Equity ETFs Move to Upper End of Trading Range—Another Head fake?

Ulli Market Commentary Contact

Last Monday, I commented that the S&P 500 has been range trading over the past month from a low of 1,120 to a high of some 1,220.

We are now approaching the high end of the range again, and the questions remains as to whether resistance will kick in again at that level or at 1,217, which represents the index’s 50-day exponential moving average.

Powering today’s rally were news reports that five major central banks, including the Fed, had agreed to provide dollar liquidity for the European banking system in order to stave off a potential credit crunch.

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High Volume ETFs On The Cutline – Updated Through 9/14/2011

Ulli ETFs on the Cutline Contact

Momentum is not heading in the right direction, if you are looking for opportunities on the long side using equity ETFs.

Since last week’s report, the S&P 500 has given back -0.83%, but the number of ETFs positioned above the line and therefore in bullish territory has been reduced to only 7. It includes the same old performers we have been seeing on top of the list for some time.

This tells me that, despite the various rebound attempts, weakness prevails in the equity arena. I would consider the current market environment to be a traders market and not one for long term investors due to its extreme volatile nature. A long term trend in either direction can simply not yet be identified without wild guesswork.

To repeat, the High Volume ETF Cutline report includes all ETFs above and below the cutline (trend line). To clarify, High Volume (HV) ETFs are defined as those with an average daily volume of $10 million or higher.

These ETFs are generated from my selected list of some 90 that I use in my advisor practice. It cuts out the “noise,” which simply means it eliminates those ETFs that I would never buy because of their volume limitations.

Take a look at the most recent table:

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Skepticism Prevails As Major Market ETFs Head Higher

Ulli Market Commentary Contact

The markets had nothing to go on other than hope and wishful thinking that Greece will be saved and remain in the European Union, while speculation grew that China may throw an assist to Europe’s indebted nations.

However, skepticism set in towards the end of the trading day, as cooler heads prevailed by concluding that today may have been just a short-term bounce and that Greece will default on its bond anyway and very likely take a few banks down with it.

Optimistic statements from German chancellor Merkel and her French counterpart supported the rally and also Treasury Secretary Geithner’s forecast that Europe will not see a major financial collapse added some stability in the market place.

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7 ETF Model Portfolios You Can Use – Updated through 9/13/2011

Ulli Model ETF Portfolios Contact

While the S&P 500 managed to gain a slight +0.69% since last week’s update, most portfolios declined to varying degrees as the precious metals, along with the Swiss Franc, took a hit over the past few trading days. That impacted our core holding PRPFX.

There will be days like that, but overall, PRPFX has held steady and has come off its high price by only -2.08% while it hovers above its respective trend line by +2.71%.

Uncertainty about the European debt crisis is at an all-time high as a Greek default is widely expected and pretty much priced in. However, the effect on the European banking system in general is the big unknown along with the unanswered question as to the potential spillover on to the domestic U.S. markets.

Take a look at this week’s report:

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European Debt Worries On Hold—Equity ETFs Continue Modest Rally

Ulli Market Commentary Contact

European debt worries and bank problems certainly have not gone away; they were merely put on hold today with no negatives hitting the newswires.

As a result, the domestic markets seesawed but managed to close higher for the second day in a row. However, the health of a variety of European banks is still of great concern and may come back to haunt the markets. Current consensus is if there is a crisis with a European bank, it “will affect but not threaten some of the biggest U.S. banks.”

Domestically, the same old issues with jobs, weak real estate markets and not much consumer confidence were a concern but did not affect the major indexes.

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Bouncing Off The Support Level—Major Market ETFs Stage A Rebound

Ulli Market Commentary Contact

You never know if a white knight can suddenly appear with enough powers to pull the major indexes out of a deep hole. That was the case today, as the S&P 500 was bouncing around its major support level of 1,140, which was briefly violated, when news broke that Italy is talking to Chinese Investors about buying some of its bonds.

At this point, the news has not been confirmed, but Chinese investors did travel to Italy to discuss various investment ventures. Just the possibility that this visit could morph into something more was enough to put a floor under the markets, and up we went, as the chart above (courtesy from MarketWatch.com) shows.

Of course, those types of rumors can end up in disappointment while leading to a dead cat bounce with the markets potentially retracing today’s gains. But, for right now, the Chinese saved the day, at least for the domestic U.S. market.

It looked different on the European side, where equities continued to slide on concerns of Greece defaulting at some point in the future.

Our Trend Tracking Indexes (TTIs) remained steady thanks to the pullback and are positioned as follows:

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