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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Precious Metal And Bond ETFs Remain The Leaders; ETF Master Cutline List – Updated through 9/9/2011

Ulli ETFs on the Cutline Contact

With the S&P 500 losing another -1.70% since the last ETF Master Cutline Report, it’s no surprise to see the number of ETFs above the line reduced further. Currently, there are 34 ETFs positioned in bull market territory and 362 below the line and in bear market territory.

In a repeat from the prior week, precious metals occupy the top positions, despite gold having participated in its own roller coaster ride. However, the major trend remains to the upside as the precious metal is not only firmly entrenched above its long-term trend line by +22.47%, but has only come off its high by -2.11%.

This is 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 9/11/2011

Ulli Market Review 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 9/11/2011.

The European debt crisis accelerated this past week and pulled world markets sharply lower. As I have mentioned before, that fact is not really news, but the timing of it is. I would expect more volatility to be with us, especially once Greek actually defaults. The question then will be: Who’s next and how soon?

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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The Mistakes Of 2008 – Will They Be Repeated Again?

Ulli Investment methodlogy Contact

It’s still everyone’s guess as to whether there will be repeat of 2008, or if we will be weathering the current global economic storms unscathed.

The WSJ (subscription required) implied in “Refresher Class: The Lessons of 2008 Are Timely Again” that lessons were actually learned, yet their recommendations do not seem to reflect that fact:

Investors learned tough lessons as financial markets melted down in 2008.

Some sold in a panic when stocks were at their lows. Others were surprised when fund managers proved just as capable of losing the nest egg as they were.

Now is probably a good time, with markets swaying again amid uncertainty about global economic growth, to ask yourself how well you learned your lessons from 2008.

“Smart people make mistakes,” says Larry Swedroe, director of research at Buckingham Asset Management in St. Louis. “What separates them from fools is they don’t repeat them.”

With that in mind, consider some key investing takeaways from 2008 that are fitting now:

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

Ulli ETF Leaders & Laggards Contact

With Europe capturing most of the attention, although negatively, it’s no surprise that this area dominates the Laggards column.

With the Swiss attempting to peg their Francs (FXF) to the Euro, they took the top spot on the downside with a loss of -10.66%. Currency interventions rarely last for any length of time before they resume their natural trend. Time will tell if that will be the case again.

All other Laggards were individual European countries as well as Europe as a whole, when measured by VGK, which represents some 467 common stocks in 16 countries.

On the Leaders side, we had a shift from last week, as the U.S. Dollar was the beneficiary of the European debt saga, so it occupies the #1 spot. However, please note that UUP still hovers below its respective long-term trend line, which means it still has a ways to go before I would consider it as a ‘Buy.’

While UNG showed signs of life again, it’s M-Index is a weak -11, and it is also still stuck in bearish territory.

This is the time to stand aside and accept the fact that uncertainty may even kick up a notch, should event in Europe worsen. I am sure they will; the timing of it is just the big unknown.

Disclosure: Holdings in FXF