Global ETFs Hammered; Domestic TTI Breaks Back Into Bear Territory

[Please note that Gold and Oil prices in above chart reflect the evening session]

Today, there was simply no place to hide, unless you were invested 100% in U.S. Treasuries and/or some selected Bond ETFs. Just about all other asset classes got taken to the barn and spanked in no particular order.

It was relentless selling around the globe with the Dow being down at one point by over 500 points. The only positive was that the major indexes managed a rebound towards the end of the session and closed up from their worst levels of the day.

You could call it a perfect storm, as a variety of news items combined forces and left the bears pounding their chest in victory.

Fed chairman Bernanke’s comments on Wednesday about “significant downside risks” to economic growth” including “strains in global financial markets” were stronger words as those used in the past and instantly shifted traders’ worries into high gear. As a result, the Dow dropped over 300 points right at the open, and it went downhill from there.

The commodities markets tumbled as well taking gold and silver with it, while the 30-year Treasury yield dropped below the 3% level for the first time. While the rally in Treasuries helped our core holding in PRPFX, the loss in gold and silver, along with natural resources, pulled PRPFX down by –2.45%.

In the end, most of the economic activity rests on the shoulders of the consumer, and that demand has been falling, as FedEx cut its full-year guidance because of lower than expected business from Asia.

News out of Europe was shaky at best as there was a left over reaction to reports that a bank run had started. No, not that consumers were worried about their deposits, but big business apparently is. Lloyds of London and Siemens were rumored to have taken out hundreds of millions of Euros from local banks and deposited them directly with the ECB (European Central Bank). It’s a bad omen for things to come if, as a large business, you have to take these types of drastic measures.

These are all things we have no control over, so let’s hone in to those areas that we can control. Our Trend Tracking Indexes (TTIs) slipped as well and have now reached the following positions:

Domestic TTI: -0.10%

International TTI: -14.98%

The International TTI has been in bear market territory since 6/16/11, when it made a clean and decisive break below its long-term trend line.

It wasn’t as easy with the Domestic TTI, which signaled a ‘Sell’ effective 8/9/11. Since that moment in time, there has been no follow through to the downside; on the contrary, the markets remained slightly above the line bouncing around within a large trading range.

We now have broken below it again; but only by a small margin almost identical to the point we reached on 8/8/11. When we break decisively below the line, you should no longer hold any domestic equity ETFs/mutual funds. That should not be an issue for you, if you have followed my recommended sell stop discipline.

For our core holding PRPFX (in larger accounts), I am planning to set up a hedge again to guard against further downside moves and to take advantage of the possible profit opportunities. Of course, there is always the chance that the markets will rebound after two days of extreme selling activity.

Therefore, and to avoid another whip-saw, I want to see the Domestic TTI pierce its trend line by a larger percentage before taking any action. I will have to make that decision intraday, as I see where the markets are headed towards the close.

To be clear, you should have no equity positions of any kind or be prepared to hedge them. These are very difficult times, and I agree with Bernanke’s comments from above.

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