Equities Dive And Thrive

Ulli Market Commentary Contact

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

The Major Indexes took a steep dive right after the opening bell caused by geopolitical concerns, as President Trump canceled the widely anticipated summit with N. Korea’s Kim Jong Un. The reason given was alleged “open hostility” from the country.

Not helping matters was weakness in the energy sector (-1.7%) and in financials (-0.7%). However, the markets found a bottom at mid-morning thanks to dip-buyers, which was followed by a slow climb back towards the unchanged line. Even though we fell short, the early morning losses were sharply reduced.

Far more concerning to me is the state of affairs of Deutsche Bank (DB), the largest derivatives holder in the world with over $50 trillion, while the market capitalization of the bank has dwindled down to some $22 billion. Why is that important?

The bank appears to be crumbling with its stock price now approaching the critical $10 level and that in the face of an upcoming possible S&P downgrade within the next couple of weeks. A downgrade could put the bank in danger of collapsing, which would have a ripple effect around the world as this bank has huge systemic risk. Take a look at this chart and be amazed as to which institutions might be affected…

Interest rates continued to do an about face with the 10-year bond yield slipping not just 3 basis points to 2.98% but closing below the psychologically important line in the sand, namely the 3% level. Whether this current down trend will continue or not is anybody’s guess, but if it does, it certainly could give a boost to equities.

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Early Slide Followed By A Late Ramp

Ulli Market Commentary Contact

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

For most of the session, the major indexes were aimlessly meandering below their respective unchanged lines waiting for the release of the Fed minutes in anticipation of possible changes to interest rate policy.

In a sense, that wait was rewarded as markets interpreted the FOMC minutes as “dovish” meaning that rate hikes may not arrive in such an aggressive manner as anticipated. Although the Fed pretty much confirmed a June hike, the 2% inflation target, which was hit back in March, was adjusted. It was noted that if inflation moves slightly above that target, it might do so only temporarily.

In other words, the 2% level is no longer a hard number to be strictly adhered to. Or, you could interpret this as “we’ll move the goal posts whenever it suits our purpose.”

Market reaction was instant with bond yields tumbling as the 10-year slipped back to its 3% level scoring its biggest drop in just about 2 months and settling at one-week lows. Bond prices, which move opposite to yields, were the beneficiary with the 20-year bond (TLT) gaining +0.73%.

The major indexes scrambled back above their respective unchanged lines and scored modest gains with the Nasdaq leading the pack with +0.64%, while the US Dollar (UUP) reduced early gains but still ended up +0.41%.

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Trade Wars: Optimism Gives Way To Pessimism; Major Indexes Sink

Ulli Market Commentary Contact

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

Yesterday’s rally, which was entirely powered by hope for a U.S./China trade resolution, came under pressure today, after an early follow through ramp petered out in the afternoon with the major indexes heading straight south into the red scoring modest losses.

Pessimism replaced optimism as uncertainties over trade policy and geopolitical issues took center stage. Responding to reporters if he was happy with the current state of the trade talks, President Trump responded with “not really” and that negotiations “have a long way to go.” Not exactly the kind of ‘progress’ report markets had expected, and down we went.

Adding fuel to the fire were reports that in regards to the upcoming historical meeting between Trump and N. Korea’s Kim Jong Un, Trump said that such a meeting may happen later than currently scheduled. That was followed White House headlines that any new nuclear deal with Iran would be subject to a list of demands.

None of these developments were soothing to Wall Street traders, who adopted a wait-and-see attitude. All of the above mentioned events really don’t have any major direct economic impact, but are more of a psychological nature causing uncertainty and keeping markets stuck in a broad range.

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Easing Trade War Fears Power Markets

Ulli Market Commentary Contact

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

Right after the opening bell, the major indexes jumped and remained firmly entrenched above the unchanged line for the entire session gaining solidly across the board.

Causing this euphoria was hope that the U.S./China trade animosities and rhetoric finally softened after weekend news that the Trump administration would delay implementation of tariffs on Chinese goods. In other words, they agreed to put the current hostilities on hold until a new deal can be worked out.

That’s all it took and off to the races we went without looking back. Actually, there were a lot of uncertainties to be concerned with. If you followed the weekend news, you noticed that Emerging Markets are still in stumble mode, which started back in February with lower lows being interrupted by periodic bounces.

Then there were the Italian financial markets, which are imploding due to sharply spiking rates while domestic bond yields and the U.S dollar were stuck and going nowhere. Italy took the headlines in Europe with one analyst proclaiming that “the Italian 2-year yield has given back 3 years of monetary suppression in 6 trading days.” How bad was it? This chart makes it abundantly clear while I am pondering the question if this could be the canary in the coalmine.

But none of this mattered today, as the main objective was to push the Dow back above 25k, which was accomplished with the help of not letting an early VIX rally (translates into lower stock prices) get out of hand.

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ETFs On The Cutline – Updated Through 05/18/2018

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 185 (last week 199) 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 May 18, 2018

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ETF Tracker StatSheet

https://theetfbully.com/2018/05/weekly-statsheet-for-the-etf-tracker-newsletter-updated-through-05-17-2018/

 MAJOR INDEXES RETREAT FOR THE WEEK

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

The primary direction for the major indexes this week was sideways to down. The Dow and S&P gave back -0.5%, their third weekly declines of the past four, while the Nasdaq sank -0.7%.

The more dramatic action happened in Italy and the Emerging Markets (EMs) with Italian stocks, bonds, banks and credit all dumping this week. While EM’s foreign exchange and debt collapsed, their stocks declined more modestly putting our EEM holding within striking distance of triggering its trailing sell stop.

Bucking the trend again were SmallCaps by rising +0.1% today to a third straight record close and third positive week, which was its longest streak since January.

Trade talks with China took a spin for the worse creating more anxiety and nervousness among traders as “progress” was a word nowhere to be uttered neither by the U.S. nor China. Alleged offers made by China on Thursday were promptly denied on Friday.

Even a small assist from sliding 10-year bond yields, which early on made an intra-day of 3.11%, but in the end gave back 5 basis points to close at 3.06%, did nothing to prop up equities.

So, we end this week still stuck in a sideways pattern and wondering if climbing bond yields will bring an end to this bullish run, or if a new driver emerges to push this market out of the doldrums.

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