Late Rally Wipes Out Early Losses

Ulli Market Commentary Contact

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

While rising bond yields continued to wreak havoc with the markets early on, a slow but steady climb, supported by strong corporate earnings and dip-buyers, proved to be saviors for the session by pushing the Dow and S&P 500 into the green by a small margin. The Nasdaq ended slightly lower, which was its 5th straight close to the downside, its longest in over a year.

Rising interest rates remain at the core of the problem for stocks with the 10-year bond yield now passing the 3% marker to reach a point last seen in December 2013. Again, if yields rise because of stronger economic growth that is not as worrisome as when they rise due to stronger inflation, which is the scenario we are in.

So far, the earnings season has been one with mixed results. More than 80% of the S&P companies who have reported have beaten forecasts. However, those results have not inspired enough confidence in Wall Street traders to go on a buying spree and push equities higher as general nervousness about the markets has prevailed.

Thanks to the rebound, our directional indicators, the Trend Tracking Indexes (TTIs), were not affected, and we remain in “Buy” mode—that is for the time being.

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Equities Dump As Bond Yields Jump

Ulli Market Commentary Contact

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

A quiet opening above the unchanged line suddenly turned into a rout with the major indexes tumbling and heading sharply south until dip buyers stepped in during the last hour to lessen the damage. The Industrial, material and technology sectors were most affected.

The culprit, as I have been posting about, was the 10-year bond yield, which spiked and briefly touched the psychologically important 3% level (first time in 4 years) without breaking it to the upside. Indeed, this event spooked the Wall Street crowd, as buyers were conspicuously absent, giving the bears an easy win over this session.

Higher interest rates and a sharp dive of -6.83% by 3M combined to push the Dow lower by over 400 points, which turned out to be the worst performance of the 3 major indexes. Even the results from the earnings season were interpreted as more negative than positive despite some report cards beating analysts’ forecasts. In other words, good earnings were simply not good enough to give an assist to equities.

While the 10-year bond yield pulled back to 2.979% after touching the 3% level, I think markets will remain shaky and in sell-off mode, unless bond yields head back south again, which appears questionable at this point. That brings into play a potential “Sell” signal for our Trend Tracking Indexes (TTIs).

Right now, there is still a little room to for the indexes to fall without affecting a trend line break to the downside (see section 3). However, considering the speed with which markets are moving, this could be just a matter of days—unless, of course, buyers find reasons to step up to the plate and exert their bullish forces.

Summing up the session best was economist David Rosenberg (Hat tip goes to ZH for this quote):

“I don’t know about anyone else, but I find it humorous that the stock promoters on bubble vision who told us heading into the peak that valuations don’t matter are now talking about how cheap the equity market is!”

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Rising Bond Yields Kill Early Rally

Ulli Market Commentary Contact

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

It was a mixed bag on the earnings front, as the latest reports can be best described as “so so,” which sent the major indexes initially higher but disappointment pulled the markets back below the unchanged line, with the exception of the S&P 500, which ended higher by a tiny fraction.

As I mentioned before, the 3% level of the 10-year bond yield will be a crucial point for equities. That became clear again today with weakness setting in as the yield surged towards that psychologically important marker but backed off prior to the end of the session saving equities from a sharper downturn. It now appears to be just a matter of time before we reach/cross that level which we last saw in January 2014.

Not helping matters was the fact that traders are now pricing in 4 interest rate hikes for 2018 rather than previously hoped for 3 increases.

The VIX pumped, dumped and pumped again helping the S&P 500 get back to its break-even point. Bank stocks tanked and FANGs stumbled, but the US Dollar (UUP) rallied for its 5th day in a row (crushing the shorts in the process) by gaining +0.63% and is now within spitting distance of conquering its 200-day M/A.

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ETFs On The Cutline – Updated Through 04/20/2018

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 197 (last week 193) 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 April 20, 2018

Ulli ETF Tracker Contact

 

ETF Tracker StatSheet

https://theetfbully.com/2018/04/weekly-statsheet-for-the-etf-tracker-newsletter-updated-through-04-19-2018/

 HOBBLING INTO THE WEEKEND

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

It was tough week with the major indexes struggling to not give back their gains made in the first 3 trading sessions. Even though we dumped into the weekend, stocks ended up in the green by a fraction of a percent.

All good things must come to an end eventually. This was the case with our favorite Semiconductor (SMH) holding, which had been dancing around its trailing sell stop for weeks.

As I mentioned yesterday, SMH had broken down and only a sharp rally this morning would have kept me from pulling the plug and exiting the position. The rally did not happen, and I liquidated.

This brings to an end a nice upward move over the past 14 months, which now allowed us to turn paper gains into real gains. To be clear, trailing sell stops are not just implemented to limit losses but also to take profits once a bullish movement has run its course and an ETF comes off its highs and drops past a pre-set percentage.

Helping to create the negative market sentiment were several actors. Technology and consumer staples showed weakness, which could not be overcome by the latest corporate earnings, despite them beating expectations.

I have long held the view that equities will be negatively affected once the 10-year bond yield crawls above 3%. While that did not happen yet, the previous old high of 2.94% (made in February) was taken out today with the yield hitting highs last seen in December 2014. That proved to be the nail in the coffin and down we went.

The rise in bond yields was attributed to higher inflation expectations. Had there been evidence of solid economic growth as a cause, we may have seen an accompanying rise in stocks. With the yield now knocking on the 3% level, we could see more downside in equities with the question remaining as to whether a crossing into 3% territory will bring about the demise of this current “Buy” cycle. Stay tuned!

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 04/19/2018

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, April 19, 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 +1.80% after having generated a new Domestic Buy signal effective 4/4/2016 as posted.

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