ETF/No Load Fund Tracker Newsletter For Friday, November 23, 2012

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Market Commentary

Friday, November 23, 2012


US stocks surged more than 1 percent Friday to log their biggest weekly rally since June after President Obama expressed confidence on a budget deal with the Congress and positive data from Germany and China buoyed optimism of a global recovery.

Global economic news lifted the mood on the Wall Street in the absence of US economic data on Black Friday with Germany’s Ifo business confidence index rising unexpectedly to 101.4 in November from 100 in October. The gain comes after six straight monthly declines and shows the German economy is holding up in the face of European crisis, the Ifo Institute said.

In Asia, the HSBC purchasing managers index showed the first expansion in China’s manufacturing sector in 13 months in November, indicating growth may finally pick up in the fourth quarter.

The Dow Jones Industrial Average (DJIA) zoomed 173 points to end at 13,010, up 3.4 percent for the week. All the 30 components in the blue-chip index rose for the day with technology stocks pacing the gains in its best week since June 8.

The S&P 500 Index (SPX) jumped 18 points to 1409, its first finish above 1,400 since November 6 with technology and telecommunications gaining the most and utilities faring the worst among its 10 business groups. The index has 3.62 percent for the week, its biggest percentage gain since June 8.

Treasury 10-year yields rose, pushing prices down to near two-week lows as safe haven demands eased despite news of unsuccessful budget talks between European Union leaders in Brussels. The 27-member European Council hopes a consensus on the 2014-2020 budget could be reached in the coming weeks.

The US dollar weakened against its major rivals Friday as risk sentiment improved.

Meanwhile, taking a cue from the Wall Street, European stocks rallied Friday after German Ifo data calmed nerves Europe’s powerhouse is losing momentum. The pan-European Stoxx 600 index gained for the fifth straight day posting its biggest weekly gain in almost a year.

The DAX 30 index jumped 0.9 percent in Frankfurt, finishing the week higher by 5.2 percent. Bayer AG climbed 1.6 percent after Nomura revised its target price to EUR 78 from EUR 72.

The CAC 40 index rose 0.9 percent in Paris, lifted by drug-maker Sanofi SA and oil major Total SA. The French equity index is up 5.6 percent for the week.

The FTSE 100 index rose 0.5 percent in London with GlaxoSmithKline Plc and BP Plc gaining 0.75 percent and 1.01 percent, respectively. The London benchmark added 3.8 percent for the week.

In the ETF space, Europe-linked fund surged as European equity averages rallied. The iShares MSCI Germany Index Fund (EWG) vaulted 2.98 percent after German business confidence index jumped unexpectedly in November.

The iShares MSCI France Index Fund (EWQ) also surged, adding 2.64 percent for the day while the iShares MSCI Italy Index Fund (EWI) climbed 2.77 percent.

While euphoria returned to Wall Street this week, it was based on extreme low volume and a gigantic short squeeze as Zero Hedge explains here.

Our Trend Tracking Indexes (TTIs) rebounded after almost touching their trend lines (and breaking through them) as the markets headed higher. This may have been just a rally from an extremely oversold condition as all of the issues that caused the recent sell off are still with us and none of them have been remotely resolved.

Next week, volume should increase, and we will find out if there is more starch in this market rebound or if we are heading back the other way.

For the week, the TTIs ended as follows:

Domestic TTI: +1.53% (last week +0.15%)

International TTI: +3.93% (last week +0.77%)

We will continue to face extreme uncertainty and volatility for the for the remainder of this year, so if you have been stopped out of any equity holdings, accept it as this is the time for capital preservation since many triggers can pull the indexes towards bear market territory in  a hurry.

Some readers have emailed me saying that they have exited all equity positions and are waiting to see how the fiscal cliff, the debt ceiling debacle and the never ending European debt crisis will play out before re-entering the market. Not a bad way to go. While you might miss the sudden low volume rebounds that we’ve seen this week, you will, however, sleep soundly at night.

Have a great week.


Disclosure: No holdings in ETFs discussed above



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

Q: Ulli: The overall stock market is down nearly 7% to 8% from its highs last month. Surely that should have triggered sells?

Wondering where you are with your call on this?

A: Paul: We came close as I mentioned in Wednesday’s blog post as our TTI was positioned at +0.01% above its  long term trend line, and it slipped barely below it by -0.10% as I wrote on Thursday.

While the overall markets have come down hard, it did not affect our most conservative equity holding in DVY. However, we have close to its trailing sell stop and its own respective trend line has been broken. So, unless there is a big rally emerging on Friday, we’ll be out of DVY.

Be sure to tune into my blog when you have time, since I write about it daily.



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