The Fizzle Continues

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

There was not much motivation on the part of the bulls to engage and keep this market from fizzling. The big three, namely lack of progress on the trade dispute with China, mixed earnings results and weak headlines for economic numbers, combined to create a lackluster session.

In other words, the recently observed last 30-minute pump was only a distant memory causing the major indexes, who spent most of the day below their unchanged lines, to dive into the close. The losses were moderate, given the recent relentless push into record territory, but it appeared that we simply ran out of steam.

Not helping matters were Building Permits, which plummeted the most in 3 years (-6.1% MoM) putting another nail in the coffin of weak home sales data and mortgage applications, despite ongoing low interest rates. ZH reported that Housing Starts followed suit and dropped -0.9% MoM (vs. -0.7% expected).

Bond yields headed lower again with the widely held 10-year having almost made up the losses sustained in the last week, when we hovered around the 2.14% marker, which is quite a drop to today’s 2.06%. At the same time, the US Dollar pulled back, while Oil continued its downward spiral after a de-escalation of tensions with Iran.

Only about 7% of the S&P 500 companies have reported earnings so far, so we certainly will have more surprises on deck, any of which can push the markets in either direction.

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Treading Water

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

It was a tug-of-war between news stories that kept traders on edge with some headlines causing a sell-off, others creating a recovery, but in the end, the major indexes closed in the red.

We didn’t see the usual last 30-minute rebound due to Trump’s comments that “trade has a long way to go,” as well as bank earnings, which painted a mixed picture of the economy and the financial services arena.

Fed chair Powell chimed in from a speech in France that the “economic outlook hasn’t improved since the last FOMC meeting in June,” which instilled hope that the stage for an interest rate cut later this month appears to be set.

This view was crushed a little bit when June retail sales were released. They exceeded expectations by surging 0.7% MoM, which translates to 4.6% YoY, the most in 12 months. That ended up being a discouragement for the low interest rate crowd. After all, if the consumer, which accounts for 67% of GDP, is spending, why would we need a rate cut?

The loser of the day was oil prices, which tanked -2.64% and had a wild ride throughout the session, but in the end the administration’s willingness to “talk to Iran,” took the starch out of the early rally and gave the bears something to cheer about.

Market behavior today when compared with history may very well be random and totally meaningless. However, it’s interesting to note the similarities when looking at the S&P 500 in 2019 compared to 1998. A tip of the hat goes to ZH for this chart.

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Markets Under Pressure; Earnings Season On Deck

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Throughout today’s session, equities were under pressure due to the looming earning season. Traders were a bit anxious to find out if some of the poor economic data points of the last quarter, or the U.S.-China trade war, are having an impact on companies’ bottom lines.

The major indexes spent most of the day below their respective unchanged lines, although by only a tiny margin, but managed to close in the green thanks to the usual last 30-minute pump.

China posted its weakest economic growth in 27 years by growing only 6.2%. One analyst did not see this as a cause for concern, since “a further round of monetary-policy stimulus has helped to soften the impact of a relatively weak GDP print.”

On the domestic side, it’s interesting to note that SmallCaps are continuing to collapse relative to LargeCaps, which this long-term chart makes abundantly clear.

This is somewhat strange when considering the negative effects of the U.S.-China trade war should weigh far more on large-cap multinational companies rather than on more domestically oriented small-cap companies.

Be that as it may, right now, the focus is on earnings season, and it will be interesting to see what directional market effect it might have.

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ETFs On The Cutline – Updated Through 07/12/2019

Below, please find the latest High-Volume ETF 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 322 High Volume ETFs, defined as those with an average daily volume of more than $5 million, of which currently 278 (last week 279) 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 July 12, 2019

ETF Tracker StatSheet          

You can view the latest version here.

BANKING ON A FED RATE CUT

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Yesterday’s rally continued this morning and accelerated throughout the session, as traders were now convinced that a rate cut by the Fed is a sure thing, so front running was the name of the game.

Since Fed chair Powell’s 2-day congressional testimony did not include any negatives, but rather words like the U.S. economy is in a “very good place,” traders felt invigorated that a cut was coming, so the bullish theme continued.

Even a stronger-than-expected U.S. inflation print in core producer prices could not put a dent in current enthusiasm, with further support coming from hopes the global economy will slow even more, forcing the Fed’s hand for a possible 0.5% reduction in rates.

One analyst summed it up like this:

This is one of those mornings where bad news is good news for stocks, while good news is bad news for bonds… or in other words, any news is good for stocks.

The bullish view did not carry through all investment arenas. Chinese, European and Small Caps all lost for the week. Bond yields suffered, especially in Germany where the 10-year spiked the most since the middle of 2017, as prices collapsed.

Same here in the U.S. with specifically the 30-year yield jumping to 7-week highs, as the dollar corrected back down after its surge following the payroll announcement.

Things appear very uncertain and confusing, when looking at the big picture, which led BofA to release the following statement:

“…we anticipate an “overshoot” in credit & equity prices in coming months, followed by an overshoot in gold (US$ devaluation) before big H2 top in asset prices (as bond bubble pops & policy impotence visible).”

That prompted ZeroHedge to update this chart, which suggests that a picture is worth a thousand words.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 07/11/2019

ETF Data updated through Thursday, July 11, 2019

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.

3. 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 02/13/2019

Click on chart to enlarge

Our main directional indicator, the Domestic Trend Tracking Index (TTI-green line in the above chart) is now positioned above its long-term trend line (red) by +7.78% after having generated a new Domestic “Buy” signal effective 2/13/19 as posted.

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