Equity ETFs Rebound On Week’s First Trading Day; CHIM Vaults, VXX Tanks

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[Chart courtesy of MarketWatch.com]

As recent polls suggested that Greece is moving towards honoring its commitments ahead of next month’s elections, US stocks rose one percent Tuesday even as US consumer confidence reading dropped unexpectedly in May and home prices dipped further.

Sentiment was buoyed further as investors hoped that central banks globally would provide further stimulus and China would intervene to support its slowing economy. Sure, if there are no facts, rumors will do—anything to prop up the markets.

US Treasuries wavered as reports from Spain suggested Bankia may require €23.5 billion in bailout money versus an initial estimate of €19 billion. Nor surprise there, as all reports need to be taken with a grain of salt.

The Dow Jones Industrial Average (DJIA) soared 125.86 points to settle at 12,580.69, ratcheting as high as 156.78 points during the day’s trade.

The S&P 500 Index (SPX) rose 14.60 points, up 1.1 percent as materials and tech fronted the gainer’s list. All the 10 business groups closed higher.

The tech-heavy NASDAQ Composite Index (COMP) gained 33.46 points even as Social networking site Facebook Inc. (FB) tumbled 9.6 percent, down 24% since its debut.

Treasuries remained unchanged over robust safe haven assets and continued to trade near record low levels as investors remained concerned over Spain’s ability to prop up its struggling states and recapitalize its troubled banks.

The 10-year benchmark Treasury yield remained flat at 1.74 percent despite US consumer confidence reading tumbling to lowest level since January as hopes of China returning to high growth boosted sentiment.

ETFs in the news:

Markets rallied on the hopes that the Chinese govt. will provide stimulus to accelerate growth. The Global X China Materials ETF (CHIM) soared 11.57 percent, topping the winner’s list as a state owned newspaper reported additional govt. spending to boost growth. Despite that jump, CHIM remains stuck deeply in bear market territory. Stimulus may also be provided to automobile manufacturers to support that sector.

Other China related funds also jumped with the EGShares China Infrastructure ETF (CHXX) adding 6.57 percent for the day.

The iShares Emerging Markets Index (EEM) rose 2.83 percent even as investors continued to pull out money from emerging markets. Redemptions amounted to $2 billion last week as the above mentioned ETFs continue to trade well below their 200-day averages.

The Global X FTSE Greece 20 ETF (GREK) also made strong gains, adding 6.05 percent as worries of Athens exiting the currency union eased a little. However, you should stay away from this ETF till the results of June 17 elections are released. Whatever the outcome that does not mean all is well in euroland, which is why I don’t recommend any exposure in the entire region.

As markets traveled north, the so-called fear-tracking ETFs retreated for the day. The Barclays iPath S&P 500 VIX Short-Term Futures ETN (VXX) remained among the top losers, shedding 4.90 percent for the day.

Other volatility-index tracking products also tumbled, with the Proshares VIX Short-Term Futures ETF (VIXY) losing 4.74 percent for the day.

The iShares MSCI Spain Index Fund (EWP) slipped 3.89 percent as investors remained worried that Madrid will have to request a bailout package to support its banking system.

Trendwise, we’re still on the bullish side domestically (+2.48%) and on the bearish side of the line internationally (-3.39%).

Disclosure: No holdings

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