Major Market ETFs Seem To Forget About Europe

Ulli Market Review Contact

[Chart courtesy of MarketWatch.com]

Despite continuing concerns surrounding Europe, the S&P 500 rose 0.89% while European and Asian indices also posted large gains. Meanwhile, the 10-year Treasury yield went up as did commodity prices.

However, the Euro moved very little against the dollar, sticking to $1.28/Euro. The trend of record high deposits at the ECB despite new liquidity measures highlights the frailty of the financial system, which can’t be ignored.

Yesterday, I mentioned that it might be an appropriate time to gain some equity exposure especially with minimized volatility. Given some of the upward momentum, as the S&P 500 is above its long-term moving average, taking on equity ETFs very selectively can reap some benefits. Yet, the level of uncertainty that exists in markets serves a reminder that a big drop can happen at any time.

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Volatility Stays Down – Is This A Good Equity ETF Entry Point?

Ulli Market Review Contact

[Chart courtesy of MarketWatch.com]

Keeping in sync with the flatness towards the end of last week, markets didn’t move all that much as U.S. indices, Treasuries, and commodities minimally fluctuated. Volume remained relatively thin as the S&P 500 slightly edged up 0.22%.

Though markets are caught in a state of flux, the Euro remains weak against the dollar at $1.28/Euro, highlighting that Eurozone problems are still front and center.

Volatility has been down as of late, questioning whether it makes sense to gain some equity exposure. For those wishing to make some equity ETF additions, now might be an opportune time. If you do, keep your risk tolerance in mind and don’t forget that we’re still very much in bear territory when it comes to international ETFs.

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ETFs/Mutual Funds On The Cutline – Updated Through 1/6/2012

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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 162 (last week 110) 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 21 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 289 (last week 127) above the line and 734 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 1/8/2012

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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 1/8/2012.

The major indexes started the first trading day of 2012 with a nice rebound, after the prior week’s sluggish activity, but ended up meandering sideways for the remainder of the week.

While domestic economic numbers were decent, the global slowdown, along with Europe’s continued debt problems, may be a hard to overcome headwind. It makes me wonder how long the domestic market can remain decoupled from the rest of the world.

This week, we covered the following:

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European Banking Crisis – ECB Action Is Not Enough

Ulli Market Commentary Contact

The ECB has taken drastic measures to ensure the liquidity, and probably more realistically, the solvency of the European banking system. Through long-term refinancing options, which are essentially near costless loans, the ECB has tried to kick start banks into lending mode.

However, as apparent in this Financial Times analysis video, these actions have failed to inspire confidence in the banking system. Despite obtaining over $600 billion from ECB loans, banks would rather build up cash reserves and park it at the ECB for chump change than lend it out and face the risk of no repayment. In turn, businesses can’t receive the necessary capital to engage in investment or properly carry on operations, thus negatively impacting the real economy.

Outside of the Eurozone’s poor public finances, Europe’s banks are the engine that will determine whether Europe’s financial system will run effectively. Insolvency is such a significant fear that banks are pursuing an ultra low risk strategy where they don’t even want to purchase government debt.

This leaves the ECB to foot the bill and take on dangerous exposure to countries with high borrowing costs such as Italy and Spain. In essence, the risk simply gets shoved to the ECB, putting Europe in greater danger if the ECB’s balance sheet starts becoming toxic, which would then trickle down to Europe’s biggest banks.

Although markets may not be hurting badly right now, a deepening of Europe’s banking crisis can rapidly change that.

Are Country ETFs Worth the Investment?

Ulli ETF News Contact

As the whole world seems to have turned upside down in a financial sense, it nevertheless beckons the question of whether opportunities still exist in some parts of the globe.

Although the U.S., Europe, and parts of Asia are going through difficult times to say the least, there are other regions which have appeared to do well on a short-term basis such as Latin America.

However, that’s not to say that effects of the European contagion can suddenly infect emerging markets partially dependent on European financing. We only have to look to U.S. Treasuries to see that investors worldwide are flocking to them during periods of great uncertainty.

We currently have country ETFs listed as a selective buy, but there are still inherent risks. Achieving diversification is difficult without purchasing a number of country ETFs from various regions. Meanwhile, Country ETFs are sensitive to political risk, especially as we saw last year in the Middle East with the Arab Spring, which led to significant volatility in Middle Eastern markets.

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