ETF/No Load Fund Tracker Newsletter For Friday, July 6, 2012

ETF/No Load Fund Tracker StatSheet

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THE LINK TO OUR CURRENT ETF/MUTUAL FUND STATSHEET IS:

https://theetfbully.com/2012/07/weekly-statsheet-for-the-etfno-load-fund-tracker-newsletter-updated-through-07052012/

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Market Commentary

Friday, July 6, 2012

EQUITY MARKETS END LOWER AS JOB GROWTH DISAPPOINTS; ZROZ FLOATS, UNG LEAKS

US equities slumped Friday with the Dow Industrials and the S&P 500 finishing the week lower following a US Labor Department report that showed employers added fewer than estimated jobs in June.

Treasuries advanced for the second straight day as investors sought refuge in safe-haven assets in anticipation of another round of assets purchase by the Federal Reserve to boost a faltering job market.

The Dow Jones Industrial Average (DJIA) slipped 0.96 percent to end the day at 12,772.47, off 0.8 percent for the week. Only five of the 30 components within the blue-chip index ended in the positive region.

Ten year Treasuries capped the month on a high after jobs data showed employers added only 80,000 jobs in June, well short of the projected 100,000. Compared to 226,000 jobs a month in the first quarter, hiring in the second quarter dropped sharply to 75,000.

The S&P 500 Index (SPX) lost 0.9 percent to finish at 1354.68, off 0.6 percent for the week. The index has closed lower in the last two of the three weeks.

Yield on the 10-year Treasury dropped five basis points to 1.54 percent in late afternoon trading, New York time, off 10 basis points for the week, the highest since in more than a month. 30-year bond yields fell six basis points to 2.66 percent as unemployment held at 8.2 percent for the second consecutive month.

ETFs in the news:

As US stocks fell about one percent on jobs selloff, investors rushed to the relative safety of government bonds, anticipating further rounds of assets purchase by the US Fed to prop up the sagging job market.

The PIMCO 25 Year Zero Coupon U.S. Treasury Index Fund (ZROZ) emerged among the winners, adding 1.58 percent for the day. The bond fund is up an impressive 6.65 percent year-to-date and is currently trading close to its 52-week highs.

Other long-term US debt funds such as the Vanguard Extended Duration Treasury ETF (EDV) and the iShares Barclays 20 Year Treasury Bond Fund (TLT) also made impressive gains, adding 1.34 percent and 0.93 percent, respectively.

It was a bad day for commodities across the board, led by energy and precious metals. Natural gas sank 5.6 percent on the day while WTI crude slipped 3.5 percent. Agricultural commodities also softened for the first time in days, with wheat, corn and soybeans ending the day’s session lower.

The United States Natural Gas Fund LP (UNG) crashed Friday, plummeting 5.33 percent on the day.  Agricultural ETFs such as the DB Agriculture Double Long ETN (DAG) and the UBS E-TRACS CMCI Agriculture Total Return ETN (UAG) gapped lower for the day, shedding 3.74 percent and 2.62 percent respectively.

Our Trend Tracking Indexes (TTIs) vacillated with the markets and ended the week as follows:

Domestic TTI: +2.63% (last week +2.38%)

International TTI: -2.23% (last week -2.15%)

Have a great week.

Ulli…

Disclosure: No holdings

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READER Q & A FOR THE WEEK

All Reader Q & A’s are listed at our web site!
Check it out at:

http://www.successful-investment.com/q&a.php

A note from reader HB:

Q: Ulli: If I can get an overall feel from your report, the M-index is the momentum, but also higher momentum means higher risk. Would it be safe to say, in general, if I look at the DD% (0 being at high), I should look for the DD% first, then % ma, then M-index?

I know there is no real formula, but was hoping to put together a formula I could plug #s into to provide “my” best option.

A: HB: Where the markets are at currently, your best bet is to use one of the model ETF portfolios as opposed to stringing together a variety of ETFs. Pick the one that best suits your risk tolerance. They have a mix of bonds and equities to balance out market fluctuations and, when used with my recommended sell stop discipline, will clearly define your downside risk.

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Back issues of the ETF/No Load Fund Tracker are available on the web at:

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The ETF/No Load Fund Tracker—Monthly Review—June 30, 2012

Month End Rally Lift US Stocks; European Union Inches Closer To “More” Union

US stocks rallied the last business day of June with the S&P 500 locking in 2.5 percent on the day to post its biggest single session gain since December after European leaders agreed on a series of short-term measures to ease the region’s ongoing debt crisis.

However, I have to caution you that not much real headway has been made, and any progress can only be counted once paymaster Germany clearly agrees to what has become much news headline propaganda.

EU politicians consented hope to form a single banking regulator to supervise the region’s banks and approved the use of the lifeboat funds to recapitalize stricken banks directly, a move aimed to lessen the debt burden of Spain and cap the spiraling borrowing costs of Madrid and Rome.

Markets got a further boost on the news that the European Investment Bank will receive €120 billion to be used for enhancing the bank’s lending capacity to businesses in an effort to create jobs. Where exactly the funds will be coming from has not been established, and the widely touted ESM mechanism has not been ratified by all countries (and is stuck in German courts for review).

US recovery remains questionable as economic indicators fluctuated for the month with some displaying downright bearish tendencies. As a result, the Federal Reserve revised the real GDP growth for 2012 downwards to range from 1.9 percent to 2.4 percent against the previously projected range of 2.4 percent to 2.9 percent. The unemployment rate was revised upwards and is expected to range between 8.0 and 8.2 percent from the previously forecasted 7.8 – 8.0 percent.

None of this so far has discouraged the markets from heading towards the highs made early in the year based on the faulty assumption that the Fed will always be there to bail out Wall Street. In my opinion, a major concerted stimulus effort by the various central banks is a distinct possibility, but ONLY after the markets have tanked, and 401ks have turned into 201ks, and not while the major indexes are flirting with the highs of the year.
After our International Sell signal on 5/15/12, that arena has sank deeper into bear market territory but recovered somewhat towards the end of the month. Domestically, our Trend Tracking Index (TTI) remains on the bullish side of the trend line, as the chart below shows:

Market weakness early in the month (big red arrow) pulled this indicator within 1% of generating a ‘Sell,’ but continued hope about a resolution for the European debt crisis, kept support alive, and we remain in ‘Buy’ mode.

During the volatile times we got stopped out of the VTI position, but are still holding on to DVY, which has been a steady influence for those accounts exposed to it. The European debacle will end up badly, I am sure, but that does not make it an imminent event.

The timing is the great unknown, and I would have expected the end of the road to be reached much sooner than it appears. Nevertheless, my preferences in these uncertain times is to be predominantly exposed to those bond ETFs, which are the main stay of the ETF Model Portfolio #2 (BND, TIP, BSV).

My reasoning is that if the situation in Europe worsens, which it will, the flight to safety will be on and that will bode well for US bond related issues. Things can unravel in a hurry, as the global slowdown continues, and US equities will not decouple from the rest of the world as we are all tied at the hip—economically speaking.

Even for our bond positions, I have sell stops in place to be executed should unexpected market turmoil occur. It’s important to be prepared for all eventualities, as best as I can evaluate them.