Equities Rally As Auto Sales, Factory Orders Robust In June; GDXJ Shines, VIXY Tumbles

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

Strong factory orders and an increase in auto sales for May pushed US stocks higher Tuesday after closing mixed Monday as investors breathed easy on concerns that the economy is faltering.

Of course, as has been the case lately, bad economic news is simply ignored while decent reports provide the fuel for a rally. Go figure. Stocks of commodities and energy firms rallied as prices of materials and commodities surged for the day.

US Treasuries sank risk sentiment improved following a government report that showed US factory orders rose for the first time in three months in May. The number came in at 0.7 percent against a consensus estimate of 0.1 percent.

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Dow Slips As Manufacturing Disappoints; Worst NYSE Volume In Over A Decade

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

The S&P 500 and NASDAQ ended shrugged off early weakness to close modestly higher, while the Dow Industrials closed slightly lower Monday after ISM data showed US manufacturing shrank unexpectedly in June for the first time since July 2009.

Volume was the worst on the NYSE in a decade and, even when compared to other July 1st Holiday weeks, it was the lowest on record, which does not show much conviction.

The yields on benchmark 10-year and 30-year US Treasuries dropped the most in nearly a month after the Institute of Supply Management said its PMI index slipped to 49.7 in June from 53.5 in May, indicating a slowdown in manufacturing activities.

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ETFs/Mutual Funds On The Cutline – Updated Through 6/29/2012

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 249 (last week 202) 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. 37 ETFs (last week 34) have managed to remain in bullish territory after the recent market volatility.

The third report covers Mutual Funds on the Cutline. There are currently 632 (last week 494) above the line and 229 below it out of the 861 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 7/1/2012

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 7/1/2012.

Sharp losses early in the week were made up during last trading day of the month as the EU summit produced some agreement to help out Italian and French banks via a direct lending scheme.

Given the fact that these types of summits have in the past produced nothing of substance, any hopeful announcement turned out to be better than nothing and that provided sufficient ammunition to ramp the markets higher into a strong month end close.

As I posted a few days ago, I doubt that this euphoria will last for more than a few days as the devil is the details, which have not been worked out or agreed upon yet. These days, it does not take much more than an attention grabbing headline out of Europe to get the bulls excited; usually such response ends up being ephemeral in nature.

This week, we covered the following:

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Economist: Onus On ECB To Bring Down Borrowing Costs For Spain And Italy

Ulli Market Commentary Contact

The European summit, ostensibly one of the many that will take place as the year wears on, that started in Brussels on Thursday created a lot of expectations around comprehensive policy measures needed to reign in the European crisis.

Global markets are looking at tangible outcomes rather than statements that merely outline purposes, although the initial market reaction begged to differ. To be more specific, markets will be looking at some sort of announcement on the three pillars required for greater European integration, namely the fiscal union, the banking union and political union, says Marie Diron, economist at Oxford Economics and an adviser to Ernst & Young LLP. These are medium to long term measures that businesses and investors would like to see before confidence returns to the market.

In the short run however, the onus to act lies with the European Central Bank since it can move very quickly and start buying Spanish and Italian bonds that will bring down borrowing costs. Also economic growth should be given prominence and pushed higher up the pecking order involving some investments that can create jobs in a hurry. Also reforming the labor markets to bring back competitiveness, especially the peripheral markets, should be high on the agenda.

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New ETFs On The Block: State Street’s Crossover Corporate Bond ETF (XOVR)

Ulli Bond ETFs Contact

Boston-based ETF issuer State Street launched a crossover fixed income focused ETF last week as the market continues to rebalance its portfolio towards debt instruments.

The ETF industry has been quick to focus on segments that are often overlooked by investors through the launch of niche and novel products. The crossover segment of the bond market is one such example.

The SPDR BofA Merrill Lynch Crossover Corporate Bond ETF (XOVR) tracks the BofA Merrill Lynch US Diversified Crossover Corporate Index, a benchmark that includes both investment grade and junk corporate bonds with ratings between BBB and BB. The index components must have minimum one year to maturity with fixed coupon payments and at least $250 million in outstanding.

The benchmark is overweight on industrial bonds (more than 79 percent of total holdings) with a modified option-adjusted duration of 5.70 while yield-to-worst is estimated at a respectable 4.8 percent. Qualifying securities must be rated BBB1 through BB3, inclusive (based on average of Moody’s, S&P and Fitch) and XOVR is almost evenly split along the risk spectrum with 53 percent of the holdings rated Baa or higher.

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