One Man’s Opinion: Global Bond Markets – Skydiving Without a Parachute

By Greenwich Endeavors

After almost 10 years of unprecedented accommodative monetary policy both in the US and abroad, the fixed-income markets are trading at lofty levels never before seen in history.  Let that sink in for a moment.  Never before.  Not during world wars, not during global depressions, never.

If you think this is a case of scare mongering or me doing my best Chicken Little imitation, it’s not.  One third of global fixed-income bonds were recently trading at a negative yields!  The global bond market has never been in a more perilous position, and I am surprised that there are so few publications ringing the alarm bells.  We are reminded on a daily basis of such trivial risks that have no bearing on our everyday.  But it’s tough to understand why there is such limited press highlighting such glaring risks.  This is especially alarming since we lived through a fixed-income debacle in 2008 and know how devastating it was for those unprepared.

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ETFs On The Cutline – Updated Through 02/17/2017

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 237 (last week 239) 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.

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ETF Tracker Newsletter For February 17, 2017

ETF Tracker StatSheet

http://www.theetfbully.com/?p=18545&preview=true

Extending The Winning Streak

[Chart courtesy of MarketWatch.com]

  1. Moving the Markets

Despite the major indexes hovering in negative territory for most of the day, in this new normal market environment, they are not allowed to close two days in a row in the red. As a result, as if by magic, stocks were pushed up during the last hour to be sure the Dow was able to extend its record-setting streak to a seventh session while the S&P 500 added +1.5% for the week.

The bears were on deck waiting for some downside follow through but, as we’ve seen numerous times over the past year, the late afternoon ramp destroyed any kind of hope for continued bearish sentiment. Again, the Trump euphoria remains in full swing fueled by promises of lower taxes along with massive infrastructure investments. Although it seems to me that enthusiasm has faded a bit over the past few trading days as White House sparring with MSM reached new lows.

Be that as it may, at this time, bullish momentum is in full swing, despite occasional hiccups, and Wall Street sentiment points to more upside for equities. However, it all seems very one-sided and surreal, so we need to be aware that not all is well economically, especially when looking at the potential for higher interest rates, which can derail this rally in a hurry.

The fact that stock prices are rallying does not mean the underlying fundamentals warrant reckless up moves. Case in point is Caterpillar, a company that has not reported a single monthly uptick in sales for 50 consecutive months, yet its stock price has soared 18% since the Trump victory. Take a look at the chart:

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 02/16/2017

ETF Data updated through Thursday, February 16, 2017

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 +2.83% after having generated a new Domestic Buy signal effective 4/4/2016 as posted.

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Equities Mixed But Dow Squeezes Out A Gain

[Chart courtesy of MarketWatch.com]

  1. Moving the Markets

Treading water below the unchanged line was the theme of the day as weakening upward momentum held the major indexes in check. Despite the usual afternoon ramp, only the Dow managed to eke out a gain to notch its sixth straight record high close.

It was a mixed bag with declining energy stocks dragging on the indexes while, at the same time, a pause was in order to digest the gains of the Trump rally. With the 4th quarter earnings season almost being in the rear view mirror, today’s focus was again on Trump’s lofty promises of cutting corporate taxes and reducing regulations.

There was a lot of hope, enthusiasm and excitement powering this rally, but we’re now getting closer to a point where Wall Street wants to see more concrete results, in other words, the theme has shifted to either “put up” or “shut up.”

On the earnings side, the big assist that helped the Dow close in the green, came from Cisco Systems (+2.38%) after its quarterly results were posted late Wednesday. We now have to wait and see what the next driver will be to keep the recent upward momentum intact.

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S&P 500 Registers A Seven-Session Winning Streak

[Chart courtesy of MarketWatch.com]

  1. Moving the Markets

The bulls continued to have their way on Wall Street with today’s support coming from positive data confirming that the US economy is heating up and leaving the Fed behind in terms of controlling inflation via higher rates. The CPI number can only be described as “blistering” at a strong 2.3% print vs expectations of a 2.1% reading, which is well above the Fed’s target of 2.0%.

This was followed by strong retail sales, after a bleak Holiday season, as consumers appeared to be optimistic over Trump’s plans. Retails sales jumped 0.4% in the month of January, much better than the 0.1% expected. The only fly in the ointment is the recent weakness in wages (-0.6% YoY) which, in light of rising inflation, casts a shadow on how long this spending spree can last.

So what is really behind the current “melt-up” rally? Fed chief Yellen provided the answer today during her testimony in front of the House Financial Services committee: “I think market participants likely are anticipating shifts in fiscal policy that will stimulate growth and perhaps raise earnings.” Yes, and that is commonly referred to as the Trump rally. My only question is: How long can this last without a serious correction?

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