ETF/No Load Fund Tracker Newsletter For Friday, September 28, 2012

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Market Commentary

Friday, September 28, 2012


Despite a blockbuster quarter, US equities ended the last trading day with a whimper as a gauge of manufacturing in the Midwest contracted unexpectedly while an index for consumer confidence weakened in September, pushing investors a little bit to the edge.

The Dow Jones Industrial Average (DJIA) tumbled 49 points to 13,437, still managing a respectable 4.3 percent gain for the quarter and 10 percent for the year, while the S&P 500 Index (SPX) fell 6 points to 1,441 with telecommunications and technology falling the most but utilities were the sole winner among its 10 business groups.

As Europe struggled to agree over measures to contain the region’s debt crisis and some US economic indicators eased during the week, sustained demand for safe havens helped US Treasuries to finish higher for the second straight week.

Treasuries pared gains for the day, however, after results of a stress test showed Spanish banks would require allegedly only EUR 59.3 billion ($76.3 billion) for recapitalization, lower than some analysts had estimated. The news provided relief as EUR 100 billion has already been committed to Madrid for bank recapitalization, easing demand for safe havens.

Meanwhile, the US dollar gained traction Friday after a stress test showed Spanish banks’ capital shortfall was within the tolerance level of the European Financial Stability Mechanism since Madrid has already been committed EUR 100 billion for bank recapitalization.

Across the Atlantic in Europe, the benchmark index posted its biggest weekly drop since early June as Spain continued to weigh on investors’ minds. The Stoxx Europe 600 index slid 1.2 percent for the day, finishing the week 2.7 percent lower. The benchmark however, is up 6.9 percent for the quarter.

Spain’s IBEX 35 index slumped 1.7 percent, led by banks BBVA SA and Banco Santander SA. Down 6.3 percent for the week, the index is, however, up 8.5 percent for the quarter.

The French budget for 2013 was also in focus as socialist President Francois Hollande raised income tax rates to 75 percent for people making more than EUR 1 million annually.

The new measure is expected to garner EUR 30 billion in extra revenues annually for the government. The CAC 40 index tumbled 2.5 percent for the day as banks came under pressure. The benchmark is up five percent for the quarter.

The German DAX 30 index also shed one percent for the day after index component Deutsche Bank slipped 1.1 percent. The index is however, up an impressive 12.5 for the quarter.

In the ETF space, the Teucrium Corn Fund (CORN) jumped 4.74 percent as corn futures rose after the USDA reported lower than estimated inventories. The Teucrium Soybean Fund (SOYB) also rallied, adding 2.39 percent for the day.

European funds lagged the most with the iShares MSCI Italy Index Fund (EWI) tumbling 3.68 percent for the day. The iShares MSCI France Index Fund (EWQ) and the iShares MSCI Spain Index Fund (EWP) also came a cropper, shedding 3.05 percent and 3.01 percent, respectively.

In regards to the Fed’s latest QE effort, you may have heard a variety of opinions. One of the better presentations on the subject was a recent speech given by former budget director (under Reagan) David Stockman, who has a great rant on the Fed’s efforts. It’s 20 minutes long but worth your while.

Hat tip goes to Zero Hedge for pointing to this gem:

Our Trend Tracking Indexes (TTIs) slipped from last week but are maintaining their position on the bullish side of the trend line:

Domestic TTI: +3.14% (last week +3.88%)

International TTI: +2.51% (last week +5.05%)

Have a great week.


Disclosure: No holdings



All Reader Q & A’s are listed at our web site!
Check it out at:

A note from reader Freden:

Q: Ulli: I am in the same position as last week’s reader Lise – being to cautious and now have a lot of cash ready to put to work. However, from everything I’ve seen, the market is very risky now, and it would be best to purchase on a pullback. One advisor I follow recommends the following:

S&P 1420 – buy 25% of position. If market turns back up add
balance of position
S&P 1405 – buy additional 25% of position. If market turns up
add remaining balance of position.
S&P 1390 – buy additional 25% of position. If market turns up
add remaining balance of position.
S&P 1370 – buy final 25% of position. If market turns up add
remaining balance of position. If market continues to fall –
look for your sell stops to get you out.

Ulli – your thoughts?

A: Freden: While buying when the major trend is down goes against my personal philosophy that does not matter as there are many ways to enter the market.

The one that matters most, and the one you should use, is the one the matches your risk tolerance. After all, if you are not comfortable, stay out! We are at high market levels and, given the global economic slowdown, which has not been discounted by the markets, the downside risk is far greater than the upside potential.



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