N. Korea: Simmering Tensions Punish Equities

Ulli Market Commentary Contact

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

The war drums with N. Korea were beating louder today as the high octane rhetoric was turned up a notch with a “preemptive strike” headline and similar dialogues pulling stocks down for the 3rd consecutive day. The session ended with the major indexes at their lows, which will make for an interesting opening tomorrow. If you find the news confusing, you might want to read a right-to-the-point article from the Ron Paul Institute here.

ZH summed the day up best:

  1. Nasdaq, Dow, S&P, Small Caps worst day in 3 months (to one month lows)
  2. S&P Tech Sector worst day in 2 months
  3. Financials worst day in 3 months
  4. HYG (HY Bond) worst 3-day move in 5 months (to lowest since March)
  5. VIX biggest 3-day spike since Aug 2015 China devaluation
  6. Gold’s best 3-day rally in 3 months
  7. Yuan biggest 3-day gain in 2 months

Of course, should this war mongering talk end up being a nothing burger, we could see a gigantic rally back towards record territory, but it’s too early to tell. For the time being, volatility shot up with the S&P VIX banging through its 200 day M/A and closing at 16, which is quite a jump from its recent low of around 8 and is its highest price since the election.

To no surprise, gold had another good day and surged to a 2-month high. This level of uncertainly had Wall Street traders move into bonds causing interest rates to drop thereby allowing the 20-year bond TLT to rally +0.85%. The US Dollar (UUP) held up fairly well and gave back only a modest -0.17%. Please see section 3 below as to the affect on our Trend Tracking Indexes (TTIs).

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Dow Slips For 2nd Straight Day

Ulli Market Commentary Contact

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

Yesterday’s slippage continued early this morning, but dip buyers stepped in encouraged by a NT Times story alleging that Trump’s ‘Fire and Fury’ words were his own and not US policy. During the last hour, the whipping boy of the year, AKA the VIX, was spanked again and while helping the indexes recover, they fell short of the intended goal, namely to cross back above the unchanged line.

With geopolitical uncertainty in full swing, it was no surprise to see gold rally solidly by adding +1.53%. In regards to equity ETFs, we saw mainly red numbers with SmallCaps (SCHA) surrendering -0.75%, closely followed by MidCaps (SCHM) with -0.53%. Even the Emerging Markets (SCHE) were unable to mount a rally and gave back -0.82%. Eking out a tiny gain were Dividend ETFs (SCHD) with +0.04%; Transportations (IYT) closed unchanged.

While FANG stocks continued their journey south, Apple scored a new record high and gained +0.61%. The VIX headed north again and broke above the 12 level, and above its 200-day M/A, which is quite a change from its recent all-time low just below 9. If this trend is sustained, equities will eventually be negatively affected. Bonds were the beneficiary of this uncertainty as yields dropped and the 30-year bond rallied to add +0.55%. The US dollar (UUP) was fairly docile, traded sideways and closed down -0.08%.

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Trump’s ‘Fire And Fury’ Speech Takes Starch Out Of Upward Momentum

Ulli Market Commentary Contact

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

The major indexes did their customary morning dip and then started to recover to cross solidly above their respective unchanged lines. Hedge fund heavyweight Jeff Gundlach’s market warnings were offset somewhat by the usual VIX beating to keep the Dow winning streak alive. However, Trump’s “Fire and Fury” speech directed towards North Korea took the starch out of upward momentum and south we went, as the chart above shows.

Winning big time, prior to Trump’s speech, were the Seminconductors (SMH) with +2.75%, a gain that disappeared in a hurry and turned into a -0.30% loss, pretty much in line with the percentages the broader indexes gave back. Volatility showed signs of life with the VIX storming out of the basement to close above 11. That caused the FANG stocks to take a dive, and they gave back yesterday’s gains.

Gold was able to buck the trend by closing in the green, as did the Emerging Markets (SCHE) with +0.19%. Interest rates rose with the 10-year yield adding 3 basis points to close at 2.29%. Yes, with rising geopolitical tensions, you might have expected rates to fall, but they didn’t. The US Dollar (UUP) bounced around, traded in a wide range and settled +0.17% higher.

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Lowest Volume Since 2001; Dow Ekes Out A Record Close

Ulli Market Commentary Contact

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

The Dow continued with its 9th record close in a row, which is its longest streak since February. The S&P and Nasdaq ended the day higher as well with the Nasdaq leading the pack with +0.51%. However, it was Semiconductors (SMH), part of the 10 ETFs in the Spotlight, which took top billing with its chest pounding performance of +1.76%.

Helping matters again was the VIX, which got pounded back below 10 in order to assure a “green” closing of the S&P 500. SmallCaps (SCHA) were held in check but added +0.16%, while the Emerging Funds (SCHE) danced to the tune of their own drummer with a solid gain of +0.64%.

Interest rates were fairly docile and traded in a tight range with the 10-year yield dropping 1 basis point to 2.26%. The US Dollar (UUP) slipped, rallied and pulled back but ended up losing only a scant -0.04%. Gold followed a similar pattern, found support at its 100-day M/A and closed just about unchanged.

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One Man’s Opinion: The Death Cross Of Central Bank Credibility

Ulli Market Review Contact

By ZeroHedge

With no expectations of a rate-hike last week, and traders rapidly giving up on The Fed’s dream of a steadily higher rate trajectory, a funny thing happened in the markets…

In the eyes of The Fed, their monetary policy has not been this ‘tight’ since October 2008.

However, in the eyes of the market, financial conditions just hit their easiest level in history (easier than the September 2005 previous record easiness level).

This is what happens when you constantly flip-flop, constantly miss forecasts, and constantly lie.

Simply put, this is the death cross of Federal Reserve Credibility.

Picking up on the dramatic divergence, Bloomberg’s Cameron ‘MacroMan’ Crise has some advice for The Fed “Throw Us A Little Vol Here Please!”

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ETFs On The Cutline – Updated Through 08/04/2017

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 281 (last week 287) 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.