7 ETF Model Portfolios You Can Use – Updated through 3/5/2013

Ulli Model ETF Portfolios Contact

After the previous week’s knockdown, it was up, up and away as the reasons for the pullback vanished into thin air with the S&P 500 adding some +2.9% recouping all losses and then some. The Dow finally took out its 2007 high, which I commented on yesterday.

It seems like it’s a one way street into bubble territory with equities supported by the Fed’s reckless money printing efforts. Nothing else matters, so let me be the voice of reason. While this rally may go on for a while, it will end badly, unless economic fundamentals match up with current market levels; after al, they are the drivers of the stock market, at least they were prior to the market distortion via the Fed’s QE efforts.

If you want to participate in this equity orgy, there are three things you need to consider to protect your portfolio:

1. Invest only in the most liquid ETFs, such as I recommend in my HighVolume ETF list. When the inevitable trend reversal occurs, the exit doors will get very crowded very quickly and low volume products will produce much more slippage in price.

2. Select ETFs that are low in volatility so that a sudden pullback does not stop you out right away. Good candidates, which we own, are SPLV, XLP and DVY just to name a few.

3. Only invest if you are using a trailing sell stop to control downside risk.

In the meantime, here’s the latest update for our Model ETF Portfolios:

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Heading Into Bubble Territory; Dow Hits Record High After Services Index Rise; Europe Rallies

Ulli Market Commentary Contact

Tue pic

[Chart courtesy of MarketWatch.com]

The Dow Jones Industrial Average jumped to a new high Tuesday, trimming losses from the financial crisis after a four-year rally, fueled by monetary stimulus from the Federal Reserve and alleged indications of an improving economy.

Equities extended their gains after the Institute for Supply Management’s index for non-manufacturing activity rose to 56 percent from 55.2 percent in Jan., marking its 39th consecutive month of expansion.

The Dow industrials (DJIA) jumped 126 points to 14,253.77, easily topping the its all-time closing high of 14,164.53 set on Oct 9, 2007, ahead of the global financial meltdown.

The 30-component blue-chip index fell 34 percent in 2008 after the housing bubble burst and the federal government had to move in to save the US banking system.

A $2.3 trillion in Fed stimulus pushed investors back in equities, sending the Dow up more than 116 percent from the March 2009 low of 6,547.05. The index’s valuation remains 19 percent less than the price-earnings ratio at the previous peak and 14 percent below its 20-year average.

You hear most analysts pounding their chest about how much better off we are now than we were the last time the Dow was here. Are we really? Take a look at this list:

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03-05-2013

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Buy-Sell CyclesThe ETF/No Load Fund Tracker—Monthly Review—February 28, 2013

US Equities Advance In February; Europe Rises For The Ninth Straight Month

Major US equity averages added more than one percent in February with the Dow Jones Industrial Average and S&P 500 coming close to their all time highs as markets turned choppy toward the end of the month on mixed economic data and political deadlock on the so-called sequester or federal spending cuts of up to $85 billion over the next six months.

Central banks across the Atlantic provided the required market stability with Fed Chairman Bernanke reiterating the continuation of the central bank’s ultra-loose monetary policy in his two-day Congressional testimony while the European Central Bank President Mario Draghi said the bank was far from exiting its expansionary monetary policy stance.

The positive trading mood came after the US Commerce Department said the economy expanded at a 0.1 percent annual rate in the fourth quarter, better than an initial reading of minus 0.1 percent, but well below the third quarter’s 3.1 percent clip.

Also, first-time jobless claims dropped by 22,000 to 344,000 in the week ended Feb. 23, suggesting private-sector hiring remains decent even as the businesses get ready for large federal spending cuts to kick in through sequestration.

The Dow Industrials added 1.4 percent for the month while the S&P 500 index rose 1.1 percent from the end of January. The tech-laden NASDAQ Composite index picked up 0.6 percent for February.

The housing sector continued to be on the mend with contracts to buy previously owned homes rising 4.5 percent in Jan. Also new-home sales jumped 15.6 percent in Jan to an annual pace of 437,000, the highest rate since July 2008. Also, the Federal Housing Finance Agency said home prices rose 0.6 percent in December.

On the flip-side, construction spending took a hit in Jan. as spending tumbled 2.1 percent after rising 1.1 percent in Dec. Public spending shrank by 1 percent while private spending contracted by 2.6 percent.

Personal income fell by 3.6 percent in Jan. after rising 2.6 percent in Dec. Expiration of payroll tax cut and lack of dividend payouts were expected to bring down income levels in Jan. But, alarmingly, employee compensation also dropped 0.4 percent for the month, which means the consumer can’t really be counted on to pull the economy out of the doldrums.

Our main tracking indicator, the Domestic Trend Tracking Index (TTI) continued its march higher and ended the month +3.12% above its long-term trend line as the chart shows:

tti

With the Fed continuing to flood the markets with some $85 billion every month, it’s no surprise that some of that money finds itself moving into the stock market pushing the indexes to levels that are out of line with fundamentals. I have pounded on that theme for a long time; nevertheless, the trend remains up.

I am readjusting some of our positions to be in better tune with that reality without undue risk. For example, some of our holdings in consumer staples (XLP) have done extremely well, especially during market pullbacks. I am looking to increase exposure as this area appears to be one that complements our trend tracking approach very well. We originated some of our XLP position in 2011 and never came close to being stopped out even during times of extremely volatile market behavior.

Looking at the big picture, there is no question in my mind that index levels have reached bubble territory, which means we have to be alert to the fact that a trend reversal can strike at anytime. All of our sell stops have been identified and will be executed once market activity indicates that it is best to do so.

Dow Heads Closer To Record High; Europe Retreats On China

Ulli Market Commentary Contact

Mon pic

[Chart courtesy of MarketWatch.com]

US stocks ended higher with the Dow Jones Industrial Average rising to its highest level since 2007, as speculation the Federal Reserve will continue expansionary policies offset concern over spending cuts and China’s economy.

Markets were hit by headwinds from China earlier where authorities announced new-property buying restrictions Friday, ostensibly to prevent formation of asset bubbles. Restrictions include higher down payments and mortgage rates on second homes in cities that have witnessed sharp rise in property prices. Authorities also imposed 20 percent capital gains tax on sale of existing homes.

Also, data released by the Chinese government showed services industries expanded at the slowest pace since Sep. last month. Beijing-based National Bureau of Statistics and China Federation of Logistics and Purchasing said non-manufacturing Purchasing Managers’ Index fell to 54.5 in Feb. from 56.2 in the prior month.

In the US, a Congressional gridlock resulted in automatic spending cuts by the federal government, half of which are in defense programs. A Congressional Budget Office estimate suggested the budget cuts, known as sequestration, will cause a 0.6 percent decline in GDP growth this year.

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ETFs/Mutual Funds On The Cutline – Updated Through 3/1/2013

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 344 (last week 354) of them 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. 72 ETFs (last week 80) have managed to remain in bullish territory after the recent market volatility.

The third report covers Mutual Funds on the Cutline. There are currently 803 (last week 801) above the line and 56 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.

Last Week In Review: ETF News And Blog Posts To 3/3/2013

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 3/3/2013.

Again, early this past week we had a sharp sell off in the indexes caused by the outcome of the Italian elections and the constant fear mongering in the main stream media about the upcoming sequester and how devastating these tiny cuts will be to our economy.

Given the size of the debt this country has accumulated and the $1 trillion we need to borrow every year to make ends meet, the $80 billion in forced cuts are hardly more than a rounding error on a balance sheet.

After Monday’s 1.8% drop in the S&P 500, the markets found some support, and we ended the past week a couple of points higher with the month of February being another positive one as far as the stock indexes are concerned.

Over past week, we covered the following:

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