Since the stock, bond and real estate markets are all correlated, it’s a question with no easy answer.
Everyone who’s not paid to be in denial knows stocks, bonds and real estate are in bubbles of one sort or another. Real estate is either an echo bubble or a bubble that exceeds the previous bubble, depending on how attractive the market is to hot-money investors.
Here’s a look at the inflation-adjusted S&P 500 (SPX) and margin debt: yep, a bubble.
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 151 (last week 232) are hovering in bullish territory. The yellow line separates those ETFs that are positioned above their trend line 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 StatSheet
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Market Commentary
Major Indexes Post 9-Day Losing Streak; Domestic TTI Remains A Tad Below The Line
The markets meandered above the unchanged line for most of the day, giving the illusion of a rebound, but weakness set in towards the end of the session, and the indexes closed lower for the 9th day in a row. That is a dubious streak that has not happened since late 1980.
On the opposite end, the volatility index (VIX) closed higher for the 9th day in a row, which is an all-time record and means that Wall Street traders are hedging their long positions to protect against a downside surprise.
October payrolls missed and rose by 161k vs. 173k expected; however, September’s print of 156k was revised upward to 191k while the August numbers were also changed from 167k to 176k, an overall gain of 44k more than originally reported.
Still, the main focus was on the upcoming elections and the continued barrage of embarrassing emails being released by Wiki-Leaks. There is more to come this weekend and if reports are correct, the mother of all emails is still forthcoming.
Our Trend Tracking Indexes (TTIs) slipped again with the Domestic one just barely having gone negative. See section 3 below for details.
ETF Data updated through Thursday, November 3, 2016
Methodology/Use of this StatSheet:
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.
If you are unfamiliar with some of the terminology, please see Glossary of Terms and new subscriber information in section 9.
Our main directional indicator, the Domestic Trend Tracking Index (TTI-green line in the above chart) just slipped below its long-term trend line (red) by a scant -0.01% after having generated a new Domestic Buy signal effective 4/4/2016 as posted. I’d like to more downside momentum before issuing a “Sell” signal as referred to in today’s commentary (section 3).
The market environment is getting shaky with the S&P now down 8 days in a row, which is the longest losing streak since Lehman collapsed in 2008. So, it’s no surprise that the volatility index (VIX) shared this dubious record by having rallied for 8 straight days, which is only the 3rd time in history this has happened with the other dates being April 2012 and December 2013. (Hat tip to ZH for this data).
As I said yesterday, the pullback has been orderly and lacked magnitude, but odds seem to be increasing that downside momentum could accelerate with a vengeance, especially if an outsider like Trump were to win the elections next week.
Not helping the indexes today were several disappointing earnings and economic reports. Factory orders and initial jobless claims came in less than expected making tomorrow’s payroll report the center of attention in the hope that it could spark a rebound rally. It was interesting to note that today’s bad news was in fact bad news as the major indexes headed lower and not higher as they have been for most of this year. Is this a sign of things to come?
Even the Fed with their announcement of leaving interest rates unchanged could not prevent the major indexes from slipping for the 7th day in a row, which represents their longest losing streak in 5 years. However, when looking at the actual numbers it translates to a loss of only -2.5% for the S&P 500; hardly an earthshaking number.
Supporting this weakness was the fact that the Fed signaled that a December hike was in the cards and that they allegedly don’t need any more evidence before moving, that is if you translate their subtle announcement correctly.
What is more critical is the fact that this 7-day slippage was enough to propel our Domestic Trend Tracking Index (TTI) to the cusp of a new “Sell” signal, as you can see in section 3 below.
At this point in time, it’s always interesting to see if there are other indicators that are confirming a potential move into bear market territory. ZeroHedge featured 2 charts, which are indicative of the environment we are currently in. Take a look:
