Positive Signs From The Fed Power Market Rally

Ulli Market Commentary Contact

Wed pic

[Chart courtesy of MarketWatch.com]

1. Moving The Markets

Stocks surged Wednesday, lifting the Dow Jones industrial average nearly 300 points, after the Fed decided it was time to start modestly scaling back its program designed to boost America’s growth along with the stock market. The central bank cited a stronger jobs market and an improving economy. This has largely been seen as a vote of confidence for the economy and investors took the central bank’s decision Wednesday as a sign that that the stock market was strong enough to keep soaring, even with a less rocket fuel from the Fed.

The Dow and S&P 500 jumped over 1.5% and the Nasdaq rose 1%. The dollar also rallied today to a more than five-year high against the yen after the news from the Fed.

The Fed action also boded well for housing market and homebuilder ETFs. iShares U.S. Home Construction (ITB) outpaced all equity ETFs, jumping 3%. SPDR S&P Homebuilders (XHB) added 2.6%. Housing starts surged to an annualized monthly pace of 1.09 million in November, up a hefty 23% from 889,000 in October and 14% higher than consensus forecasts of 955,000. Perhaps most importantly, the housing market index—a gauge of builders’ outlook on single-family home sales and expectations for the next six months—improved to 58 from 54. Readings above 50 mean more homebuilders report good market conditions.

Our ETFs in the Spotlight joined the party with 9 out of 10 making new highs for the year as the second table below shows:

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Stocks Remain Idle; Facebook To Sell Video Ads

Ulli Market Commentary Contact

Tue pic

[Chart courtesy of MarketWatch.com]

1. Moving The Markets

U.S. stocks were flat on Tuesday, with investors reluctant to make big bets before results of the latest Federal Reserve policy-setting meeting, which could give some clarity as to when the central bank will begin trimming its stimulus. The CBOE Volatility index VIX, a measure of investor anxiety, dipped 0.9 percent. Earlier, it rose 2.3 percent to its highest level since mid-October.

Major corporate news today centered on Facebook, 3M, Boeing and AT&T. The Wall Street Journal reported that Facebook will begin selling video ads later this week, which could raise the eyebrows of investors. AT&T said it would sell its wireline operations in Connecticut to Frontier Communications (FTR.O) for $2 billion in cash, partly to fund the expansion of its 4G network.

In the ETF world today, notable attention was paid to insiders buying in to the First Trust ISE-Revere Natural Gas Index Fund (FCG). Magnum Hunter Resources Corp (MHR), which makes up 4.54% of FCG, has seen 3 directors and officers purchase shares in the past six months, according to the recent Form 4 data. The ETF holds a total of $21,701,338 worth of MHR, making it the #3 largest holding of Magnum.

Our ETFs in the Spotlight slipped with the indexes but remain on the bullish side of their respective trend lines:

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SPY Snaps 4-Day Losing Streak

Ulli Market Commentary Contact

Mon pic

[Chart courtesy of MarketWatch.com]

1. Moving The Markets

The bulk of today’s advance occurred shortly after the open as the Dow, Nasdaq, and S&P 500 notched their highs during the initial 30 minutes. Despite today’s gain, the benchmark index remains lower by 1.1% in December. The energy sector (+1.0%) displayed strength from the open after its largest component, Exxon Mobil (XOM), was upgraded to ‘Buy’ from ‘Neutral’ at Goldman Sachs. Crude oil, which added 0.9% to $97.47/bbl, also played a part in the sector’s strength.

Two major deals caught investors’ attention today: Chipmaker Avago Technologies is buying LSI Corp. for $6.6 billion. And AIG is selling its aircraft leasing business for about $5.4 billion to Dutch leasing company AerCap. AIG has been selling major assets after getting a bailout during the financial crisis.

On the economic front, revised productivity data for the third quarter showed an increase of 3.0%, which was above the 2.7% increase that had been expected by the Briefing.com consensus. The Fed will release a statement and projections for the economy Wednesday. Economists are almost unanimous in believing that the Fed will not begin winding down its stimulus program just yet.

In ETF trading on Monday, the Junior Gold Miners ETF (GDXJ) is outperforming other ETFs, up about 2.9% on the day. Components of that ETF showing particular strength include shares of DRDGOLD (DRD), up about 36.9% and shares of Brigus Gold (BRD), up about 33.5% on the day. Underperforming other ETFs today is the iShares Mortgage Real Estate Capped ETF (REM), down about 0.4%.

All of our ETFs in the Spotlight reversed course and edged up. I have adjusted the High points, used to calculate the trailing stop losses, for YTD distributions, as you can see in the second table below:

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ETFs/Mutual Funds On The Cutline – Updated Through 12/13/2013

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 320 (last week 334) 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. 65 ETFs (last week 67) have managed to remain in bullish territory after the recent market volatility.

The third report covers Mutual Funds on the Cutline. There are currently 719 (last week 774) above the line and 131 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.

One Man’s Opinion: Will Investors Have To Focus On Cyclical Sectors In 2014?

Ulli Market Review Contact

92835431Investors in 2014 need to rotate from some of the defensive parts of the equity market into some of the more cyclical, said Andrew Goldberg, Global Market Strategist at JP Morgan Asset Management.

One of the things that JP Morgan keeps track of is the number of countries who have a PMI (purchasing managers’ index) above 50, i.e. manufacturing and services in expansionary territory. The cyclical upturn in the economy is broadly taking hold and it’s time to start rotating from the more-expensive higher-yielding names into the more cyclical sectors, he noted.

Asked if sector rotation is more appropriate for the US since valuations in Europe seem pretty attractive (compared to the US), Andrew said broadly speaking if one looks at the index level (in Europe), they are not as cheap as one would like to see. But there are pockets of deep value that can be exploited in Europe and that’s the key.

It sounds like a self-serving thing to say, but it’s absolutely true. Now that correlations have come down, it’s much more about being selective and about stock selection. Not everybody will get it right. But if one tries to play Europe with indexes, it’s going to be much tougher, he argued.

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New ETFs On The Block: Horizons S&P Financial Select Sector Covered Call ETF (HFIN)

Ulli Covered Call Strategy Contact

98396691Ahead of next week’s FOMC meeting, there has been much speculation of a small taper by the US Fed, although markets seem to finally accept that a rate hike won’t happen until 2016. The recent bipartisan deal to avoid a future government shutdown has only strengthened this argument. But this doesn’t bode well for the financial sector which had benefited from a rising yield curve as of late.

An environment of low yields and tight spreads is bad news for commercial lenders and the financial sector as it leads to lower margins. However, since the sector is highly cyclical, it is likely to outperform the markets as the economy continues to mend. Hence, if you wish to limit downside risk in an uneven recovery, you may consider the latest offering from Canada-based Horizons ETF Group.

Horizons USA, the American member of one of the largest collective families of exchange-traded funds in the world, has unveiled the Horizons Financial Select Sector Covered Call ETF (HFIN) offers exposure in an options overlay strategy through covered calls. In a covered call, an investor holds a long position in an asset and writes a call option to generate higher returns from it in unfavorable market conditions.

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