Tech Tumbles And Bond Yields Flash-Crash

Ulli Market Commentary Contact

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

After the 4-day winning streak, we saw a slight pullback in the major indexes, especially in the tech sector, with the Nasdaq giving back a modest -0.70%.  However, the main action happened in the bond market.

Following the recent rise in yields towards the psychologically important 3% level, for the 10-year bond, the rally turned around suddenly with yields flash-crashing 10-12 basis points, as this chart shows. That’s a huge move forcing those with short positions to run for cover.

With Italy being out of the limelight today, Brazil took its place in the spotlight. Turmoil best describes the events of the day, with the Brazilian Real crashing to a new low as a $3 billion-dollar intervention failed to prop up markets. It sure looked like there was an “unmistakable relationship between the timing of the Real’s plunge and the collapse in Treasury yields,” according to ZeroHedge.

There are so many hotspots in the world right now with any of them being able to affect markets worldwide. It’s somewhat surprising that the major indexes continue to climb a wall worry, in the process ignoring any theme that can’t be interpreted as bullish.

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Euphoria Rules Again

Ulli Market Commentary Contact

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

After an early morning pullback, the floodgates opened with buyers appearing in full force and pushing the major indexes higher with the Nasdaq closing at another record, while the Dow sported its best day in almost 2 months.

Since there were no news to justify the run-up, the VIX was pushed down to an 11 handle thereby throwing a solid assist to keep the bullish movement going. Remember, a lower VIX supports equities and vice versa. On the other hand, this reckless exuberance is not shared by those who allegedly know best, namely the Smart Money. This chart makes that abundantly clear.

Despite the Nasdaq’s solid performance (+0.67%), the Financials did even better with XLF adding +1.86%. A higher 10-year bond yield boosted that sector along with encouraging remarks from the ECB regarding them being on track to end their asset purchases.

The ongoing trade battle, Italian political and banking tensions along with Deutsche Bank’s financial issues were pretty much ignored, as the bulls continued to have it their way for the 4th day straight day.

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No Market Report Today

Ulli Uncategorized Contact

Due to a variety of business commitments, I won’t be able to write today’s market report. Regular posting will resume tomorrow afternoon.

Ulli…

Treasury Yields Rise—Stocks Follow Suit

Ulli Market Commentary Contact

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

Markets behaved today as if a world of worry had simply disappeared. Still on a positive high from Friday’s jobs reports, upward momentum led to another green session for the major indexes. The main driver was the tech sector, which posted its first record close since the middle of March.

None of the weekend news seemed to matter, or were simply ignored, as trade talks between U.S. and China broke down, and a host of European finance ministers paraded around to express disappointment over Trump’s decision to burden the major allies with stiff tariffs.

Spiking interest rates did not matter as the 10-year bond yield jumped 5 basis points to close at 2.94%. Never mind that factory orders slumped -0.8% and had their worst April since 2012. While the March number was upwardly revised, year over year the growth trend slowed down.

Today was all about exposure to risk assets and focus on the upcoming Central Bank meeting next week, where a rate hike is pretty much a foregone conclusion. The main debate remains whether or not the Fed will hold off with a fourth increase this year.

Historically June is usually not a good month for equities. Over the past 2 decades, June has been the fourth-worst month of the year for the Dow and S&P 500. We’ll have to see if it’s different this time.

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ETFs On The Cutline – Updated Through 06/01/2018

Ulli ETFs on the Cutline Contact

Below please find the latest High Volume ETFs 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 168 (last week 168) 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 June 1, 2018

Ulli ETF Tracker Contact

ETF Tracker StatSheet

https://theetfbully.com/2018/05/weekly-statsheet-for-the-etf-tracker-newsletter-updated-through-05-31-2018/

 STILL STUCK IN ‘NO MAN’S LAND’

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

The above weekly chart demonstrates the 4-day roller coaster ride we just went through. While this clearly points to the ever present uncertainties, as perceived by the markets, the S&P 500 and the Nasdaq managed to close a tad higher, but the Dow lagged and closed lower at week’s end.

Throwing the big assist, after yesterday’s plunge, was a stronger-than-expected jobs report showing 223k new jobs created vs. 200k expected, while the unemployment rate fell to 3.8%, an 18-year low. Impressive was that gains were more broad based, and not just minimum wage, but also covering sectors such as Professional Services, Manufacturing, Education and Healthcare.

On the other hand, the numbers seem confusing and do not add up, as there are some 102 million Americans who are either unemployed or out of the labor force. Be that as it may, the markets did not care and the headline number simply ruled, giving the major indexes a chance to dig themselves out of yesterday’s hole.

While trade wars and concerns about Italian politics are still alive, some alleged progress was made last night, as the populist parties struck a deal to form a coalition government ending months of gridlock. That propelled the European markets and spilled over into the U.S. right after the opening bell.

The fact that markets tend to ignore realities, and prefer focusing on the headline du jour, is best illustrated by ZH’s summary:

  1. New anti-establishment Italian government? Check.
  2. New anti-establishment, socialist Spanish government? Check.
  3. Trade war between the US and Europe, Mexico, & Canada? Check.
  4. Deutsche Bank (most systemically risky bank in the world at one point) downgraded to a B-handle? Check.
  5. Fed Tightening as rate-hike odds rise after good jobs data trumps EU risk? Check.

In the end, while weakened during the roller-coaster ride, our Trend Tracking Indexes (TTIs) remain in bullish territory. Even the International one, which had come to within 0.02% of crossing into bear market territory, bounced off its trend line showing signs of a modest recovery.

I expect this type of wild ride to continue until some massive event appears that will push the markets out of its current trading range. The only question remains “will it be to the upside or to the downside?” We have to be prepared for either one.

In a way, Morgan Stanley is already prepping its clients for the next stock market  crash using sophisticated technology and advising them to Hold On For Dear Life (HODL) at a time when bullishness is the prevailing theme not only on Wall Street but around most parts of the world as well.

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