Positive Signs From The Fed Power Market Rally

[Chart courtesy of MarketWatch.com]

1. Moving The Markets

Stocks surged Wednesday, lifting the Dow Jones industrial average nearly 300 points, after the Fed decided it was time to start modestly scaling back its program designed to boost America’s growth along with the stock market. The central bank cited a stronger jobs market and an improving economy. This has largely been seen as a vote of confidence for the economy and investors took the central bank’s decision Wednesday as a sign that that the stock market was strong enough to keep soaring, even with a less rocket fuel from the Fed.

The Dow and S&P 500 jumped over 1.5% and the Nasdaq rose 1%. The dollar also rallied today to a more than five-year high against the yen after the news from the Fed.

The Fed action also boded well for housing market and homebuilder ETFs. iShares U.S. Home Construction (ITB) outpaced all equity ETFs, jumping 3%. SPDR S&P Homebuilders (XHB) added 2.6%. Housing starts surged to an annualized monthly pace of 1.09 million in November, up a hefty 23% from 889,000 in October and 14% higher than consensus forecasts of 955,000. Perhaps most importantly, the housing market index—a gauge of builders’ outlook on single-family home sales and expectations for the next six months—improved to 58 from 54. Readings above 50 mean more homebuilders report good market conditions.

Our ETFs in the Spotlight joined the party with 9 out of 10 making new highs for the year as the second table below shows:

2. ETFs in the Spotlight

In case you missed the announcement and description of this section, you can read it here again.

It features 10 broadly diversified ETFs from my HighVolume list as posted every Monday. Furthermore, they are screened for the lowest MaxDD% number meaning they have been showing better resistance to temporary sell offs than all others over the past year.

In other words, none of them ever triggered their 7.5% sell stop level during this time period, which included a variety of severe market pullbacks but no move into outright bear market territory.

Here are the 10 candidates:

All of them are in “buy” mode meaning their prices are above their respective long term trend lines by the percentage indicated (%M/A).

Now let’s look at the MaxDD% column and review the ETF with the lowest drawdown as an example. As you can see, that would be XLY with the lowest MaxDD% number of -5.73%, which occurred on 11/15/2012.

The recent sell off in the month of June did not affect XLY at all as its “worst” MaxDD% of -5.73% still stands since the November 2012 sell off.

A quick glance at the last column showing the date of occurrences confirms that five of these ETFs had their worst drawdown in November 2012, while the other five were affected by the June 2013 swoon, however, none of them dipped below their -7.5% sell stop.

Year to date, here’s how the above candidates have fared so far:

3. Domestic Trend Tracking Indexes (TTIs)

Trend wise, our Trend Tracking Indexes (TTIs) joined today’s Fed sponsored rally and headed further into bullish territory:

Domestic TTI: +4.24% (last close +3.51%)

International TTI: +5.55% (last close +4.40%)

Disclosure: I am obliged to inform you that I, as well as advisory clients of mine, own some of these listed ETFs. Furthermore, they do not represent a specific investment recommendation for you, they merely show which ETFs from the universe I track are falling within the guidelines specified.

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