Ugly Losses Continue With Apple Getting Spanked

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

If you had expected a bounce after yesterday’s drubbing, you would have been wrong. This morning’s opening happened deeply in the red with the Dow being down some 600 points, a level from which it rebounded only to visit the -640 level later in the session. While the major indexes managed to crawl off their worst levels of the day, it did not matter, since the bears were in charge and ruled over the inevitable outcome.

Tech heavyweight Apple, which was down at one point around 10%, also managed a comeback to close the session with “only” a -4.78% loss. In part, the punishment came in view of Apple’s disappointing Holiday season guidance. The FANGs in general are not only stuck in a bear market but haven given back just about all of this year’s gains after having collapsed to January’s levels.

The red numbers were not limited to just domestic equities. Global markets, including all of Europe and Asia, demonstrated that the current bearish tendencies may be here to stay—or even get worse. Europe’s main index, the STOXX 600, dropped to its lowest close in 2 years.

Technically speaking, many support levels have been or about to be violated giving more credence to the fact that the bear market may only be in its beginning stages. Obviously, there will rebounds as dip-buyers step in to drive the markets back up, but the major trend is down as our Trend Tracking Indexes (section 3) show.

This is not the time to be a hero by trying to catch a falling knife; this is the time to be in cash and waiting patiently on the sidelines for a resumption of the bull market, whenever our indexes generate the signal to move back in.

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Bearish Thoughts

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Over the weekend, I read a couple of articles outlining the ongoing progress, or rather lack thereof, with the China trade talks, which took on a new dimension during the Asia-Pacific Economic Cooperation (APEC) summit.

We’ve witnessed Trump and Xi go at it for several months now, but VP Pence decided more was needed and jumped in the fray by trading sharply worded barbs with Xi, which crushed any hope of trade war de-escalation. Not only did relationships worsen but the APEC summit ended without an agreement for the first time in its history.

With trade headlines being able to move markets up or down, it came as no surprise to me that the major indexes opened sharply to the downside and stayed there throughout the session. An afternoon bounce was quickly wiped out and we ended deeply in the red, with especially the Nasdaq getting hit the hardest, which was its worst daily loss since “red” October.

Apple did its contribution to overall weakness, as the tech darling surrendered almost 4% and also slipped into bear market territory (-20.2%) to join other fallen heavyweights (FANG stocks) that had contributed to drive the markets to previous records. The FANGs are now down -26.5% from their highs and hovering deeply in bear market terrain.

Home builder confidence tumbled the most since 2014, as housing appears to have caught a cold. Being one of the economically most sensitive sectors, home builders (XHB) can often be the canary in the coal mine as far as future equity direction is concerned. This chart makes it clear that this arena is not showing any strength, especially due the fact that XHB is down -22.71% YTD.

One of the directional leaders are High Yield Bonds, which can signal a shift in sentiment. If history repeats itself, this chart would indicate that there is a lot more pain to come for equities, which would not surprise me, since our Trend Tracking Indexes (TTIs in section 3) have already shown that, for the time being, the bears haven taken charge.

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ETFs On The Cutline – Updated Through 11/16/2018

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 366 High Volume ETFs, defined as those with an average daily volume of more than $5 million, of which currently 56 (last week 81) 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 November 16, 2018

ETF Tracker StatSheet

https://www.theetfbully.com/2018/11/weekly-statsheet-for-the-etf-tracker-newsletter-updated-through-11-15-2018/

A Down Week Ends On A Positive Note

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The major indexes see-sawed throughout the session swinging above and below their respective unchanged lines but closing in the green in the end. The exception being the Nasdaq, which ended up slightly in the red but much improved from earlier levels. The cause was yesterday’s terrible earnings and poor guidance report by chip firms like Nvidia that dragged down the entire tech sector. More amazing is the fact how a stock from being up 50% YTD, can collapse to down -15% in a matter of a few weeks.

Helping upside momentum were dovish comments by the Fed’s Clarida, followed by remarks from Trump that he may not impose more tariffs on China and viewed “a list of things that China is willing to do” as positive step. This chart shows the impact these announcements had on market direction.

Lower yields helped bond investors, as the 10-year yield settled down 4 basis points to 3.07%, which is quite a drop from the 3.24% we saw not too long ago. The chart looks like we are in a topping pattern, which could indicate even lower yields ahead.

Regarding our Trend Tracking Indexes (TTIs), we are lurking on the sidelines waiting for a bullish signal (see section 3), also known as the year-end rally. However, if you look at the credit market index, it appears that the bears look to have the upper hand.

As always, there are many contradicting indicators, which is why I think it’s best not to get involved, unless the major trend resumes its bullish path.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 11/15/2018

ETF Data updated through Thursday, November 15, 2018

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 trend-line 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: SELL — since 11/15/2018

 Click on chart to enlarge

Our main directional indicator, the Domestic Trend Tracking Index (TTI-green line in the above chart) is now positioned below its long-term trend line (red) by -1.35% after having generated a new Domestic “Sell” signal effective 11/15/18 as posted.

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A Drop And Pop Kind Of Session

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Equities headed south in early trading, which was the validation confirming yesterday’s “Sell” signal for “broadly diversified domestic equity ETFs.” The markets dumped at first then see-sawed higher in what can be considered a drop, pop, drop and pop kind of session, during which all 3 major indexes ended in the green for a change ending a skid of 5 consecutive losing days for the S&P 500.

Our main directional indicator, the Domestic TTI, recovered a bit but remains stuck on the bearish side of its trend line. This will keep us on the sidelines until the TTI breaks back above it and shows some staying power at the same time. With the current wild swings in the market, and a projected year-end rally, we may find ourselves back in sooner rather than later.

Today’s roller-coaster was all about the latest version of the trade headlines. First, there was news of a trade truce causing a market bounce, then a drop, as the trade truce was denied, followed by a rally on news that next batch of tariffs have been shelved for the time being.

This back and forth surrounding one event make it questionable whether this late rebound will have legs or falter again, as we’ve seen in the recent past. Additionally, there is ongoing tightness of financial conditions which, if not resolved, may have a negative effect on equities, if this chart forecast is correct.

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