With a record October for equities, despite Europe’s questionable financial state of affairs, domestic ETFs have become increasingly attractive, rising well above their long-term trend lines, sneaking into bullish territory.
Whereas in the past couple weeks, I was limiting myself to selected sector ETFs, besides my established position in bond ETFs, the technicals warrant some domestic ETF exposure as well.
The S&P 500 just cracked its 200-day MA, which is currently a tad over 1,274, its highest level since mid-August. Meanwhile, other domestic ETFs have crossed above their trend lines as well.
Although our International TTI is still negative (-2.06%), its domestic cousin has powered deeper into positive territory, sitting at +3.31% as of Friday. In other words, if you are looking for market exposure, it’s the time to consider some domestic equity ETFs for your portfolio, at least according to my trend tracking rules.
This push by the bulls has had a great impact on my Master ETF Cutline Report, which now features 160 ETFs above the line and 237 below it.
To demonstrate the impact of this market run up, there has been a significant amount of fund inflows lately into ETFs. For instance, this past Wednesday, there were net inflows of $5.59 billion into domestic ETFs.
The domestic macro picture is still a bit fuzzy, but I want to capture some upside before risk ratchets up again. European debt issues can easily resurface in the next few months and start negatively impacting global markets. Furthermore, if the Fed gives the go ahead on QE3, which is probable, this should provide a temporary boost to domestic equity markets.
With regards to Europe, I am quite concerned about the long-term outlook. The situation in the PIGS, especially Greece and Italy, is particularly unsettling. The EFSF plan hasn’t been fully solidified as to how it will obtain funding and debt levels as a percentage of GDP remain unsustainably high.
In this type of environment, where Europe can easily take a turn for the worse, it is absolutely a “must” to implement my strict sell stop strategy should you decide to invest.
With Europe living on borrowed time, it simply isn’t worth the risk to get burned if we enter contagion mode. In the meantime, there are some opportunities to take advantage of domestic equity ETFs while maintaining a relatively conservative portfolio.
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