Trade Tensions Rattle Markets

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]
  1. Moving the markets

Last night’s elevated tit-for-tat trade battle between the U.S. and China finally was too much for equities to ignore causing a sharp drop right after the opening. Despite a slow crawl back towards the unchanged line, the damage was done, and the major indexes ended in the red with the Dow scoring not only its 6th straight decline but its performance also went back to “unchanged” for the year.

Trump’s latest threat to put an additional $400 billion of tariffs on a wide variety of Chinese goods simply rattled the Wall Street crowd, and it remains to be seen if this was just a quick reaction or if the fallout will be deeper and longer lasting. The immediate effect was that only risk-off sectors benefited, such as utilities, telecommunications and consumer staples.

However, it appears that the trade party is just starting, as India fired the next shot by proposing to raise import duty on some 30 U.S. products, ranging from motorcycles to steel and iron products.

Makes me wonder as to “who’s next?” For sure, if this theme spreads worldwide, with actions being followed by equal of greater reactions, you can kiss this aging bull market good bye. Since nothing is certain during these uncertain times, we simply must let this battle play itself out but take evasive action once our indicators give the signal to do so.

Today, we came close, as our International TTI showed its best interpretation of a swan dive, but it managed to find resistance just before breaking its trend line to the downside (see section 3 for more details.) A potential “Sell” signal for that arena is now a distinct possibility. Stay tuned!

  1. ETFs in the Spotlight

In case you missed the announcement and description of this section, you can read it here again.

It features 10 broadly diversified and sector ETFs from my HighVolume list as posted every Saturday. Furthermore, they are screened for the lowest MaxDD% number meaning they have been showing better resistance to temporary sell offs than all others over the past year.

The below table simply demonstrates the magnitude with which some of the ETFs are fluctuating regarding their positions above or below their respective individual trend lines (%M/A). A break below, represented by a negative number, shows weakness, while a break above, represented by a positive percentage, shows strength.

For hundreds of ETF choices, be sure to reference Thursday’s StatSheet.

Year to date, here’s how our candidates have fared so far:

Again, the %M/A column above shows the position of the various ETFs in relation to their respective long-term trend lines, while the trailing sell stops are being tracked in the “Off High” column. The “Action” column will signal a “Sell” once the -7.5% point has been taken out in the “Off High” column.

  1. Trend Tracking Indexes (TTIs)

Our Trend Tracking Indexes (TTIs) headed south with especially the International one diving sharply but managing to find a bottom just before breaking its long-term trendline. Any more downside activity, and this indicator will slip into bear market territory generating a “Sell” signal for “widely diversified international ETFs.” Of course, I want to see a clear break below the line before activating the signal.

Here’s how we closed 06/19/2018:

Domestic TTI: +2.65% above its M/A (last close +2.85%)—Buy signal effective 4/4/2016

International TTI: +0.05% above its M/A (last close +0.82%)—Buy signal effective 7/19/2016

Disclosure: I am obliged to inform you that I, as well as my advisory clients, own some of the ETFs listed in the above table. Furthermore, they do not represent a specific investment recommendation for you, they merely show which ETFs from the universe I track are falling within the guidelines specified.

Contact Ulli

Leave a Reply