Major Market ETF Declines Show That Pessimism Isn’t Fading Away Soon

Ulli Market Review Contact

[Chart courtesy of MarketWatch.com]

The week started off on a bad note, as major market ETFs swung to the downside. The S&P 500 dropped 1.17% while other U.S. indices performed similarly. The dollar stayed at $1.30/Euro while commodities didn’t move much.

Keeping in line with the uncertainty in Europe, investors continued to flock toward Treasuries, with the 10-year Treasury falling to a yield of 1.81%, the lowest since early October. Although the VIX index may not show how risky the market is, the shift toward fixed income highlights the greater possibility of a long-term downside scenario with equities.

As I talked about in my weekend article about quantitative easing, the implementation of QE3 could push equity ETFs into bull territory given the gains seen during QE1 and QE2. Whether QE3 could offset Europe’s problems is up in the air though.

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ETFs/Mutual Funds On The Cutline – Updated Through 12/16/2011

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 48 (last week 101) 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. Only 8 ETFs (last week 16) have managed to hang on in bullish territory after the recent volatility.

The third report covers Mutual Funds on the Cutline. There are currently 37 (last week 154) above the line and 824 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

Last Week In Review: ETF News And Blog Posts To 12/18/2011

Ulli ETF News 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 12/18/2011.

Last week’s relief from the EU summit proved to be short lived and turned into disappointment, as it became clear that Europe’s leaders managed to come in below the already low expectations. In other words, they underwhelmed, again, and the S&P 500 dropped -2.8% as a result.

Now, infighting between the French and the British has turned this serious debt problem into a 3-ring circus. In my view, there simply is no good solution, only varying degrees of misery and pain, as severe austerity measures will eventually be met by increasing social unrest.

This week, we covered the following:

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Not Much Progress In The Wake of the EU Summit

Ulli Market Review Contact

It was another rough week for global markets as the Eurozone remains stuck in a dire situation. Meanwhile, China’s economy is starting to show more weakness while the U.S. situation hasn’t really improved. The flood to Treasuries this week provides an indication that investors are unsettled by the level of market risk on a global scale, especially Europe.

A litany of ratings downgrades were handed out to both countries and banks, while more countries were put on negative outlooks. For instance, France might be set for a downgrade in the very near future, which could seriously rattle markets.

In the political arena, there is significant discord over the EU Treaty with countries unable to agree on various measures such as budget deficit provisions. And to make the situation worse, the IMF suggested that a Great Depression scenario is possible given the amount of financial harm the contagion has done.

Check out the interview below to get a comprehensive overview of recent Eurozone developments and where markets might be headed amidst continuing turmoil.

http://www.youtube.com/watch?v=lUjvyaxHpvY

Quantitative Easing (QE): Aka Saving The Stock Market From A Panic

Ulli Market Review Contact

Over the past few years, ever since the crash of 2008, I have mentioned repeatedly that we have not seen a ‘real’ economic recovery, only one based on a variety of stimulus efforts.

I finally found a chart in section 4 of a recent ZeroHedge article, supporting my viewpoint by outlining the entry and exit points of the QE attempts since early 2009. Take a look at the graph below:

[Click on chart to enlarge]

QE1 started in March of 2009 coinciding with the low in the stock market and lasted until around April of 2010. Notice the market drop after the QE1 exit. It may not look like much in this chart, but in May/June 2010, the S&P 500 dropped over 13% and was ‘saved’ with the subsequent start of QE2.

Once QE2 ended around May 2011, the markets dropped again and were not really resuscitated by the Fed’s ZIRP program (Zero Interest Rate Policy), but remained in a sideways pattern for the past 6 months or so.

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12-16-2011

Ulli Newsletter Archives Contact

ETF/No Load Fund Tracker Newsletter For Friday, December 16, 2011

ETF/No Load Fund Tracker StatSheet

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

https://theetfbully.com/2011/12/weekly-statsheet-for-the-etfno-load-fund-tracker-newsletter-updated-through-12082011/

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Market Commentary

Friday, December 16, 2011

MAJOR MARKET ETFS BARELY STAY AFLOAT AS ECONOMIC CURRENTS PUSH DOWN

In a near repeat of yesterday, major market ETFs inched forward a smidge with the S&P 500 gaining 0.32% but losing 2.8% for the week. Although there was a glimmer of hope stateside today, European markets were marginally in the red as the Eurozone is stuck under dark skies.

Yet, the telling indicator of market sentiment lies in bond markets, where investors are in “flight to safety” mode. The 10-year Treasury fell once again to a yield of 1.85%. Although the U.S. has its fair share of problems, I strongly believe that developed market and emerging market investors will view the U.S. as a safe haven to park their money during periods of instability.

Plus, the Treasury said that Europe remains a very serious risk to the U.S. economic climate, although this realization might be a little too late as the contagion has spread from peripheral Europe to the core of Europe. And at this point, no one is immune to Europe’s deterioration.

Adding more pain to the Eurozone, Moody’s cut Belgium’s credit rating down 2 levels. On one hand, it isn’t too surprising given the country’s debt-to-GDP ratio of roughly 97%. Not to mention, it had to spend over $5 billion to bail out Dexia Bank a couple months ago.

The worst part is that this might be the start of a slippery slope where France and others might get downgraded soon. Already, Fitch issued a negative outlook for France today while putting six other nations on credit watch. And with regards to banks, 7 major financial institutions had ratings downgrades from Fitch, including Goldman Sachs, Citigroup, and Bank of America.

On American soil, we’re still waiting a resolution on the budget deficit as the countdown to another possible government shutdown begins. Washington politics are simply appalling, and the detriment to markets is frightening.

Our Domestic TTI (Trend Tracking Index) is still above its trend line at +1.55%, while the International TTI is still in the negative at -9.47%. Essentially, we’re gaining very selective but limited sector/equity ETF exposure on the domestic side while steering clear of international ETFs. In other words, our buy/sell signals haven’t really changed in the past several weeks as Europe’s woes weigh heavily on our minds.

We had a pretty rough start to the week where the Euro slid considerably, and the initial hype of the revised EU treaty appears to be withering away. In a nutshell, the current atmosphere is still very risky. Thus, I strongly suggest erring on the side of conservatism with your portfolio by maintaining a big chunk in cash or bond ETFs.

Have a great week.

Ulli…

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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 Ian:

Q: Ulli: Appreciate all you do and value your information more than any of the dozens of sites I get info from. My bond mutual funds have dropped significantly since August. These include PTTDX, FKINX and TPINX. I am looking for alternative bond ETF/ETN funds.

My dividend stock ETFs have done well for last 3 years. They are DVY, PFF, XLP and XLU. I am holding the bond funds but in looking for alternatives in ETF/ETN area; I have found nothing that compares to the dividend stock ETFs.

Am I wasting my time looking for other ETF/ETN bond type funds or just focus on the things I have that are working?

A: Ian: You have the right idea, just be sure to use my recommended trailing sell stop discipline should any of your positions go against you by too large a margin.

The markets have been on a roller coaster ride throughout 2011, as I detailed in today’s (12/10/11) post, which has made it very difficult to hold on to any positions for a longer period of time. With Europe being in upheaval, I expect that volatility to continue until their structural issues have been resolved—whenever that may be.

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https://theetfbully.com/personal-investment-management/

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https://theetfbully.com/newsletter-archives/