Major Market ETFs Take It On The Chin

While most individual economic reports have only a limited effect on market direction, today’s triple combination of nothing but disappointing data knocked the major indexes to the mat. And, unlike many instances in the past, there was no afternoon rebound, as the chart (courtesy of MarketWatch.com) shows.

First, ADP’s national employment report came in weaker than worst expectations, which now makes Friday’s unemployment numbers a great uncertainty. Although they are not directly related to the ADP’s figures, they tend to move somewhat in tandem.

Second, the Supply Management’s manufacturing index fell well below the level that economists had expected. While the index remains above 50, and thereby in growth mode, manufacturing is just not growing as fast as it had been.

Third, Greece’s debt was downgraded another notch to a deeper degree of junk. That means that a default within a few years is virtually a guarantee.

Throw in the ever bad news from the housing market and you end up with a mix that is anything but pointing to an economic recovery.

I have been saying for over 1-1/2 years that the “alleged” recovery was nothing but a mirage pushed forward by senseless stimulation efforts. There is a point when eventually the real economy will have to stand up and be recognized. I am not sure if we have finally reached that point; maybe it will become more apparent once the Fed’s QE-2 program ends on June 30^th.

Technically speaking, there was some damage done as the 3 major indexes dropped below their 50-day moving averages. Our Trend Tracking Indexes (TTIs) slipped as well but remained above their long-term trend lines (and in bullish territory) by the following percentages:

Domestic TTI: +4.35%

International TTI: +2.07%

None of our trailing sell stops were triggered, but if you are holding some of the more volatile sector and country ETFs, you may want to monitor your potential exit points closely.

At this point, we simply have to wait and see if today’s sell-off has legs and will continue, or if this just turned out to be one of those days where an unlucky combination of poor data caused traders to keep their thumbs on the sell buttons.