Dying Into The Close—Major Market ETFs Surrender Gains

Ulli Market Commentary Contact

If you were a bull, you must have been excited to watch the rally unfold as all major market ETFs gained strongly.

But, what starts well does not always end well. This was the case today, as the morning rebound succumbed to profit taking in the afternoon in anticipation of what the Fed might announce tomorrow.

Will it be the widely anticipated “operation twist” to attempt to pull the economy out of the doldrums? In case you missed it, operation twist involves the Fed selling short-term assets and reinvesting the proceeds to buy longer term durations with the goal of limiting pressure on long-term rates.

Or, will they go all out with some type of shock-and-awe effect? If they do, there is a good chance that the markets will react positively; if they don’t, you might just see a sell-off as disappointment is sure to spread.

Not helping the rebound in the afternoon were news reports questioning as to whether Greece might get a short-term injection of cash to prevent a default on its bonds.

It’s uncertainty and rumors all of the time. Let’s hope the Fed’s action, or lack thereof, can give us some clue as to the major direction of the market. If not, we may be stuck in this trading range for a while longer.

Greek Worries Are Still Alive—Equity ETFs Pull Back

Ulli Market Commentary Contact

After last week’s sharp rebound, equity ETFs were not only overbought, but also ‘over-hoped,’ as one trader put it.

Concerns about a Greek default sooner rather than later, due to lack of a new austerity plan, pulled the markets lower right at the opening as selling accelerated. It looked pretty ugly for a while as several attempts to swing higher failed until the last hour of trading.

That’s when news surfaced that the Troika gang (IMF, ECB and EU) was engaged in positive talks with Greece (details unknown), which gave the major indexes a lift and cut down prior losses in half.

It’s hard to say whether the alleged progress of the Troika is for real or just another patch-up job attempting to avoid the unavoidable.

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All Eyes Are Focused on Fed and IMF Meetings; ETF Master Cutline List – Updated through 9/16/2011

Ulli ETFs on the Cutline Contact

Dollar intervention efforts by global central bankers and jawboning about support for Greece proved to be the secret sauce to get the major market indexes moving higher during the past five trading days.

If all-around efforts continue to assist Europe, we might even see a break out the current 6 week trading range. However, there will be headline risk, depending on the outcome of the Fed’s 2-day meeting, as well as a speech by the Greek prime minister after the IMF/World Bank gathering.

It promises to be a week with a lot of potential fireworks. As one analyst said “there will be rallies like we had this week but until the trend changes, they should be sold into.”

In regards to the ETF Master Cutline, last week’s rally had some effect in that there are now 51 ETFs positioned above the line (up from 34), while 345 ETFs still hover below it and in bear market territory (down from 362).

Despite its pullback this week, gold ETFs still remain in the top spot followed by various government bond funds, which continue their moves to higher ground as lower interest rates support upward momentum.

Take a look the latest report:

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Last Week In Review: ETF News And Blog Posts To 9/18/2011

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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 9/18/2011.

In a reversal from the prior week, the main event, the European debt saga, was put on the back burner thanks to plenty of jawboning by various politicians designed to appease the markets. It did work, and the major indexes staged a nice rebound rally, which ended at the top of the 6 week trading range.

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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Revisiting The Lost Decade

Ulli Market Review Contact

With the markets being stuck in a trading range over the past few weeks, it’s easy to forget to once in a while look at the big picture to see where we have been and where we might be going.

Doug Short produces some of the best charts in the business. He’s just updated the lost decade by comparing the S&P 500’s nominal return and the real total return, which is adjusted for inflation:

We’re now over eleven years beyond the S&P 500 2000 high. This little charting exercise gives credence to the frequent reference to a “lost decade” for investors. In nominal terms, the index is about 6.8 percent below where it was at the 2000 peak, but in real terms, it’s a disappointing 29.5 percent off the original investment. The chart also offers support for the wisdom of diversification across asset classes … and perhaps the value of active management during secular bear markets.

[Click on chart to enlarge]

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ETF Leaders And Laggards – For The Week Ending 9/16/2011

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:

From one week to the next, it can be feast or famine. That was the case with last week’s laggards, Germany and Spain, which took top billing this week, as Europe’s debt issues got swept under the carpet, while global markets shifted into rally mode.

Having the same ETFs going from laggards to leaders is clearly a sign of lack of major trend direction. While these types of reversals can make for a great trading environment, they are not conducive for the long-term investor, as you can get stopped out suddenly only to find yourself chasing another rebound.

No matter where you look, M-Indexes for most ETFs continue to be weak, which means clear upward momentum has not been established yet. It’s strictly a news driven market, especially from the European side of the Atlantic, where the odds of a black swan event are increasing daily; at least from my point of view.

It’s better to stand aside than try to participate in what I consider short-term moves that could reverse at a moment’s notice.