[Chart courtesy of MarketWatch.com]

1. Moving the markets

A quick end to the Mexican tariff saga helped the major indexes to follow through from Friday’s rally with the Nasdaq taking the lead, while the Dow ended higher for the 6^th straight session. Upward momentum, however, hit a glass ceiling mid-day, and we faded into the close.

However, not all is peaches and cream, and Trump warned that should Mexico’s cooperation to stem the flow of illegal immigrants fail, “we can always go back to our previous, very profitable, position on tariffs.”

Giving the market an assist as well was the fact that the Fed is on deck next week, and we will find out if lower interest rates, which already have been priced in, will come to fruition. Traders anticipate that last week’s poor jobs report will influence the Fed’s decision in favor of a reduction in rates.

On the economic side, things did not look rosy, as job openings fell in April, while layoffs picked up at the same time. However, job openings remain above the number of unempoyed workers for the 14^th month in a row.

Bond yields rose notably on the day, which affected the low volatily ETF (SPLV) negatively, but its unrealized gain for this Domestic Buy cycle remains higher than that of its SPY cousin (section 2) by over 50%.

Our International TTI edged deeper into bullish territory, but it has been hovering above the line for only 3 days. This move could reverse in a hurry, so I will look for more confirmation before declaring a new ‘Buy’ for this sector.

Continue reading…

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) headed north with the International one now being on the positive side of its trend line for the third day. I’d like to see a little more staying power before declaring this ‘Sell’ signal to be over.

Here’s how we closed 06/10/2019:

Domestic TTI: +4.47% above its M/A (last close +4.14%)—Buy signal effective 02/13/2019

International TTI: +1.58% above its M/A (last close +1.11%)—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.

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 239 (last week 145) 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.      

ETF Tracker StatSheet          

You can view the latest version here.

BAD NEWS IS GOOD NEWS—AGAIN

[Chart courtesy of MarketWatch.com]

1. Moving the markets

Never mind poor economic news such as a huge payroll miss, as only 75k new jobs were created during the month of May. That was against a consensus of 175k, so you would be thinking clearly had you expected a subsequent sell-off in the equity markets.

Well, that is not how it works these days. The worse the economic numbers, the greater the likelyhood that the Fed ‘could’ lower interest rates, which would be a boost for the stock market. Of course, the economy has been showing weakness wherever you look, which has been the justification for bond yields to head as far south as they did.

Unfortunately, those low bond yields are painting a picture of a possible recession, while the S&P 500 paints a picture of economic growth, which has created this conundrum with one analyst correctly observing that Bonds are from Venus and Stocks are from Mars.

Eventually a re-syncing will have to occur, and my guess is that the ‘smart money’ (bonds) will win this battle ultimately. This simply means that stocks will have to catch down to the reality of low bond yields—eventually.

In the end, it was the Fed’s jawboning about possible lower rates that sparked the best week for equities in some 6 months, which in the past did not end well, as that chart shows.

And for some Friday humor, ZH quipped:

“Markets jump on optimism U.S. economy sliding into recession.”

“The Fed won’t cut rates until stocks plunge, which won’t happen because the Fed is expected to cut if stocks plunge…”

And then posing this question tongue-in-cheek:

So, Finally, what drove this week’s almost unprecedented surge in stocks?

Answer:

Simple – Trump launching Mexican, Indian trade war; US labor market cracking; US GDP slowing; German manufacturing collapsing; S. Korean export drop needs a bigger chart; Global PMIs plunging; bond yields crashing…

Other than that, everything is fine, but I’m left pondering “how much upside is really left?”

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ETF Data updated through Thursday, June 6, 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 +3.49% after having generated a new Domestic “Buy” signal effective 2/13/19 as posted.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

Despite an early struggle for direction, bullish momentum picked up with the major indexes notching another day of gains making this the third winning session in a row.

The trade battles with China and Mexico continued unabated but mixed news was put simply on the back burner. Traders decided to put their focus instead on something more hopeful, namely that the Fed could deliver an interest rate cut and not follow the ECB, which postponed any monetary changes till next year.

It was this type of wishful thinking that supported upside market momentum and kept the bears in check, despite the threat of Mexican tariff going into effect next Monday. Trump said that despite ongoing negotiations “not nearly enough” progress has been made.

The most shorted stocks were left alone by traders for the second day in a row thereby not contributing to this winning session. Bond yields were steady with the 10-year barely nudging but, in the bigger picture, the decoupling of its yield vs. the S&P 500 remains extreme, as this graph shows.

Our International TTI managed to conquer its long-term trend line, but only by a tiny margin (see section 3), which was not significant enough to consider this a reversal of the recent downtrend—yet.  

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

Equities started the session in the positive, before a mid-day pullback interrupted follow through buying from yesterday. The pause was short-lived and, despite conflicting economic data, the bulls charged ahead with the major indexes closing around their session highs, despite yesterday’s short squeeze running out of ammo.

ADP payroll data painted a bleak picture with only 27k job additions for May vs. an expexted 185k, which was the weakest growth since early 2010. That was another feather in Fed’s cap, since it may find even more justification for another cut in interest rates.

This was the reasoning behind today’s rally, which was boosted by hopes that the global economy is deteriorating fast enough to validate a cut, perhaps as soon as this month, to avoid a possible recession. At least that’s how the theory goes.

Some strategists are pointing towards the disconnect between the economy and stocks, which has reached a record high, making the case for a potential return to bear market territory, along with a revisit of the December lows, a real likelihood.

Economist David Rosenberg summed things up in this concise tweet:

Does this chart look bullish? 16 months of nothing except the dividend, volatility, and acute anxiety. The S&P 500 has crossed above and below the 2,800 threshold no fewer than 19x since first testing the milestone in Jan/18. Looks like an elongated topping formation to me.

I could not have said it better myself.

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