Nowhere to Run, Nowhere to Hide

The master ETF list here at TrendInvestorPro has 200 ETFs from every corner of the market: stocks, bonds, commodities, currencies, foreign indexes and a few odd balls. They, and I do mean the infamous “they”, say that there is always a bull market somewhere. Of the 200 ETFs, only eight are showing gains since February 19th, which is when SPY peaked. Basically, bonds, the Euro, the Swiss Franc, the Yen and the Dollar are up. Weakness in the Pound (FXB), Canadian Dollar (FXC) and Aussie (FXA) are contributing to Dollar strength. Note that I ran this scan in Amibroker and used unadjusted data (sans dividends).

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Publishing Note: Bear markets are for learning and preparing for the next bull market. As such, I will release the ChartList with breadth indicators on Friday. Organized in top-down fashion, this ChartList contains over 100 charts covering index and sector breadth. This will be accompanied with a long commentary to explain as well as a few videos.

Volatility Steadily Increases in the S&P 500 SPDR

The S&P 500 SPDR (SPY) peaked on February 19th and is now down around 25%over the last 19 trading days. During this time, the 1-day Rate-of-Change exceeded -3% on February 24th and volatility steadily increased in March. Note that the 1-day ROC has exceeded 3%, up or down, in thirteen of the last seventeen sessions.

This crazy volatility is spreading into other areas, specifically gold and bonds. There is no place to hide, except short-term Treasuries, such as SHY and BIL. This makes me think of the classic line from The Gambler (Kenny Rogers):

You got to know when the hold 'em, know when to fold 'em, know when to walk away and know when to run.

I run from volatility.

Gold Miners Take Chaos to a New Level

The chart below shows the Gold Miners ETF (GDX) moving from normal volatility (blue shading) to high volatility, and then to insane volatility. The 1-day Rate-of-Change exceeded 10% four days in a row. There were two 10+ percent declines and two 10+ percent advances. Sorry, but chart analysis is pretty much futile in such an environment. In any case, we can see a clear breakdown in mid March and bounce back to the support break, which, in theory, turns into resistance.

Big Outside Reversal Week for GLD

The Gold SPDR (GLD) is experiencing similar levels of volatility. Keep in mind that 10% moves in GDX are equivalent to 3% moves in GLD because GDX is a more volatile beast. I featured GLD on Monday as it hit its rising 200-day SMA and RSI became oversold. This bullish mean-reversion setup is still possible, but the high levels of volatility and recent breakdowns are bearish. Now, we have to make a choice.

The chart below shows the 1-day ROC in a normal range until late February. This changed with a 3.5% decline on February 28th. Even though GLD bounced in early March, it broke down with a sharp decline from March 9th to 16th. The S&P 500 also fell sharply during this period (>10%) so we can assume that gold is not a viable hedge. Also note that GLD bounced on Tuesday along with the stock market.

Overall, gold is acting more like the stock market than an alternative. In addition, the added volatility and mid March support breaks are bearish. Tuesday’s bounce puts GLD near resistance from broken support, and this is an area that could end the 1-day bounce. Also note that the silver broke its 2015 lows and gold formed two huge outside reversals last week. Given the evidence and volatility, I do not want to be involved in gold (long or short).  

Bonds Reach Historic Levels of Volatility Too

Speaking of volatility, even Treasury bonds and the 20+ Yr Treasury Bond ETF (TLT) are feeling the heat. TLT surged over 6% on Monday and then plunged over 6% on Tuesday. These back-to-back 6% moves were the largest 1-day moves ever. EVER. The chart below shows TLT with the 1-day Rate-of-Change since inception. Prior to Monday and Tuesday, TLT had never even moved 5% in one day.

The lower window shows the 5-day Rate-of-Change exceeding 10% on Monday, which is the third time in some 18 years. While I cannot make any inferences with just two priors, such a surge represents a parabolic move that is unsustainable. TLT fell sharply after the 2008 pop and consolidated after the 2011 pop.

TLT is still positive over the last 19 trading days (since SPY peaked) and offering an alternative of sorts. HOWEVER, the level of volatility tells me that something is not right here. At the very least, I avoid names with this kind of volatility. Sure, TLT is above its rising 200-day and RSI is back in the 50-60 zone, but look at the candlestick action over the last seven days. TLT formed five long black candlesticks as the ETF moved sharply lower after the open in five of the last seven days.

It is a bear market environment for stocks and this means stock-related ETFs are not an option. As such, I focused on some alternatives, such as bonds and gold, over the last two weeks. However, these two are getting too volatile and risky for my blood right now. With bonds and gold out of the picture as well, the options are down to cash and cash equivalents. This too shall pass and it is important to preserve capital and sanity until that time, whenever it may be.

Stay safe and stay home...

-Arthur Hill, CMT
Choose a Strategy, Develop a Plan and Follow a Process

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