Last week we said, “Despite the ongoing fears of the coronavirus spreading and adverse effect on China’s GDP, financial markets seem immune. Irrational optimism, perhaps?”
Last week the S&P 500 dropped over 1%. Gold and yields rose reflecting fears that the spreading coronavirus outbreak would weaken the global economy.
Oxford Economics estimates that the coronavirus could cut $1.1 trillion from the global economy in 2020 if it turns into a pandemic.
It looks like our bearish market internals – which have been warning of us impending danger – finally heeded.
The 30-year bonds fell to the lowest yield in U.S. history, but still inflation-indexed positive in a world with $13.5 trillion of negative-yielding debt worldwide.
Our bias for the week is to short bounces, although there are still a number of bullish patterns out there.
There weren't many changes last week to the Trend Matrix. But the changes made were positive in what was an overall negative week for the markets.
The reason is that the middle of the week there was strength that was followed by the decline Thursday and Friday.
Communication Services made a long run from a deep drop two weeks ago to overcome its prior high and then fell back.
Master Trader Tip: Do not buy new highs after a greater than 100% retracement. Historically, that is the time prices begin to retrace.
Semiconductors, that started a correction several weeks ago, continue to threaten to drag the Technology Sector, that is still in an uptrend on all time frames.
A breakdown in the Technology Sector would insure a break in the Nasdaq 100. And with weakness, a likely break in other sectors.
Another surprise in the overall negative performance was the move up in the Retail ETF that changed the daily trend from down to sideways. Maybe it's the start of a change is this long-term under-performer.
Gold and Gold Miners moved above their respective prior highs.
MJ, the Marijuana ETF, got a blue color change even though there wasn't a trend change in any time frame because of a possible downside shakeout pattern developing. I'll review in the video.
TREND MATRIX PERCENTAGE CHANGES
Many of the broader markets and sectors that we track are still and uptrends in Multiple Time Frames (MTF).
However, corrections start in lower time frames and evolve into higher ones.
While we don’t know with 100% certainty how far the expected correction will go, we do have an objective method for monitoring what is happening across those multiple time frames and our market internals.
As already mentioned, our market internals forewarned us of increasing risk at the end of January, and the price action last week isn’t a surprise.
I mentioned in last week’s video that the current environment was susceptible to “accidents,” and last week was an example.
It’s becoming clear that the coronavirus isn’t a common cold or bad flu, and institutions are fearful of holding their extended positions.
We say that extended can become “more extended,” but when extended reaches beyond what is a historical extension, institutions look for a reason to sell.
I pointed this out in last week’s Monday letter that the NASDAQ 100 was 7.75% above its 50-day moving average.
Historically, the markets don't look dangerous at a high based on the price action. That’s why we use the market internal gauges that we do and objective measurements of the past.
Another concern for the broader markets is the narrowing or inverted yield curves, which happened last week, signaling recession fears in the future.
The same occurred at the beginning of the summer in 2019, and it was followed by several months of sideways choppy price action.
We may be in for more of the same now, or the markets may decline this time through a correction of downward price action, versus a sideways one.
There is no way to know, but we do know is that this correction is not over.
VIDEO REVIEW OF INDEX AND SECTOR ETFs
Master Trader Techno-Fundamentals Combined with Investing and Trading ETFs Course HERE
NEW ETF TRADE IDEAS
None at this time.
OPEN AND CLOSED ETF POSITIONS WITH TRADE UPDATES (NOTE: Also in Member's Area in Open/Closed Trade Sheet)
2/11: FDN – Bought the ETF at $152.01. 2/15: Move Stop Loss $148.99
2/19: IBB – Bought the ETF at $123.58. Stop Loss: $120.98
2/14: MJ – Bought the ETF at $16.64. Stop 15.58
2/19: XHE – Bought the ETF at $89.59. Stop Loss $86.23
2/12: XLF – Bought the ETF at $31.33. Stop Loss: $30.14.
VIDEO REVIEW OF OPEN AND CLOSED POSITIONS WITH TRADE UPDATES
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