The ETF/No Load Fund Tracker—Monthly Review—October 31, 2011

From Bears To Bulls

October turned into another roller coaster month, as it it appeared that anything was possible. After a string of five losing months, the S&P 500 managed a sharp rebound but, looking at the big picture, this benchmark index remains still down for the year.

This gain did not come without pain as the bears had their way by continuing September’s downward momentum, at least for a few days, during which the S&P 500 dropped below its psychologically important 1,100 level.

Our Domestic Trend Tracking Index (TTI) followed suit, which supported our position to be out of the market (since 8/10/11). However, downside momentum disappeared as news reports from Europe regarding their newly designed master plan to bail out nations and banks, gave the bulls some hope and a slow rebound ensued.

As I posted throughout the month, we essentially went from the low end of the 2 month trading range back to the upper end, hovered there for a few days, and ended up breaking through it. As we slowly ratcheted higher, our Domestic TTI improved as well and generated a new ‘Buy’ signal for domestic equities effective as of 10/25/11, as the table above and the chart below show.

To be clear, the entire market rebound during October was based on nothing but hope and hype that the European summit would result in a solution that would solve all debt issues. While a plan was announced, many details are still lacking as to how exactly it will be funded and if leverage can actually be used.

Given that backdrop, I carefully eased into some equity ETFs as our Buy signal materialized. A 20% exposure to the Total Stock Market Index (VTI) along with a previous 5% allocation to Consumer Staples (XLP) represent our total equity allocation for most clients, along with 20% in the Total Bond ETF (BND) to balance out any sudden market drops. In other words, we’re engaging in a defensive approach and selected offense.

Europe remains front and center in terms of news attraction and, depending on the outcome of the Greek saga, followed by other country candidates on deck, can derail the current rally at anytime. Domestic economic data, while not terrible, still point to an economy that is stuck and going nowhere causing the Fed to utter words like “frustratingly slow.”

On a global basis, things are not improving either, and the main reason for the financial market to display a rally mode is the Fed’s intervention by keeping interest rates low.

Nevertheless, should upward momentum be sustained, I may carefully add to existing positions to stay in tune with current market direction. Our domestic TTI has crossed its trend line to the upside by +3.47% and remains in bullish territory as the chart shows:

However, with this type of news driven market, a directional change can occur suddenly and without warning. That’s why our trailing sell stops will serve as a guide to give us the signal when it’s time to exit either bond or equity positions.

ETF/No Load Fund Tracker Newsletter For Friday, November 4, 2011

ETF/No Load Fund Tracker StatSheet

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THE LINK TO OUR CURRENT ETF/MUTUAL FUND STATSHEET IS:

https://theetfbully.com/2011/11/weekly-statsheet-for-the-etfno-load-fund-tracker-newsletter-updated-through-1132011/

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Market Commentary

Friday, November 4, 2011

BACK TO THE DOWNSIDE, BUT SOMEWHAT FLAT – WHAT’S NEXT FOR ETFs?

For the second straight Friday, markets were relatively flat although erring to the downside as the S&P 500 finished down 0.63%. Commodities marginally fluctuated and the dollar remained stuck at $1.38/Euro. Meanwhile, the VIX dipped a mere 1.11%. Volatility might be slightly down, but we still above the 30 level, so I’d be hard pressed to say we’re in risk off mode. Europe’s problems are far from over and the Greek situation has reached new heights of absurdity that I am highly cautious about in regards to how I maintain equity exposure.

Undoubtedly, the primary focus right now remains on Greece. The level of political gridlock is simply appalling and if Papandreou steps aside and the new government can’t muster the will to accept the EU’s bailout package, the extent of contagion emanating from a default could be disastrous. Greece might be the first domino to fall and this would put considerable stress on Italy and Spain to remain standing financially, especially as its bond yields reach record highs.

Furthermore, the funding plan for the EFSF is still not in place with $1.4 trillion as the target. World leaders once again reiterated that Europe needs to handle its debt issues on its own before it gets outside help via the IMF and making aid deals with countries such as China. This tension could spill over into next week, and I wouldn’t be surprised if, like this week, the beginning of the next week is fraught by a large market drop.

On the domestic front, today’s jobs report failed to inspire any confidence that the U.S. economy has made any gains. Although the unemployment rate slipped to 9.0% from 9.1%, only 80,000 new jobs were created. The bottom line is that the U.S. faces structural unemployment deficiencies that must be at least partially resolved for the economy to improve on a long-term basis.

While our Domestic TTI is still in positive territory by +3.19%, giving cause for us to pursue specific equity ETF opportunities, the international picture hasn’t brightened up as the International TTI is still negative by -5.93%. In this regard, things haven’t changed much with respect to trends.

With the G20 meetings wrapping up and continued Greek uncertainty, I can confidently say that our majority bond ETF and cash position looks increasingly attractive. The name of the game right now is prevent yourself from getting burned if volatility spikes up again and large losses ensue.

Have a great week.

Ulli…

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READER Q & A FOR THE WEEK

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

http://www.successful-investment.com/q&a.php

A note from reader Marty:

Q: Ulli: Now that you have instituted Domestic “Buy” signal as of 10/25/11, are you buying back into Permanent Portfolio?

Unfortunately, I sold all my positions October 3rd in PP, so if I buy back into the fund now, it will be on a much higher cost basis.  Let me know your strategy on this one.

A: Marty: Yes, buying in at a higher price is what keeps us in tune with upward momentum. I purchased some PRPFX last week for a variety of clients.

The key here is to move back in when the long term trend line has been crossed to the upside, which just happened a few days ago. Be sure to track your trailing sell stop in case the markets head south again.

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