From Expansion To Contraction

When talking of trends in the market, you hear me reference my Trend Tracking Indexes (TTIs) every week. The reason is that they provide me with an unbiased view as to whether we are in bull market territory or have slipped below the trend line into bear territory.

Yesterday’s ISM report that its non-manufacturing index fell to a reading of 41.9 in January from a 54.4 reading in December represents a huge drop especially considering that economists’ expectations were for a number of 53.

While these numbers may not mean much to you, keep in mind that the dividing point from an expanding service business to one that is contracting is a reading of 50. So, similar to our TTI’s, a line is drawn in the sand indicating as to where we are at. Since the service sector accounts for some 90% of the U.S. economy, yesterday’s drop was devastating and the markets succumbed to the bears and suffered large losses.

As I mentioned in last Friday’s update, our TTI’s have been dancing around the long term trend line and, after yesterday’s close, they are positioned as follows:

Domestic TTI: -0.58%
International TTI: -7.82%

That means, we remain in bear market territory and will keep our cash positions for the time being until opportunities either on the long or short side present themselves.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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