Draghi Drags Down Major Indexes—Confirms He Is ‘All Hat And No Cattle;’ KWT Rallies, UNG Slips

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

US major indexes extended their losing streak for the fourth straight day Thursday after the European Central Bank failed to deliver on its earlier pledge to halt a further decline of the ongoing sovereign debt crisis.

ECB president Draghi, who last week single handedly ignited a rally in equities with talk of upcoming bazooka like actions, retreated today by announcing….no action at all. Given his chest pounding speech of last week, he now has cried ‘wolf’ one too many times and may very well have lost his credibility in the process.

This really should come as no surprise to you, as European policticians have refined the art of holding countless meetings and summits over the past year without accomplishing a thing.

As a result, the Dow Jones Industrial Average (DJIA) slipped 92 points but bounced off the day’s initial 193 point dip, with all but 4 of the 30 components within the blue-chip index ending in the red.

The S&P 500 Index (SPX) slumped 10 points to finish at 1365, with energy faring the worst among its 10 business groups.

Treasuries advanced reversing an earlier downward trend after the European Central Bank’s earlier promise to bring down spiraling borrowing costs for Spain and Italy had an inverse effect while a surprise decline in US factory orders increased the allure of safe-haven assets.

The benchmark 10-year yield slipped four basis points to 1.48 percent while 30-year bond yields shed four basis points to finish at 2.56 percent in late afternoon trading, after factory orders in June surprisingly dipped 0.5 percent against a projected 0.6 percent gain.

ETFs in the news:

Solar ETFs found some ground after months of battering Thursday following top holding First Solar (FSLR) blew off second quarter profit estimates. First Solar Q2 profits vaulted 82 percent while the stock jumped more than 26 percent after the company said it will be producing 1800 MW to 1900 MW panels this year from the 1400 megawatts projected earlier.

The Van Eck Market Vectors Solar Energy ETF (KWT), with 11 percent of total assets in FSLR, added 1.54 percent on the day while the Guggenheim Solar ETF (TAN), with 7.8 percent of total holding, rose 0.53 percent. Other renewable energy funds such as the Invesco PowerShares WilderHill Clean Energy Portfolio (PBW) also made impressive gains, adding 1.54 percent on the day. However, both KWT and TAN are deep in the red, shedding 40.3 percent and 38.6 percent year-to-date, respectively.

Though the the energy sector lit up, natural gas bucked the trend after gas stockpile for the week ended July 27, recorded a 28 billion cubic feet rise against a forcasted 21 bcf. Natural gas futures for Sep. delivery plunged 5.9 percent to $2.98 per million British thermal unit, its biggest single-day drop since 2009. The United States Natural Gas Fund (UNG) was among the biggest percentage decliners, skidding 7.58 percent on the day.

Following the ECB’s disappointing announcements Thursday, Spain and Italy witnessed a global sell-off yet again. The iShares MSCI Spain Index Fund (EWP) plunged 5.64 percent while the iShares MSCI Italy Index Fund lost 4.36 percent after Draghi made it clear the ECB will intervene only when the euro comes under severe attack.

For the updated Trend Tracking Indexes (TTIs), as well as all ETF/mutual fund momentum numbers, please see the latest StatSheet, which I will post within a couple of hours.

Disclosure: No holdings

Contact Ulli

Leave a Reply