ETF/No Load Fund Tracker Newsletter For Friday, October 28, 2011

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ETF/No Load Fund Tracker StatSheet

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THE LINK TO OUR CURRENT ETF/MUTUAL FUND STATSHEET IS:

https://theetfbully.com/2011/10/weekly-statsheet-for-the-etfno-load-fund-tracker-newsletter-updated-through-10272011/

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Market Commentary

Friday, October 28, 2011

AN UNEVENTFUL DAY, BUT AN ACTION PACKED WEEK FOR ETFS

The markets seemed to be in TGIF mode today given the relatively low volume and overall flatness as the S&P 500 only went up 0.04%, although it finished October with its biggest monthly rally since 1974.

Europe might have settled some nerves for the time being, but that doesn’t mean it’s time to bring out the champagne. The reality is that Europe’s problems haven’t dissipated; they’ve only been pushed out.

Additional aid for Greece, bank recapitalization efforts, and an EFSF expansion finally offered some sort of clarity about how Europe is going to tackle its debt burden. It might offer a glimmer of hope, but I believe that markets have overreacted to this “good news.”

When EU leaders have to resort to either a leveraged model or a CDO (Collateralized Debt Obligation) that would provide insurance in a downside scenario, or seek outside help from China and others, there is only so much faith I put in their plans. There’s certainly evidence to suggest that it’s far from party time.

Italy’s 10-year bonds yielded 6.06% in its recent auction, an all-time high since the existence of the Euro. Though Berlusconi tentatively agreed to austerity measures, Italy’s trend of poor growth in tandem with a massive debt load fails to inspire much confidence that the potential contagion has been quarantined.

Furthermore, Fitch has suggested that despite a 50% haircut, Greece is still substantially susceptible to default. Long-term structural deficiencies are still ever present and even a leveraged EFSF won’t account for all the liabilities.

Outside of Europe, U.S. growth prospects are still up in the air given mixed economic indicators. Also, China’s growth appears to be at an inflection point where it might be taking a turn for the worse. Keeping an eye on commodities demand will be critical while also monitoring emerging markets developments.

Although our International TTI (Trend Tracking Index) is still stuck in bear territory, but only by -2.06%, our Domestic TTI is on a bull trajectory (+3.31%), warranting some equity exposure on that end in addition to sector and country ETFs. To better evaluate as to which equity ETFs have broken above their respective long-term trend lines, be sure to view my latest High Volume ETF Cutline Report.

However, I still want to maintain a sizeable portion of bond ETFs and cash in case things head south. The VIX is back in the mid-20s, but recent history has shown that risk can quickly ramp back up.

In the meantime, I want to take advantage of some equity ETFs, until the trends suggest otherwise, while protecting myself from any potential sudden drops via our trailing sell stop discipline.

Have a great week.

Ulli…

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READER Q & A FOR THE WEEK

All Reader Q & A’s are listed at our web site!
Check it out at:

http://www.successful-investment.com/q&a.php

A note from reader David:

Q: Ulli: I thought this detailed analysis of just what the EU agreement means was quite useful in bolstering my belief in staying in cash a while longer… I would be very grateful for any comment on it by you.

http://seekingalpha.com/article/302636-eu-summit-summary-7-reasons-to-freak-and-how-to-protect-yourself?ifp=0&source=email_authors_alerts

Also, can you tell us what sectors you chose yesterday when you dipped your toes in?

And many of the country funds seem to be going along with the domestic rally. Strictly, we should keep away until the International Trend Line says “Buy”; is that your advice?

A: David: Yes, I agree with much of what the article said. I just can’t get the warm fuzzies about the EU solution thinking that no structural issues have been resolved. Battling the cause, which was too much debt, by generating more debt is a prescription for long-term disaster. I think the can has been kicked down the road again, but eventually the price for fiscal irresponsibility will have to be paid.

I dipped into VTI to participate in the general direction of the market and some PRPFX. Country ETFs are a buy whenever they cross their respective trend lines to the upside. The international TTI, now about 2% away from a new ‘Buy’ applies to “widely diversified international funds/ETFs” only.

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