Reader Q&A: How Did I get Caught On The Wrong Side of the Trend?

Ulli Reader feedback Contact

Reader Ian got caught on the wrong side of the market, when a downside breakout seemed to have occurred on October 3rd. Unfortunately for Ian, it was only an intraday drop below the trading range, which turned into a trend reversal.

Here’s part of what he had to say:

Do you know why the market didn’t break down and crash when we broke down through the bottom of the trading range last week? (October 3rd) 

We did so very convincingly, so I went short in a big way and got creamed.  I thought that once the trading range was broken, one way or the other, that the market would then run in that same direction.  Additionally, I thought that when a trading range broke, it normally broke in the previous direction of the market, which was down. What went wrong?

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ETF Leaders And Laggards – For The Week Ending 10/21/2011

Ulli ETF Leaders & Laggards Contact

Here is a quick ETF review of the past week’s winners and losers from my High Volume ETF Master list:

Last week’s leader, XOP, remained on the positive side in regards to gains, while all others fell by the wayside. As I commented yesterday, China appears to be slowing down, as its widely followed FXI Index dropped -3.49% in the face of overall growing stock markets.

Looking at the Leaders and Laggards, it becomes glaringly obvious that all 10 ETFs are still vacillating in bear market territory, as you can see by the negative data in the %M/A column, which shows how far above or below its respective trend line (39 week simple M/A) they are located.

This means that most of the rally of the past couple of weeks has pulled the majority of the ETFs out of the basement but not yet into bullish territory. My latest High Volume ETF Cutline report supports my view that many have not yet established their own major trend. Once they do, you will want to participate.

The time may come, as early as next week that I will seek careful equity exposure again, as discussed yesterday. If I do, I will be keenly aware that the European summit, of which the markets expect a positive outcome, can take the starch out of any upward momentum quickly, which can send the bulls packing in a hurry.

Disclosure: No holdings

10-21-2011

Ulli Newsletter Archives Contact

ETF/No Load Fund Tracker Newsletter For Friday, October 21, 2011

ETF/No Load Fund Tracker StatSheet

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

https://theetfbully.com/2011/10/weekly-statsheet-for-the-etfno-load-fund-tracker-newsletter-updated-through-10202011/

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Market Commentary

Friday, October 21, 2011

SHATTERING THE GLASS CEILING—IS THE BREAKOUT FOR REAL?

After a turbulent week, markets ended on a cheery note as the S&P 500 gained 1.88%. The index traded between 1,190 and 1,240 for the week, going on a bit of a rollercoaster to say the least. Meanwhile, oil and gold went up 1.70% and 1.74%, respectively.

In a week where the VIX swung up and down over 9% for four out of five days, we are back into risk mode. The continued uncertainty, especially from Europe, makes an entry point for equities difficult in the current environment.

Strong corporate earnings brought some upside to equities in the U.S., but the same can’t be said on the other side of the Pacific. China’s Shanghai Composite Index had its worst week in five months after concerns about an economic slowdown adversely impacted markets, especially the below expected third quarter GDP announced earlier this week.

Weakness on the commodity and energy front as well as monetary tightening is creating some headwinds for the Chinese economy that will be closely watched over the next few months. Yet, most eyes are still on Europe.

Eurozone leaders took a progressive step by expanding the EFSF, but the next challenge lies in how they will fund the expansion given opposition by non-Euro nations to providing bailout funding via IMF. In the meantime, the Eurozone is planning on combining the EFSF and the planned European Stability Mechanism, which would cumulatively account for $1.3 trillion in funding.

However, as I’ve previously mentioned, Europe’s current solution is merely a bandage that doesn’t address long-term structural debt issues. In its drawn out tragedy, Greece is currently forecast to be north of 170% of GDP by next year at the going rate and, unless debt holders are willing to take a steep haircut, austerity measures will surely not be enough to reduce long-term debt to a sustainable level.

If investors seem unwilling to share the loss burden, Greece might as well throw up the white flag and surrender to default. In other words, I am not discounting the possibility that European contagion may spread sooner rather than later to the U.S. and infect equities.

Nonetheless, the Domestic Trend Tracking Index (TTI) has now clearly pierced its long-term trend line by +1.76%, while the 2 months trading range of the S&P 500 has been broken to the upside. Barring any sudden shocks to the market early next week, the domestic trend is now positive, and I will likely issue a ‘Buy’ signal for that arena. Stay tuned and look for more details in Monday’s market commentary.

In the meantime, the unsettling situation in Europe means I’ll be looking toward this Sunday’s Summit among EU leaders to see if a credible debt resolution gets hashed out and how that may affect markets heading into next week.

I will also be travelling back from Germany this Sunday and plan to let myself be surprised at what these European can kickers will come up with this time. At best, they could make some necessary hard decisions (I doubt it), while at worst, they may agree to meet again in the future.

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 “C”:

Q: Ulli: I have not seen the Hi Volume ETF on the Cutline report since 9/1.  Are you still making it available?  If so, where is it to be found?  I now receive all of your mailings. Have I overlooked it?

Thanks for your help and wonderful free service.

A: “C”: I did announce a couple of weeks ago that, while we were at the lower part at the trading range, I would suspend the Cutline reports temporarily, since there was nothing to look at but red numbers.

With the markets having rallied, I have posted the cutline updates again this past week, but the links have become part of my market commentary. Be sure to look for it in the late afternoon PST.

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

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

ETF/No Load Fund Tracker Newsletter For Friday, October 21, 2011

Ulli ETF Tracker Contact

ETF/No Load Fund Tracker StatSheet

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

https://theetfbully.com/2011/10/weekly-statsheet-for-the-etfno-load-fund-tracker-newsletter-updated-through-10202011/

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Market Commentary

Friday, October 21, 2011

SHATTERING THE GLASS CEILING—IS THE BREAKOUT FOR REAL?

After a turbulent week, markets ended on a cheery note as the S&P 500 gained 1.88%. The index traded between 1,190 and 1,240 for the week, going on a bit of a rollercoaster to say the least. Meanwhile, oil and gold went up 1.70% and 1.74%, respectively.

In a week where the VIX swung up and down over 9% for four out of five days, we are back into risk mode. The continued uncertainty, especially from Europe, makes an entry point for equities difficult in the current environment.

Strong corporate earnings brought some upside to equities in the U.S., but the same can’t be said on the other side of the Pacific. China’s Shanghai Composite Index had its worst week in five months after concerns about an economic slowdown adversely impacted markets, especially the below expected third quarter GDP announced earlier this week.

Weakness on the commodity and energy front as well as monetary tightening is creating some headwinds for the Chinese economy that will be closely watched over the next few months. Yet, most eyes are still on Europe.

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Weekly StatSheet For The ETF/No Load Fund Tracker Newsletter – Updated Through 10/20/2011

Ulli ETF StatSheet Contact

ETF/Mutual Fund Data updated through Thursday, October 20, 2011

If you are not familiar with some of the terminology used, please see the Glossary of Terms.

 

1. DOMESTIC EQUITY MUTUAL FUNDS/ETFs: SELL — since 8/9/2011

The domestic TTI broke through its long-term trend line generating a Sell for this area effective 8/9/2011. Over the recent past, we’ve seen the TTI hovering slightly below and above this dividing line between bullish and bearish territory. I will not issue a new Buy signal until this index has clearly pierced the trend line to the upside and has remained there.

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Markets Cool Off a Bit, But Equity ETFs Are Still in the Hot Seat

Ulli Market Review Contact

[Chart courtesy of MarketWatch.com]

After three days of large swings, markets tempered a bit to say the least. Volatility heavily subsided as the VIX rose 1.28%. As far as market performance, the S&P 500 posted a modest gain of 0.46% while trading with a relatively narrow 20 point band. In an otherwise relatively quiet day, gold took a bit of a dip, dropping 2.25%. Europe is still our primary focus in trying to determine market direction.

Although Greece has taken some arguably positive short-term steps to prevent default by passing austerity measures, Europe’s fate hasn’t gotten any more certain. The French and Germans remain divided over how to go forward with the EFSF expansion in terms of how much each country should contribute. More fundamentally, there is no consensus as to how the funds should be raised, leaving the plan in limbo. But there is some hope that Europe is taking some steps in the right direction.

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