Diving Into The Close

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

After yesterday’s strong rebound, the markets opened on a weak note with the major indexes spending the entire session below their respective unchanged lines trying to find some footing.

Not helping matters early on was a worsening of trade relations with China, which to me has now morphed into an all-out trade war, as a Chinese company has told all of its employees to boycott American products and halt international travels to the U.S. That kept the markets on a slippery footing until the Fed released its minutes on interest rates from its last meeting.

The Fed, as expected, revealed that their members are comfortable being “patient” on their current stance on interest rates, a position which could last “for some time.” While officials were split on the rate outlook over the long term, no one wanted to rock the boat “and push for a near term policy shift in either direction.”

In the end, the Fed’s announcement was not enough to keep the bears in check, and, after a mid-day rally, we dove into the close with selling picking up due to the White House ramping up its trade war rhetoric.

Where do we go from here? While our Trend Tracking Indexes (TTIs) continue to support the bullish theme, there are two indicators, which are flashing warning signs. The first one, thanks to Bloomberg, is a Boom-Bust indicator charted against the S&P 500, while the second one is the Global Money Supply Index.

Both are forecasting a potential decline in stocks, however, as always, the timing of it is the big unknown. For that, we will rely on our Trend Tracking Indexes (TTIs) to point the way towards the exit doors, once the need arises.

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Walking Back The Tough Talk — Markets Stage Comeback

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The White House walked back some of its tough talk last night by announcing that they are offering some temporary exceptions to export limitations against China’s Huawei Technologies. While the mudslinging continued, it was enough of a conciliatory gesture to soothe the anxiety among Wall Street traders, which had been focusing on pressing the sell buttons all day yesterday.

Dip buyers emerged and drove the major indexes to some solid gains, with especially the Nasdaq recouping some of yesterday’s sharp losses. Support also came from a short squeeze in SmallCaps, as this chart shows.

The fallout from yesterday’s threat by the Chinese to curtail the export of rare-earth minerals was immediate, as China’s rare earth holdings catapulted some 132% in a market that does not have upside/downside price limits.

On the domestic front, the news was not good, as existing home sales tumbled YoY for the 14th month. Expectations had called for a +2.7% rise in April, which was not even close, as reality showed a decline of -0.4%, which comes after a shocking -4.9% drop in March. At least for today, this “bad” news was good news, as the bullish market theme was not even interrupted to let this realism set in.

Let’s see if this comeback has legs, or if it is simply a “one-off” in a market that is predominantly headline driven.

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Trade Tensions Heat Up — Markets Head Down

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The trade war rhetoric between the U.S. and China heated up over the weekend, with both sides threatening a variety of consequences. The major indexes headed south with the Nasdaq taking the brunt of the losses.

Chipmakers took it on the chin, as U.S. tech companies, in compliance with White House requests, have begun to implement the ban on Huawei Technology products. The company will be cut off from receiving Android updates and will be restricted to use only public open-source versions of the software program.

AAPL stock fell after warnings of retaliatory action from China, which plays a big role in how Chinese consumers perceive U.S. products, and “acceleration” to adopt local iPhone substitutes could be damaging to say the least.

To further put the heat on the U.S., China’s Xi threatened to use one of their nuclear options, namely banning Rare-Earth mineral exports, which for sure would cripple supply chains of these rare commodities necessary in all tech products and military applications.

In other words, the tit-for-tat continues with no end in sight, and it appears that trade differences are about to morph into an all-out trade war. That will not be a positive for equity markets, unless the bizarre theme of the past that “bad news is good news” still makes its presents felt.

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ETFs On The Cutline – Updated Through 05/17/2019

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 221 (last week 245) 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 May 17, 2019

ETF Tracker StatSheet          

You can view the latest version here.


[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The struggle for direction shifted into high gear when, after a weak opening, the algos pushed the indexes back into the green, only to see the gains disappear in a sudden late session sell off. In between, the S&P 500 vacillated tightly around its unchanged line.

ZH described the cause of the early dump and the late slump very concisely:

…the reason why futures slumped overnight is because Chinese officials turned up the trade war rhetoric, warning that there are no plans for another round of talks. Additionally, front page commentary in the Communist Party’s People’s Daily evoked the patriotic spirit of past wars, saying the trade war would never bring China down, while commentary on the blog Taoran Notes, which was carried by state-run Xinhua, accused the U.S. of “playing tricks to disrupt the atmosphere.”

The message was clear: no talks are scheduled, and more importantly, China has no urge to schedule talks in the immediate future or to engage the “barbarian” Trump.

And so, with exactly one hour in trading left, CNBC doubled down, reporting what traders already knew thanks to the latest round of belligerent Chinese rhetoric, namely that “negotiations between the US and China appear to have stalled as both sides dig in after disagreement earlier this month.” Additionally, CNBC also echoed what Chinese officials had already said, and citing two sources briefed on the status of the talks, said that scheduling for the next round of negotiations is “in flux” because it is unclear what the two sides would negotiate.

Finally, pointing out the obvious, CNBC notes that “China has not signaled it is willing to revisit past promises on which it reneged earlier this month, despite showing up for talks in Washington last week.”

The market reaction was instantaneous and negative, sending the S&P sharply lower… and yet prompting questions: why is the market sharply lower on “news” which everyone already knew? Perhaps the biggest question is just what idiot is the marginal price setter in a market, in which nearly day-old news can hammer stocks not once but twice, and linked to that, just how dumb are the algos?

As a result, the Dow is down four weeks in a row, something we have not seen since May 2016. Also, the mid-week short-squeeze ran out of juice today causing the major indexes to end this week on a sour note.

With the U.S.-China trade talks having collapsed, a new driver is needed to prop up the markets next week. Otherwise, the downside may come into play again and, as I posted before, collapsing global money supply will currently not be of any assistance to the bullish theme.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 05/16/2019

ETF Data updated through Thursday, May 16, 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 +3.86% after having generated a new Domestic “Buy” signal effective 2/13/19 as posted.

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