Treading Water Despite Surging Inflation

Ulli Market Commentary Contact

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

Not much mattered to the markets today, as the major indexes were stuck in a tight range with MSM seemingly ignoring or simply shrugging off the outcome of the historical meeting between Trump and Kim Jong Un.

Undeterred by the flat session, bullish momentum remains in place, despite recent events to the contrary, like, as one writer pointed out, “the US starting a global trade war, Italy electing a populist government, emerging markets descending into yet another crisis, and inflation rising from the dead – all of which would be expected to spook normal financial markets and send capital pouring into safe havens.”

Especially, on the inflation front, things start to look shaky, to say the least. Today’s release of the CPI met the consensus estimate of +0.2% MoM making the expected YOY number +2.8%, the highest since December 2011 while, at the same time, real wage growth slumped. Hmm, makes me wonder what ever happened to the Fed’s mandate of an upper 2% inflation limit?

Things were quiet on the interest rate front. After an early attempt to break the 10-year 3% yield ceiling, yields started to ease up, faded and ended the session unchanged.

All eyes are now on central bank meetings this week. First, the Fed is expected to raise interest rates tomorrow at the end of their 2-day discussions. This will be followed by the ECB on Thursday, when they are supposed to announce the timing of the unwinding of their bond purchases.

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Inching Up Ahead Of Summit

Ulli Market Commentary Contact

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

Market activity happened above the unchanged line today with the major indexes vacillating in bullish territory, where they closed, despite fading in the last few minutes. The reason for the late slip was nervousness about the highly anticipated summit between Trump and N. Korea’s Kim Jong Un scheduled for tomorrow.

8 of the 11 S&P’s sectors finished higher led by advances in Consumer Staples (XLP +0.83%), while Financials (XLF) and Utilities (XLU) declined modestly. The VIX had no effect and ended the session unchanged.

Interest rates were not a factor with the 10-year bond yield being stuck by trading within 2 basis points all day. The problem countries of the world, namely Brazil, Argentina and Italy continued their internal battles, with Brazilian Real doing an about face by heading sharply south while the Argentinian Peso crashed to new record lows.

Joining the group of weak currency suspects was Mexico, as its credit risk surged not only to the highest since the Trump election, but also above the credit risk of Russia for the first time in 10 years. Not to be outdone was Italy, whose bond yields plunged the most in 6 years, offsetting part of the recent spike, by being down an amazing 30 basis points for the 10-year yield.

The reason I’m pointing this out is that these events, caused by extreme currency and/or interest rate moves, are a sign that not all is well in the world of finance and reckless debt accumulation. Eventually, these distortions will affect equity markets, the timing of which, however, is the big unknown, which is why I consider them only an early warning sign and not a directional indicator.

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ETFs On The Cutline – Updated Through 06/08/2018

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 188 (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 8, 2018

Ulli ETF Tracker Contact

ETF Tracker StatSheet

https://theetfbully.com/2018/06/weekly-statsheet-for-the-etf-tracker-newsletter-updated-through-06-07-2018/

 [Chart courtesy of MarketWatch.com]

  1. Moving the markets

Despite a weak opening, the major indexes managed to gain some footing and climb above the unchanged line to close in the green. This performance was their strongest week in a quarter assisted by the biggest short squeeze in 4 months along with a low VIX.

Since the start of April, according to ZeroHedge, the “most shorted stocks” have dramatically outperformed the S&P 500, while the FANG stocks traded leadership roles with the financials.

I recently referred to this as climbing a wall of worry and today was no different, as tensions between the U.S. and their major allies escalated ahead of this weekend’s G7 meeting in Canada.

I was not surprised to hear that the disparity in views is so stark that this gettogether has also been referred to as G6+1. It’s politics of pretense with one author quipping “The status quo is the problem, but it can’t be touched.”

Bond yields had a wild week of their own with the 10-year attempting to break through the 3% level, but it fell short as a flash-crash pushed yields sharply lower. In the end, we closed at 2.93%, unchanged from yesterday.

The focus right now will be on the G6+1 meeting with anxiety being high to see if any agreements can be reached. If not, there is hope that at least a joint statement will make headlines.

Next week, it will be business as usual with Italian/Argentinian banking issues, along with Deutsche Bank’s attempt to find a lifeline, being front and center.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 06/07/2018

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, June 7, 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 +2.68% after having generated a new Domestic Buy signal effective 4/4/2016 as posted.

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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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