Short-Term Bandages Can’t Solve Europe’s Long-Term Ailments

Ulli ETF Video Contact

I don’t think anyone was quite expecting the wild upswing across major market ETFs this week. While some might be tempted to latch onto a perceived momentary equity run-up, there are far too many telling signs of impending doom that suggest otherwise.

The central bank coordination to provide the European banking system with much needed liquidity was a necessary step to reduce the likelihood of a credit crisis for the time being. Yet, that doesn’t detract from the fact the Eurozone is in dire need of outside funding, whether that comes from the IMF or individual countries. Failed attempts to increase EFSF firepower and to drive down bond yields alone highlight the major stress on the Eurozone’s public and private finances, which has serious ramifications on a global level.

The video below from the Financial Times addresses the deep-rooted problems in Europe with regards to banks and threats to solvency despite this week’s liquidity infusion.

http://video.ft.com/v/1303798441001/Central-banks-liquidity-and-solvency

ETF Leaders And Laggards – For The Week Ending 12/2/2011

Ulli ETF Leaders & Laggards Contact

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

Last week’s euphoric rebound, with the S&P 500 gaining some 7%, did nothing to solve Europe’s problems. It barely made up for the prior 2 week 8.3% drop in the index. In the end, nothing was gained other than some reversals in the Leaders and Laggards columns.

Case in point is the Steel ETF (SLX), which got hammered the prior week at a rate of -10.27%, only to rebound +13.64% with no changes in fundamentals.

We have seen over the past few months that Leaders and Laggards go into reverse mode based on the mood in the market place. That represents a total lack of direction.

If you consult some of my other data points like the M-Index and the %M/A column, which shows how far above or below its respective trend line an ETF is currently located, you can see that this week’s Leaders are very likely short-lived as they remain stuck on the bear market side of the trend line.

On the other hand, some of this week’s Laggards, with the exception of UNG, have been fairly steady during the market turmoil of the past few months by having remained above their trend lines.

The lesson is that this week’s gainers can turn into next week’s losers, so stick to those ETFs that have shown some bullish behavior and some ability to withstand sharp sell offs.

My weekly StatSheet is designed to give you an assist in making better ETF/Mutual Fund selections.

Disclosure: Holdings in TLT

12-02-2011

Ulli Newsletter Archives Contact

ETF/No Load Fund Tracker Newsletter For Friday, December 2, 2011

ETF/No Load Fund Tracker StatSheet

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

https://theetfbully.com/2011/12/weekly-statsheet-for-the-etfno-load-fund-tracker-newsletter-updated-through-12012011/

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Market Commentary

Friday, December 2, 2011

A BORING END TO A BIG WEEK FOR MAJOR MARKET ETFS

In a relatively low volume and flat day, the S&P 500 dropped a mere 0.02%. European and Asian indices finished on the upside. The VIX increased a paltry 0.40% in a week where risk simmered down a bit.

However, the 10-year Treasury rate fell to 2.04%, which might indicate some anticipation of markets heading back south again.

A headline, such as the S&P 500 having its biggest week in 3 years with a 7% gain, may have investors itching to get equity exposure, but I must reiterate that this is the time to be careful as Europe’s woes are unresolved. Forgotten in that news blurb is the fact that the S&P had just lost 8.3% during the 2 weeks leading up to this rebound.

Today’s U.S. jobs numbers may appear to show some solid improvement on the surface as the unemployment rate dropped to 8.6%. However, there were 315,000 people who exited the labor force, which helped to push unemployment down.

The apparent job improvement is marred by the fact that some people have given up looking for work or don’t qualify for unemployment benefits anymore. Thus, economic headwinds are still in full force.

Trying to do what it can from within, the Eurozone has been increasingly using the ECB as a shoulder to lean on. The ECB lent out $8.64 billion today, its highest amount since March. As credit tightens and banks start to feel the hurt, further ECB lending is quite likely unless the IMF and outside nations step up big time to provide funds.

Although Europe has come to the realization that it needs outside financial assistance, knocking on China’s door may prove futile. China’s vice foreign minister stated that the country’s foreign reserves ($3.2 trillion) shouldn’t be used to help bail out Europe.

Meanwhile, Sarkozy and Merkel are intent on fiscal unity, but any bid to save the Euro will require at least one Eurozone country getting shown the door. Unless bond yields drop substantially, heads are going to start to roll.

As of today, the Domestic TTI (Trend Tracking Index) was +2.81% above its long-term trend line, while the International TTI continues to reside in bear territory at -6.84%.

As we’ve seen in the last couple months, the international picture remains bleak. And although the Domestic TTI is above its trend line, additional negative European news can quickly change that.

The question now is whether we’ve seen the calm before the storm that will rear its ugly head next week. I’ve been maintaining low equity ETF exposure while having a fixed income ETF overweight.

This week may have had me scratching my head but the fundamental issues plaguing markets haven’t faded away, so I’m prepared to deal with a big market drop whenever it occurs.

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 Vicky:

Q: Ulli: So for the person who never understood bonds…if there is a flight to US Treasuries, which is probable at some point, will the bond ETF’s you are holding increase in their asset value or decrease (be worth more or less)? And why? Thanks.

A: Vicky: I treat bonds like any other asset class. I invest in them when their major trend is up and hope for more appreciation as the economy weakens and demand from flight to safety drives prices higher. I protect myself against downside risk via my 5% trailing sell stop discipline.

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WOULD YOU LIKE TO HAVE YOUR INVESTMENTS PROFESSIONALLY MANAGED?

Do you have the time to follow our investment plans yourself? If you are a busy professional who would like to have his portfolio managed using our methodology, please contact me directly or get more details at:

https://theetfbully.com/personal-investment-management/

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Back issues of the ETF/No Load Fund Tracker are available on the web at:

https://theetfbully.com/newsletter-archives/

ETF/No Load Fund Tracker Newsletter For Friday, December 2, 2011

Ulli ETF Tracker Contact

ETF/No Load Fund Tracker StatSheet

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

https://theetfbully.com/2011/12/weekly-statsheet-for-the-etfno-load-fund-tracker-newsletter-updated-through-12012011/

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Market Commentary

Friday, December 2, 2011

A BORING END TO A BIG WEEK FOR MAJOR MARKET ETFS

In a relatively low volume and flat day, the S&P 500 dropped a mere 0.02%. European and Asian indices finished on the upside. The VIX increased a paltry 0.40% in a week where risk simmered down a bit.

However, the 10-year Treasury rate fell to 2.04%, which might indicate some anticipation of markets heading back south again.

A headline, such as the S&P 500 having its biggest week in 3 years with a 7% gain, may have investors itching to get equity exposure, but I must reiterate that this is the time to be careful as Europe’s woes are unresolved. Forgotten in that news blurb is the fact that the S&P had just lost 8.3% during the 2 weeks leading up to this rebound.

Today’s U.S. jobs numbers may appear to show some solid improvement on the surface as the unemployment rate dropped to 8.6%. However, there were 315,000 people who exited the labor force, which helped to push unemployment down.

The apparent job improvement is marred by the fact that some people have given up looking for work or don’t qualify for unemployment benefits anymore. Thus, economic headwinds are still in full force.

Read More

Weekly StatSheet For The ETF/No Load Fund Tracker Newsletter – Updated Through 12/01/2011

Ulli ETF StatSheet Contact

ETF/Mutual Fund Data updated through Thursday, December 1, 2011

If you are not familiar with some of the terminology used, please see the Glossary of Terms.

 

1. DOMESTIC EQUITY MUTUAL FUNDS/ETFs: BUY — since 10/25/2011

The domestic TTI broke through its long-term trend line generating a Sell for this area effective 8/9/2011. Over the recent past, we’ve seen the TTI hovering slightly below and above this dividing line between bullish and bearish territory. The clear break to the upside occurred on 10/24/11 and, effective 10/25/11, a new Buy signal for domestic equities is in effect.

As of today, our Trend Tracking Index (TTI—green line in above chart) has broken above its long term trend line (red) by +2.64%. Tune into my blog for the latest updates.

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ETF Tug-O-War: Will Markets Resist Getting Pulled Down?

Ulli Market Review Contact

[Chart courtesy of MarketWatch.com]

Markets have followed an interesting pattern this week with huge gains followed by flat activity. The S&P 500 only dropped 0.19% and European indices minimally moved. The VIX merely fell 1.01% and commodities remained relatively stagnant while the dollar was virtually unchanged.

Though yesterday’s collaborative central bank aid provided a fleeting ray of light for markets, EU leaders are still budding heads over the ECB’s role. Merkel has been the most vocal in her opposition to having the ECB intervene in the bailout, advocating a hands-off approach and proposing instead that countries concentrate on getting their own budgets in order.

Nevertheless, ECB president Mario Draghi stressed the importance of stepping up to improve the fluidity of credit markets. With the EFSF lacking the necessary firepower to offer aid, the ECB might have to get its hands dirty more than planned. But will it be enough to save the Eurozone?

Read More