market territory meaning they have come off their highs by more than 20%.

Taking this a step further, stocks of GSIBs, also known as Globally Systemic Important Banks, have dropped 23% off their highs with no end in sight. Remember, these are banks that must be supported by governments at all costs, or things may turn real ugly very fast—economically speaking that is.

Even the VIX appeared to have woken up from a summer snooze by spiking to 17 but settling back down to the 15 area. Benefiting from this wild trading day were interest rates, which dropped as the 10-year bond yield settled down 3 basis points to 2.86%.

As I pointed out yesterday, only a few US banks have direct involvement in Turkey, so this is currently viewed only as one more addition to global uncertainties, of which there are plenty. I don’t think this will simply go away or be resolved quickly, so we must be alert to this being only one domino that can have serious effects on the European banking system and by extension, US banks as well.

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Shaking Off The Turkish Crisis; Equities Rebound

Ulli Uncategorized Contact

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

For sure, the Turkish crisis has not been resolved, but it merely paused, as the emerging markets’ exchange rates rallied and had their best day in 3 weeks as this chart shows. ZH commented:

Of course, all eyes were on the Lira as it rallied back up to unchanged from Friday’s close… After its biggest single-day loss ever, the lira rebounded most since 2001…

So, the theme of the day that “the lira is fixed” was enough to bring back the bulls to push the major indexes out of yesterday’s doldrums and past last Friday’s closing prices. Sure, with nothing having been resolved in the emerging market arena, this rebound could very well turn out to be a dead cat bounce.

Of course, we won’t know for sure until more time passes, but with the US dollar’s relentless push to new cycle highs (made today), it’s questionable in my mind that emerging nations with dollar denominated debt can dig themselves out of the current hole when their currencies are heading south almost daily.

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Turmoil in Turkey Troubles Markets

Ulli Market Commentary Contact

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

Despite the US not having much direct financial exposure in Turley, its ongoing troubles did stop investors in their tracks. That simply means risk assets, such as equities, fell out of favor today, and the major indexes headed south wiping out some early gains and ending in the red.

After all, no direct exposure does not mean, the US is isolated—far from it. In the simplest terms, these days most countries are connected at the hip. For example, European banks are heavily exposed to Turkish debt and in turn, US banks are holders of European debt. If any domino falls, the subsequent effect will surely travel across the Atlantic in a hurry.

The Turkish Central Bank went all out and declared to provide “all the liquidity the banks need,” but fell short of announcing a hike in interest rates. So, the lira continued to tumble, and raised concerns that this could ripple through the emerging markets economies first, and then who knows who’s next.

Emerging market currencies got pummeled again as the US Dollar climbed relentlessly for the 3rd day in a row to spike to its highest since June 2017. This also affected commodities with DBC losing -0.53%.

With the US/China trade wars having been shoved in the background for the moment, but still very much alive, and the emerging markets pandemonium in full swing, we seem to be going through a crisis phase, which could keep equities in check until a more positive theme develops. On the other hand, it is entirely possible that these current events, along with subsequent developments, can spell the end of the this very extended market cycle.

Since no one has the answer, we’ll go along for the ride until our Trend Tracking Indexes (TTIs) give the signal to step aside.

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