ETF/No Load Fund Tracker Newsletter For Friday, August 3, 2012

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Market Commentary

Friday, August 3, 2012


US equities rallied for the second straight session Friday following a forecast-beating July jobs data report that indicated a gradual but robust healing of the jobs market. The Dow Industrials extended its longest weekly winning streak this year amid speculations the European Central Bank will soon restart its bond purchase program to bring down high Spanish and Italian borrowing costs.

The Dow Jones Industrial Average (DJIA) surged 217 points to 13,096, its fourth up week in a row. 27 of the 30 components within the blue-chip index advanced, ending the week higher 0.2 percent.

The S&P 500 Index (SPX) climbed 26 points to 1391 with financials leading the gainers and telecommunications lagging among its 10 business groups. This was a welcome reprieve after 4 days of losses with traders hanging their hat on the positive spin of the employment numbers forgetting for the moment that the market driver of the recent past, namely QE hopes, may have just vanished for the time being.

Treasuries fell the most in a week as safe-haven assets lost allure after a report showed the economy created 163,000 jobs in July, a significant improvement over the 63,000 that was added in the prior month and diminished possibilities of another round of quantitative easing by the Federal Reserve, at least not in the near future. It makes me wonder what will lift the markets from here as the ho-hum earnings season winds down.

Risk sentiment improved after media reports suggested Angela Merkel’s coalition partners will not create hurdles to ECB President Mario Draghi’s plan to restart the Securities Market Program (SMP). Treasury 10-year benchmark yield jumped nine basis points to 1.56 percent. 30-year bond yield also soared nine basis points to trade at 2.65 percent by late afternoon.

ETFs in the news:

Positive developments in Europe on Friday triggered a rally in Spanish and Italian ETFs, pushing both the iShares MSCI Spain Index Fund (EWP) and the iShares MSCI Italy Index Fund (EWI) higher by more than 7 percent.

Media reports suggested Madrid has submitted a plan to the European Council on Friday to save $125 billion over three years. The Iberian country also expects the economy to start growing by 2014. Also leaders of Italy and Spain met in Madrid this week and pledged to work together to resolve the debt crisis.

Agricultural commodity linked funds also rallied as drought and subsequent crop failure looms over vast swathes of the country. Wheat futures rallied 3 percent due a weak dollar and better outlook over corn and soy. The Teucrium Wheat Fund (WEAT) vaulted 3.43 percent on the day as September futures gained 3.2 percent Friday to trade at $8.92 per bushel.

As risk sentiment improved, the fear-tracking CBOE Volatility Index (VIX) crashed. The ProShares VIX Short-Term Futures ETF (VIXY) was one of the biggest decliners, shedding 6.84 percent on the day. Other VIX tracking funds also posted dismal results, the Barclays iPath S&P 500 VIX Short-Term Futures ETN (VXX) slumped 6.68 percent as positive US jobs data cooled off market volatility.

Our Trend Tracking Indexes (TTIs) retreated during the sell-off early in the week and then rallied with the major indexes today:

Domestic TTI: +2.72% (last week +2.86%)

International TTI: -0.03% (last week -0.41%)

Have a great week.


Disclosure: No holdings



All Reader Q & A’s are listed at our web site!
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A note from reader Roger:

Q: Ulli: I have been a long term observer of your daily newsletter since 2007, and I enjoy your insight into the Market and investments. You saved me a lot of pain by convincing me to get out of the Market before the 2008 crash.

I was wondering if you could provide your latest insight into the market. It seems to me that it will continue to move sideways until September, due to the uncertainty in the world economy and erratic housing recovery. What is your earnest opinion and outlook for the rest of the year?

A: Roger: As in 2008, my views are based on the trends in the market place. Right now, we are still in buy mode on the domestic side after having slipped below the line in the international arena back on 5/15/12.

With the global slowdown accelerating, and the Europeans continuing to excel in talking but not in coming up with solid plans to solve their debt crisis, another sharp market pullback is a distinct possibility. As I have commented many times, the only thing that keeps the domestic market at these levels is the hope for more QE by the Fed.

I would expect another sharp selloff but we need to cross below the Domestic TTI trend line to the downside first, before I become very bearish. At that time, anything is possible and a domino effect will be likely. Actually, there are many trigger points that could cause a sudden market reversal. One is Spain, a country that seems to have run out of money and may be defaulting on their debt well before Greece does. That’s just a guess right now, but stay tuned to the direction of the Domestic TTI, as it has been a great guiding light in avoiding major market crashes since the 80s.



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