[Chart courtesy of MarketWatch.com]
- Moving the markets
As I pointed our yesterday, sudden up moves can be ephemeral in nature, and even more so when they are based on hope and hot air. This is what we saw today when the nothing-burger, AKA the Trump-Xi non-deal, came back with a vengeance and collapsed the major indexes by over 3%.
Trump confirmed that the trade war is not over, while renaming himself to “Tariff Man.” Really, I am not making this up. In other words, we went from the exuberant truce to brutal realty for the markets in just about one day, which also means the hard-fought gains from the Powell dovishness and the trade cease-fire have just about disappeared.
The major indexes have now crashed back below key technical support levels into bearish territory with Transportations and SmallCaps slipping back into the red YTD.
The second punch of the day came from the interest rate arena, as key yield curves hit the flattest in 11 years with the 3-year and 5-year note inverting for the first time since 2007. What that simply means is that short-term interest rates are higher than long-term ones. The inversion of the 2-year and 10-year, which we are close to, has always been an accurate predictor of recessions.
Yesterday’s small move above the trend line in our Domestic Trend Tracking Index (TTI-section 3), has been reversed, and we are back in alignment with our current model, which shows that we are in bear market territory and therefore have no exposure to equity ETFs (since 11/15/18).
The question in my mind now is whether the markets will head further south and test the October lows, or if magically a year-end rally will materialize. While I have always considered the latter a real possibility, today’s brutal sell-off leaves the future direction wide open.
Right now, it’s good to be on the sidelines…