Dropping Below Critical Support—International TTI Signals ‘Sell’

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Yesterday’s market dive into the close had indeed dire consequences, as the major indexes opened down without their usual morning bump. The Dow at one time had given back some 400 points but managed to recoup some of these losses late in the session, as did the S&P 500 and Nasdaq.

It was a one-two punch with trade tensions and global growth uncertainties combining to spook Wall Street, while bonds benefited from fears that the bears may get the upper hand. Global stocks have started to roll over as bond yields collapsed indicating economic weakness.

The Dow lost its 25k marker but managed to recover and close above it. The S&P 500 dropped below its widely watched 200-day M/A but was able to recoup that technically important level by a few points.

As I mentioned yesterday, our International Trend Tracking Index (TTI) had already been meandering below its long-term trend line, and it fell sharply during today’s session. Along with another lower close, this confirmed a new ‘Sell’ signal for that arena, which is defined as “broadly diversified international ETFs and mutual funds.”

For tracking purposes, the effective date will be tomorrow, May 30, 2019, although I already took the opportunity today to liquidate clients’ holdings.

There are stresses in bond markets wherever you look, including here in the U.S. as the 3-month/10-year spread has collapsed to new cycle lows, as this chart shows. What that simply means is that a 3-month T-bill will give you a higher yield than a 10-year bond. Huh?

These oddities usually occur at major inflection points in the markets, which our TTIs are already pointing to. Even our Domestic TTI, which a week ago was in solid bullish territory, has reached a point that is now within shouting distance of signaling a ‘Sell’ signal as well. (see section 3 for details)

What could turn these deteriorating markets around? Right now, there are two things. First, an announcement by the U.S. and China that a trade settlement has been reached and second, a move by the Fed declaring that interest rates will be sharply slashed. And let’s not forget that the PPT (Plunge Protection Team) could always be called upon to drive equities back up.

I will not wait around for either to happen and will execute our ‘Sell’ signals as they are being generated, because currently the downside risk looks far greater than the upside potential.

2. 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.

For this current domestic “Buy” cycle, here’s how some our candidates have fared:

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 -8% point has been taken out in the “Off High” column. For more volatile sector ETFs, the trigger point is -10%.

3. Trend Tracking Indexes (TTIs)

Our Trend Tracking Indexes (TTIs) dropped again with the International one now confirming a ‘Sell’ signal, which will be effective as of tomorrow. The Domestic one remains bullish but only by a tiny margin.

Here’s how we closed 05/29/2019:

Domestic TTI: +0.22% above its M/A (last close +0.91%)—Buy signal effective 02/13/2019

International TTI: -1.92% below its M/A (last close -1.09%)—Sell signal effective 05/30/2019

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 specified guidelines.

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