03-05-2014

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The ETF/No Load Fund Tracker

Monthly Review—February 28, 2014

US Equities Rebound In February; Europe Rallies To A Seven-Month High

US stocks made a strong comeback in February after starting 2014 on a dismal note with all the major indexes recouping January’s losses and the S&P 500 logging its 48th record monthly close in the past 52.

The blue-chip Dow Jones Industrial Average finished up 4 percent for February. That was the largest monthly percentage gain since January 2013.

The benchmark S&P 500 closed at 1,859, capping its monthly gain at 4.3 percent.

The NASDAQ Composite index ended at 4,308, up five percent for the month. The tech-heavy index notched up its biggest monthly gain since September 2013.

A batch of better-than-expected economic reports lifted US stock markets higher. The final reading of the consumer sentiment index for February was revised upwards to 81.6 from an initial estimate of 81.2, indicating improving confidence.

New home sales jumped 9.6 percent in January to a seasonally-adjusted 468,000 annual pace, the most since July 2008, data released by the Commerce Department showed. Separately, data released by the National Association of Realtors showed pending home sales rose 0.1 percent to 95 in January. The gauge slumped to 94.9 in December, the lowest since November 2011, as poor weather, low inventory and declining affordability hit sales. A reading of 100 is equivalent to the average contract activity seen in 2001.

The Chicago PMI for February rose to 59.8 from 59.6, beating analysts’ estimate of a decline to 56.0.

Economic-data firm Markit’s US flash purchasing managers’ index surged to 56.7 in February from 53.7 in the previous month as production rebounded, indicating increasing traction in manufacturing.

On the downside, the government cut its earlier estimate of US growth in the final months of 2013 as consumers apparently didn’t quite spend as much as originally reported. Fourth quarter gross domestic product grew at a 2.4 percent annual rate instead of the previously reported 3.2 percent.

Markit’s initial reading on services sector for February dropped to 52.7 from January’s final reading of 56.7.

The Philadelphia Fed’s manufacturing index slipped to minus 6.3 in February from 9.4 in January.

Across the Atlantic, European stocks rallied with the Stoxx Europe 600 index notching up a 4.8 percent gain for February. That was best performance by the benchmark index since July.

In terms of growth, Germany continued to race ahead of the pack. Gross domestic product expanded by 0.4 percent in the final quarter of last year.

Unemployment rate across the 18-member currency zone remained unchanged in January at 12 percent, the EU’s statistics office Eurostat said in Brussels.

Inflation in the euro region came in at a 0.8 percent annual pace in January, slightly exceeding an earlier estimate of 0.7 percent. That eased pressure on European Central Bank President Mario Draghi to loosen policies further to stave off deflation.

In last month’s issue, I pointed to the weakness in equities and the possibility of a return to bear market territory. However, with the strong rebound during February, that did not come to pass, and we recovered all of January’s losses.

As our Domestic Trend Tracking Index (TTI) below clearly shows, the pullback in January was followed by a V-type recovery in February with the S&P 500 breaking into record territory:

TTI0228

The index itself (green line) now hovers above the trend line (red) by +4.34% (last month +1.15%).

Since we were stopped out of Consumer staples (XLP) and Consumer discretionary (XLY), I replaced these empty spots with more Healthcare (XLV) and some Pharmaceuticals (PJP), while increasing our holdings in the S&P 500 index. That put us on track in joining the upward momentum of the markets to new highs.

Looking back over the past month, here is how our main holdings have fared during this rebound, which started in the second week of February:

MonthlyWrapChart

As you can see, Healthcare and Pharmaceuticals especially have been on a tear continuing where they left off in 2013. While January’s market weakness is now in the rearview mirror, we need to remain alert and not fall into complacency by being ready to adjust our portfolios should market conditions change.

Looking at the the big picture, our above Trend Tracking Index (TTI) will alert us to major changes in market direction, while on a day-to-day basis our trailing sell stops will be the guide to determine the level of our equity exposure.

Stocks Make A Comeback; Radioshack To Close More Stores

Ulli Market Commentary Contact

Tue pic

[Chart courtesy of MarketWatch.com]

1. Moving The Markets

Stocks returned with a bang today and once again we saw the S&P 500 close out the day at a new record high. Yesterday, the Ukraine conflict had investors biting their nails, but as tensions eased today (with Putin saying he would only use force as a last resort) those same investors were all smiles again.

Walt Disney Co (DIS) shares rose 2.8% to a record high of $81.71 intraday after reaching a deal with Dish Network (DISH) that lets the No. 2 satellite TV provider carry Disney-owned networks such as ABC and ESPN, and deliver the content outside of a traditional TV subscription. RadioShack (RSH), a name too often associated with ‘outdated’ announced that it will close up another 1,100 stores across the country after undergoing a massive drop in holiday sales.

As stocks rebounded today, gold fell, of course, as well as treasury prices and the Yen. Oil prices also retreated as Putin’s gesture reduced the chances that energy supply from Russia, the No. 2 world oil exporter, could be disrupted or subject to sanctions. While the markets may have corrected upwards today, do remember that they have been very volatile and reactionary in the short term this year. On the bright side though, they keep trending upwards, which is confirmed by our Trend Tracking Indexes (TTIs).

Our 10 ETFs in the Spotlight joined the rally with 7 of them making new highs and 9 of them moving on the plus side YTD.

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Ukraine In Turmoil, But U.S. Economy Still Looking Good

Ulli Market Commentary Contact

Mon pic

[Chart courtesy of MarketWatch.com]

1. Moving The Markets

The crisis in Ukraine seems to have investors a bit jittery as the major indexes gave back some of last week’s gains. As escalating military tensions in Ukraine dominated news today, the better-than-expected economic reports we received did little to soften selling across the markets. The Ukraine worries brought about a market sentiment that we haven’t really seen since emerging market worries of Turkey and China more than a month ago.

In economic news, consumers spent more in January, but apparently a good portion of money spent was on utility bills because of the unusually cold winter. We also heard today that the final reading of Markit’s U.S. purchasing managers index accelerated in February and that this final reading for February was the highest level in almost four years. The report basically shows that output and new business picked up sharply. Also, U.S. manufacturers expanded at a faster pace in February and business would have been even better if not for severe winter weather, according to a survey of executives.

Of course, there was a small flight to gold today because of the Ukraine news. Gold futures surged by more than 2% on Monday, lifting prices to their highest level since late October. Gold closed last week in the red as a rise in U.S. consumer sentiment and strength in Chicago’s business barometer helped boost demand for U.S. equities.

Our 10 ETFs in the Spotlight slipped but 6 of them have now turned positive for the year.

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ETFs/Mutual Funds On The Cutline – Updated Through 02/28/2014

Ulli ETFs on the Cutline Contact

Below are the latest ETF Cutline reports, which show how far above or below their respective long-term trend lines (39 week SMA) my currently tracked ETFs/MFs are positioned.

The first report covers the ETF Master List from Thursday’s StatSheet and includes 398 ETFs, of which currently 371 (last week 359) are hovering in bullish territory.

The second report includes only High Volume ETFs. 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 93 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. 74 ETFs (last week 72) have managed to remain in bullish territory after the recent market volatility.

The third report covers Mutual Funds on the Cutline. There are currently 752 (last week 708) above the line and 97 below it out of the 859 that I follow.

Take a look:

1. ETF Master Cutline Report     

2. ETF High Volume Cutline Report

3. MF Cutline Report

In case you are not familiar with some of the terminology used in the reports, please read the Glossary of Terms.

If you missed the original post about the Cutline approach, you can read it here.

Please note that Mutual fund prices have not been adjusted for yearend distributions.

One Man’s Opinion: Are Technology And Healthcare Likely To Outperform The Market In 2014?

Ulli Market Review Contact

92835431Companies actually made more money in 2013 than forecast as evidenced from Wall Street’s top bear UPS raising its 2014 earnings per share target to $117 from 115, said Gina Martin Adams, an equity strategist at Wells Fargo Securities LLC. Earnings grew at a much faster 7 percent annual rate, widening the aggregate S&P 500 base. Hence earnings growth is likely to be lower this year, she said.

Asked to explain the dismal 2.4 percent annualized growth rate in the fourth quarter after a robust 4.1 percent growth in the third quarter, Gina said the investors’ expectations went up following third quarter results even though fundamentals of the economy remained weak.

However, if investors took a broader perspective, not a lot has changed as the economy is still incrementally growing at a slightly faster pace from a year ago, she argued. Asked if equities can grow at the same pace as last year when the economy is clearly showing signs of a slow down, Gina said the markets rallied in 2013 because the economic numbers beat forecasts.

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New ETFs On The Block: Ishares Enhanced International Large-Cap ETF (IEIL)

Ulli International ETFs Contact

91551519iShares, the world’s largest issuer of exchange-traded funds, unveiled two-new actively managed ETFs that are similar to products the company launched in April 2013.

The iShares Enhanced International Large-Cap ETF (IEIL) and the iShares Enhanced International Small-Cap ETF (IEIS) are the international cousins of the iShares Enhanced US Large-Cap ETF and the iShares Enhanced US Small-Cap ETF, respectively.

The two funds seek to provide long-term risk-adjusted returns relative to broad international large-cap stocks and come at a time when global markets are looking nervous due to slowing growth in the US and China and the Federal Reserve’s dialing back of its monetary stimulus.

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