Major Market ETFs Continue To Retreat On Europe Worries; International Trend Tracking Index (TTI) Slips Into Bear Market Territory

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[Chart courtesy of MarketWatch.com]

US stocks bounced back to pare losses suffered earlier in the day though all the three major market indexes closed lower Wednesday as the Greece political drama weighed on investor sentiment.

Treasuries rose as Europe continued to witness political turmoil following Greece’s failure to form a coalition government, driving the today’s 10-year auction-yield to record low levels.  The Treasury sold $24 billion in 10-year notes after investors showed strong appetite for safest assets amid increased uncertainties.

The Dow Jones Industrial Average (DJIA) shed 97 points to settle at 12,835, recovering from a 183-point slip. The Dow witnessed the sixth straight day of losses; it’s longest since an eight-day streak in August 2011. The blue-chip index recovered from a sharp fall after Europe’s lifeboat fund – the European Financial Stability Facility (EFSF) confirmed that Greece would receive its next tranche of funding.

The S&P 500 Index (SPX) dropped 9.14 points with industrials sinking the most among its 10 industry groups while the tech-heavy NASDAQ Composite Index (COMP) lost 11.56 points. Walt Disney (DIS) rose to an all-time high following the media company’s strong profit growth.

The US government sold benchmark 10-year Treasuries at a yield of 1.855 percent, beating the previous record low of 1.9 percent; achieved in Jan this year. Current 10-year note yields dropped 1 basis point, or 0.01 percent, to 1.83 percent while the 30-year bond yield changed little at 3.03 percent.

ETFs in the news:

The Invesco PowerShares DB Commodity Long ETN (DPU) was among the day’s top gainers, soaring 8.02 percent on the day. DPU tracks the Deutsche Bank Liquid Commodity Index which reflects the performance of gold, aluminum, light sweet crude oil, heating oil, certain wheat & corn and 3 month US Treasury bills. The strength of Treasuries can only explain this fund’s upward movement, since commodities remained weak across the board today.

The Barclays iPath S&P 500 VIX Short-Term Futures ETN (VXX) remained one of the best performers for the day, jumping 3.68 percent. The so-called fear-tracking VIX Index touched a multi-week high of 21.59 as markets remained on the edge over Greece’s continuance in the EU.

As Europe continued to waver amid heightened political uncertainties, funds linked to the continent naturally got hit. The iShares MSCI Spain Index Fund (EWP) was among the day’s top losers, shedding 4.1 percent for the day. More than a million shares changed hands today versus a daily average of 290,163 as investors rushed to the exit doors.

That has always been my point when selecting only ETFs with high volume. These days you have no idea how fast and furious redemptions can occur and any low volume ETF will exact a heavy toll when too many investors are rushing in the same direction at the same time.

As I mentioned in this morning’s Model ETF Portfolio update, some of our holdings had triggered their trailing sell stop points, but barely. With the markets slipping throughout the day, I liquidated VEU as it clearly had pierced its trailing sell stop point. With the international arena showing the most weakness, the majority of funds/ETFs in that area should not be held.

That was confirmed at the day end close as our International Trend Tracking Index (TTI) slipped below its long term line into bearish territory by -0.15%. While that to me is not a clear piercing of the line to the downside, I will hold off with issuing the official ‘Sell’ signal for that arena.

Nevertheless, if you have exposure to any broadly diversified international holdings, you are advised to check on your trailing sell stop levels. Europe is a debt disaster in the process of getting worse, so make you plans accordingly and ease up on any ETFs/Funds that could be affected.

Disclosure: No holdings

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Comments 2

  1. Frank,

    There is no hard and fast rule. Personally, I prefer to wait until the old high, from which the sell stop was calculated, has been taken out. That would confirm that a new upward trend is in place.

    Ulli…

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