Speculation Rally Continues—Equity ETFs Inch Higher

Ulli Market Commentary Contact

Today’s rally received support after the August Fed meeting showed that some officials are in favor of another move that might boost the economy, although there was no overall consensus.

A second assist came from the president of the Federal Reserve Bank of Chicago, who chimed in that he would back more stimulus efforts as well. Lovely; since QE-2 did nothing for Main Street but everything for Wall Street via a nice rebound, let’s be sure to do more of that. Go figure…

While equity ETFs closed modestly higher, precious metals were the main beneficiaries of these announcements with gold surging back above the $1,800 level with interest rates heading lower again.

Somehow economic reality is not something that matters to Wall Street right now, but eventually it will. Consumer confidence plunged to its lowest level since March 2009, which is the infamous month the major averages hit their lows after the 2008 crash. With the consumer contributing almost 2/3 of economic activity, this does not bode well for the future.

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Major Market ETFs In Recovery Mode

Ulli Market Commentary Contact

No negatives with any impact on the markets could be found today, as the major market ETFs shifted into recovery mode in part by driven by relief that Hurricane Irene’s damage appeared to be less than expected while, at the same time, consumer spending was stronger than expected.

Adding to that bullish menu was renewed hope that the Fed may after all produce some kind of rescue program this fall. Who knows, I did not read anything about it, so maybe it’s nothing but a rumor started to assist the bulls…

News out of Europe was cheerful, as it was announced that 2 of Greece’s largest banks were discussing a merger, which caused local stocks to have their best one-day rally in 20 years. Hmm, I just can’t figure out how merging 2 insolvent banks might resolve the enormous debt issues.

As the rally got under way, it did not fall apart half way through the trading session as we’ve seen so many times during the last month. This caused additional buying along with short covering providing more ammunition to the upside.

The only fly in the ointment was very light volume with many traders and money managers still being out of town this week. I would expect more exaggerated moves until everyone returns after Labor Day, so don’t read too much into this week’s action.

Nevertheless, as markets go higher, we need to pay attention to our hedged position, which closed the day as follows:

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Equity ETFs Remains In Bear Market Territory; ETF Master Cutline List – Updated Through 8/26/2011

Ulli ETFs on the Cutline Contact

Despite last week’s sharp market rebound in equity ETFs, it remains to be seen if that action was simply a sucker’s rally or the beginning of a new uptrend and resumption of the bull market.

While some momentum numbers have indeed improved, weakness prevails in the equity arena, while precious metals and government bonds of all durations continue to occupy the top spots above the cutline.

Ending with the close last Friday, we have now 43 ETFs positioned above the cutline, while 352 are solidly in the red. Much more work to the upside is needed to improve momentum numbers to a point where I would consider them investment material.

Take a look the latest report:

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Last Week In Review: ETF News And Blog Posts To 8/28/2011

Ulli ETF News Contact

In case you missed it, here’s a summary of the ETF topics and market reviews I posted to my blog during the week ending on 8/28/2011.

The major market ETFs just about regained during the past 5 trading days what they had lost during the prior week’s market drubbing.

My global view has not changed, and I believe that these wide market swings are far from being over, although we could see a short rest period before the European debt crisis shifts into the next higher gear.

In any event, if you followed my sell stops rules, you should not have any equity exposure at this time with the possible exception of a couple of sector/country ETFs, or hedged positions.

This week, we covered the following:

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Life After Selling Your Equity ETFs

Ulli Market Review Contact

One of the most frequent questions I have received during the past few weeks, as sell stops got triggered, while our Trend Tracking Indexes (TTIs) slipped into bear market territory, was where to put the proceeds from the sales.

Sure, some investors remain in limited PRPFX positions, but other holdings were liquidated, and the monies are looking for a new home.

Whenever market behavior is as extreme as we’ve witnessed during the recent past, it’s a sign that we have or are about to reverse the bullish trend of the past 2 years as the bears slowly but surely gaining the upper hand.

As you have witnessed, it was and still is a brutal tug-of-war between the bulls and the bears, however, the jury is still out as to who will be the ultimate winner. From my mat, it looks to be the bears, as technical weakness has set in, while most fundamentals point to a global economic slowdown for all the reasons that I have previously posted about.

If you follow trends in the market place, and you get stopped out, or our TTIs drop below the long-term trend line and into bear market territory, you want to move your proceeds first into a money market fund.

Why?

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ETF Leaders And Laggards – For The Week Ending 8/26/2011

Ulli ETF Leaders & Laggards Contact

Here is a quick ETF review of the past week’s winners and losers from my High Volume ETF Master list:

The first win for the S&P 500 after 4 weeks of straight losses produced a reversal in the ETF leaders and laggards’ table.

The leaders of the past few weeks, namely FXF, TLT and GLD, experienced a sell off and slipped into the laggards’ column despite relatively minor losses. Equities gained this week, with new candidates moving into the leaders’ column.

Since this was only a one week reversal, it’s interesting to note that all leaders are sporting very low M-Indexes and, if you review Friday’s StatSheet, you will notice that all momentum numbers remain deeply in the red.

On the other hand, this week’s laggards still have better M-Index readings while their momentum numbers remain in far better shape than those of the leaders.

In other words, much more work to the upside is needed before any of the new candidates become viable investment material.

Disclosure: Holdings in GLD, TLT, FXF