Dangling The China Carrot—Markets Recover

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Again, it was a trading day that had me shaking my head. After yesterday’s drubbing, with the Dow losing close to 400 points, an explosive rebound sent the major indexes back into rally mode wiping out just about all of yesterday’s losses.  

It was a headline, that the speed-reading computer algos interpreted as an incredibly positive event regarding the US-China trade dispute. The statement that caused this violent bullish reaction was this one:

…some tariffs will take effect on Sept. 1 as planned, “certain products are being removed from the tariff list based on health, safety, national security and other factors and will not face additional tariffs of 10 percent,” the U.S. Trade Representative’s offices said in a statement Tuesday.

“Further, as part of USTR’s public comment and hearing process, it was determined that the tariff should be delayed to December 15 for certain articles,” the statement continued.

“Products in this group include, for example, cell phones, laptop computers, video game consoles, certain toys, computer monitors, and certain items of footwear and clothing.”

In other words, tariffs will go ahead on September 1st but tariffs on some products will be delayed until December 15 on the basis of health, safety and national security.

It looks like the algos only saw “delay” and “December 15” and the bidding war was on. If you think that this is ridiculous, you are correct, but this is the insane market environment we are living in.

In the end, the S&P 500 ended up close to where we left off on Friday with nothing gained but also nothing lost. It promises to be a hot August, as global/trade uncertainties will continue to affect volatility and market direction.

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No Market Commentary Today

Due to a variety of commitments, I will not be able to write today’s commentary. Regular posting will resume tomorrow.

Ulli…

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ETFs On The Cutline – Updated Through 08/09/2019

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 206 (last week 234) 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 August 9, 2019

ETF Tracker StatSheet          

You can view the latest version here.

DIVING INTO THE WEEKEND—AND RECOVERING

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

It ended up being a mixed Friday, as the major indexes did an early swan dive but, despite recovering some of the losses, they still closed in the red. It was a wild week, which could have ended up far worse, but as it turned out, the S&P 500 only surrendered -0.66% with the other 2 major indexes sporting similar numbers.

Starting the session to the downside were remarks from Trump suggesting that a resolution with China was not forthcoming. He added that “things are doing very well with China,” but that “he’s not ready to make a deal.” Throwing more fuel on the fire were his remarks that next month’s talks might be cancelled.

Equities reacted very negatively, which prompted the While House to backpedal earlier remarks regarding Huawei that “we’re not doing business with Huawei.” The clarification came that “the President was referring to ONLY ban Federal Departments buying from Huawei,” and not public corporations.

The markets did an about face and quickly headed north with bond yields following suit. In the end, this provided enough ammunition to drive the major indexes back towards the unchanged line thereby averting what appeared to be an accelerating plunge in the making early on.

“Scrambling back” was the theme of the week, as volatility surged, giving an assist, at least temporarily, to the bearish crowd. The only bright and shining light all week was gold, which we added to our holdings, and which surged over 4% to conquer the $1,500 level—and having its best week in over 3 years.

We’ll find out next week, if there are more bearish surprises in store for us.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 08/08/2019

ETF Data updated through Thursday, August 8, 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 +4.30% after having generated a new Domestic “Buy” signal effective 2/13/19 as posted.

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Buybacks And A Short-Squeeze Drive The Rebound

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Two forces combined to pull the markets out of the doldrums after Monday’s drubbing. For one, we saw corporate buybacks pick up speed, and two, a giant short-squeeze, now its third day, threw an assist to push the S&P 500 slightly above last Friday’s close. Both, the Nasdaq and S&P are back in the black for the week.

Setting the stage early on, was China’s Yuan, the peg of which is still set at the weakest level since 2008 but slightly higher than feared. That helped steady markets worldwide, as global growth fears subsided a tad and allowed the Global Dow to finally show a gain after the recent spanking.

While the markets seem to have stabilized for the time being, traders are still uneasy, as it would not take much to turn this trend around and retest Monday’s lows. Soothing the mood on Wall Street, however, was the volatility index (VIX), which dropped back from its recent highs to settle at a not so nerve-wrecking 16 level.

In the end, for us trend followers, no damage was done, and the major trend direction remains bullish, keeping us on board until that fact materially changes.

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