You never know if a white knight can suddenly appear with enough powers to pull the major indexes out of a deep hole. That was the case today, as the S&P 500 was bouncing around its major support level of 1,140, which was briefly violated, when news broke that Italy is talking to Chinese Investors about buying some of its bonds.
At this point, the news has not been confirmed, but Chinese investors did travel to Italy to discuss various investment ventures. Just the possibility that this visit could morph into something more was enough to put a floor under the markets, and up we went, as the chart above (courtesy from MarketWatch.com) shows.
Of course, those types of rumors can end up in disappointment while leading to a dead cat bounce with the markets potentially retracing today’s gains. But, for right now, the Chinese saved the day, at least for the domestic U.S. market.
It looked different on the European side, where equities continued to slide on concerns of Greece defaulting at some point in the future.
Our Trend Tracking Indexes (TTIs) remained steady thanks to the pullback and are positioned as follows:
Domestic TTI: +0.83%
International TTI: -12.70%
Within the last month, the S&P 500 has been trading in a range of some 100 points with the upper level being around 1,220 and the lower one at 1,120. That is a wide margin, but helps understand that we really have been stuck and not been able to break out.
This obviously did not help our hedged position, because a downside break occurred, but due to no follow through, we headed back up to the upper end of the range. While that has been frustrating, there is not much you can do about it.
Any trading in a range will come to an end sooner or later and a break out will occur. Of course, you can’t be sure whether it will be to the upside or the downside. I consider it a downside breakout when the Domestic TTI turns negative again.
Since I am more concerned with controlling downside risk at this time, I will initiate the hedge again once the downside break has actually occurred.
With some analysts having reduced their 2011 forecast on the S&P 500 to 1,180 (we closed today at 1,162), your concern should be to protect your portfolio, if more downside comes into play. At least that’s how I see it at the moment.
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Comments 6
Ulli,
I see that UUP has risen above its 39 week trend line. However, it did so after making two huge gaps to the upside.
Are you worried that UUP might drop just as dramatically in order to re-fill those gaps, making this a potentially bad time to consider this ETF for investing?
Just interested,
GH,
Yes, UUP has just barely crossed its 39 week M/A to the upside by +0.52% as of 9/9/11. I agree with you on the upside gaps, which will be filled at one time or another. It’s too risky at this point from my view.
Ulli…
It would be helpful if you listed the efts that are bouncing back and are buy candidates.
Tom,
They are featured in the ETF Cutline reports, which are published every Monday and Thursday.
Ulli…
Ulli,
Gold ETF’s & Long-Term Treasury Funds or ETF”s, do you still recommend getting into them now? Many are saying gold is set for a large correction before moving up later. Are you at all concerned that so many people have moved into treasuries,bonds, & gold?
However, over the last ten years gold in particular and treasuries have kicked the crap out of equities. What do you say for the future, more of the same?
Mark,
If I had to guess, I think we’re in for more of the same. However, my preference is to hold gold and treasury funds via PRPFX or the ETF equivalent, as it is a better balanced approach. Some of the other components in these funds should cushion the blow in case gold sinks or interest rates rise. If they don’t, I’ll, hedge, or wait for our trailing sell stops to get us out.
Ulli…