Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 05/09/2019

ETF Data updated through Thursday, May 9, 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 +4.05% after having generated a new Domestic “Buy” signal effective 2/13/19 as posted.

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An Early Slump Followed By A Late Pump

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Another jaw dropping opening had the Dow down some 400 points early in the day, as anxiety increased over the deepening trade dispute with China, which continued to squash any bullish sentiment not just here in the U.S. but globally as well.

Wall Street traders tend to operate by the well-known adage “by the rumor, sell the fact,” but all week it has been almost impossible to figure out what is the rumor and what is the fact in the ever worsening U.S.-China trade tug-of-war.

Today was no exception, but to stop the markets from accelerating their plunge, Trump came out mid-day and jawboned that “a trade deal this week is still possible, but he has an ‘excellent alternative’ to the China deal.”

That pulled the markets out of their doldrums and got the rescue rebound started, causing ZeroHedge to tweet Trump’s new strategy (tongue-in-cheek, of course):

White House new trading strategy: deny trade deal is dead during US hours sending US stocks higher, confirm no deal ahead of China open crashing Shanghai Composite.

Not helping the mood of the warring trade parties was news that the FCC had barred China Mobile from providing telecom services in the U.S. market—over espionage concerns.

In the end, the major indexes cut down their early losses substantially, but I must wonder if this is just a temporary halt on the way towards a new visit in bear market territory.

I have on several occasions posted this chart showing the effect global money supply (blue line) has had on the direction of equities (S&P 500 green line).

In today’s update, the money supply has clearly rolled over begging the question “will the S&P 500 follow?

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Markets In Search Of Support—U.S.-China Trade Deal Collapses

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

It’s now official. The planned tariff increases from 10% to 25% on imported Chinese goods are scheduled to go into effect this Friday. According to Reuters, China has made “systematic edits” to a nearly 150-page draft trade agreement by deleting commitments made previously.

That caused the White House to lose patience with the process, as it appeared that China’s original gesture to compromise was replaced with unwillingness to proceed. So, all the optimistic trade rhetoric we heard over the past few months, that assisted the markets to reach higher levels, vanished instantly as the “reneging” shifted into high gear.

I was surprised to see the markets to react as calmly as they did by bouncing higher throughout the session and showing some green numbers. But, it’s never over till it’s over.

This became clear at the end, when a sudden sell-off brought the indexes back to their unchanged levels, and we closed on a sour note, thereby leaving tomorrow’s market direction wide open to speculation.

Bond yields did an intra-day reversal and spiked after softness early on. The 10-year closed the day 3 basis points higher at 2.49%. Right now, it looks to me that the markets are mired in uncertainty with traders trying to figure out how to deal with the trade dilemma.

Sure, there is always the chance that it will be resuscitated, but that may be more wishful thinking than reality, as the warring parties appear to be digging in their heels. 

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Equities Tank As The Trade Drama Continues

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Volatility returned with a vengeance, as uncertainty about the U.S.-China trade talks ratcheted up a notch, despite Vice Premier Liu He’s intention to attend trade talks this week in Washington.

However, that did nothing to soothe nervous traders on Wall Street, who concluded that no resolution would materialize by Friday, the day on which the import duties for Chinese goods would be hiked substantially. To save the markets from further destruction, it would not surprise me if the tariff deadline will be postponed, say on Thursday prior to the close.

The bears took over, and the selling accelerated throughout the session with the Dow being down around 600 points at one time. Luckily, buyers appeared during the last 30 minutes and erased some the of the losses. However, the major indexes tumbled in unison, with the S&P 500 improving the most during the late session rebound.

Contributing to the sour sentiment was the EU, which slashed their growth outlook for the region, as this chart shows. Maybe we are finally seeing some reality creeping into the prior hope-filled economic forecasts. After all, you can only put so much lipstick on a pig…

Again, it pays to look at this graph portraying the NYSE index, the world’s largest, which is flashing a divergence to the S&P 500. It shows that for the second time the S&P 500 has made a new all-time high, and the NYSE index did follow suit. You can see what subsequently happened last summer when the S&P took a 20% dive.

Right now, it looks to be an almost identical set up, which presents the question “will it be different this time?” Since no one has that answer, we will have to wait and see how things will play out.

Despite today’s equity dump, our Trend Tracking strategy was not affected, nor did any sell stops get triggered. 

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Dropping And Popping; Another Miraculous Rebound

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

The futures market was hit hard last night with the Dow being down some 500 points, while the S&P 500 got hammered at the tune of -2.4%. By the time, the regular session opened, some of these losses had already been made up, and we started the day with the Dow in the red by ‘only’ 300 points.

Global stocks crashed as well, all in reaction Trump’s announcement that the U.S.-China trade deal was not only not going “optimistically” but had effectively collapsed, and tariffs on $200 billion of Chinese imports would be hiked to 25%.

The result was a sea of red in just about all markets overnight, but things calmed down as today’s session got underway with a magical comeback in the making, severely cutting down the losses which, at the end, were barely noteworthy.

Helping the recovery was a giant short squeeze and most likely strong buying power generated via the Plunge Protection Team (PPT). Helping to ramp the markets higher was sudden news that China would send a smaller delegation to Washington rather than the 100-person group originally scheduled. Of course, whether this group will talk or simply sightsee remains to be seen.

While this movie may not be over, for right now at least, no damage has been done regarding major trend direction.

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No Market Commentary

As I posted yesterday, I will not be able to write today’s commentary nor tomorrow’s “ETFs on the Cutline” report.

Regular posting will resume on Monday.

Ulli…

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