Are Eurozone Fears Starting to Become a Reality for ETFs?

Ulli Market Review Contact

[Chart courtesy of MarketWatch.com]

Markets took a dip today given continued Eurozone uncertainty and less than stellar data. The S&P 500 retreated 0.95% while other major indices across the global echoed a similar negative sentiment.

The dollar appreciated against the Euro to $1.36/Euro while commodities had a mild drop. Volatility slightly edged up 3.63%, but overall market volume was quite low for the day, so we’ll have to see how the risk picture transpires over the course of the week.

Today’s telling figure was a 2% reduction in Eurozone industrial production for the month of September. This was the biggest drop in nearly 2 years ago, an indication that Europe’s real economy outside of debt issues is hitting a major roadblock. The compounding of economic weakness and financial breakdown could accelerate the likelihood of a worldwide recession.

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ETFs On The Cutline – Updated Through 11/11/2011

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 are positioned.

The first report covers the ETF Master List from Thursday’s StatSheet and includes 397 ETFs, of which currently 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 90 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.

Take a look at the most recent ETF Cutline Reports:

1. ETF Master Cutline Report

2. ETF High Volume Cutline Report

Last Week In Review: ETF News And Blog Posts To 11/13/2011

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 11/13/2011.

An almost 4% pullback in equities shook the financial markets last Wednesday, as Italian bond yields rallied above the 7% pain threshold. However, the bulls pulled the major indexes out of the basement during the subsequent 2 trading days, as a new government, along with fresh commitments to austerity measures, gave hope that Italy, at least for the moment, was saved from a debt debacle.

How long that fact resembles any reality remains to be seen, but the major domestic trend is up, and we’ll carefully follow its direction.

This week, we covered the following:

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Closer to Contagion: Is The Day of Reckoning Near?

Ulli Market Commentary Contact

While markets broke to the upside this week, don’t be fooled by the unwarranted optimism. With Greek and Italian PMs out, the heightened political discord is putting the Eurozone at serious financial risk. Seeing as Italy’s debt burden dwarfs Greece’s debt, a financial meltdown in Italy could create larger negative shockwaves extending not only throughout Europe, but into American and Asian markets as well.

An indication of just how intertwined Eurozone members are with either in terms of debt holdings, take a look at this graphic (click on a country to see its net debt obligations to other European countries). The picture is scary for countries such as France, which has $366 billion in exposure to Italian debt as well as significant holdings of Greek, Spanish, and Italian debt. Let’s just say no one’s quarantined from this debt virus.

I don’t have a direct solution to stoke your fears, but I hope the video below stresses the severity of the situation we’re in and how I’ve geared my investment strategy to avoid potentially large losses if widespread European contagion becomes a reality.

http://www.youtube.com/watch?v=NXOsXy8PLWo

ETF Leaders And Laggards – For The Week Ending 11/11/2011

Ulli ETF Leaders & Laggards Contact

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

Another roller coaster week shifted things around in the winners and losers columns. It’s interesting to note that, despite the equity ETF comeback of last two trading days, none of them gained enough to make it into the Leaders column.

Sector ETFs were the primary gainers, some of which just crossed their long term trend lines to the upside as the %M/A column shows. Along with positive M-Index rankings, they may be worth your consideration. I will post the corresponding updated High Volume ETF Cutline list on Monday morning, so that you can better evaluate those ETFs that have jumped into bullish territory.

Country ETFs were a mixed bag this week, as two of them made into the Leaders column, while three of them ended up on the losing side. Again, to be certain that upward momentum is rising, you want to enhance your odds of success by making sure that the %M/A column is positive; it shows the percentage an ETF has climbed above its trend line (positive number).

The idea here is not to engage in bottom fishing but to catch ETFs as they come out of the basement and cross the dividing line between bullish and bearish territory to the upside.

Disclosure: No holdings

11-11-2011

Ulli Newsletter Archives Contact

ETF/No Load Fund Tracker Newsletter For Friday, November 11, 2011

ETF/No Load Fund Tracker StatSheet

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

https://theetfbully.com/2011/11/weekly-statsheet-for-the-etfno-load-fund-tracker-newsletter-updated-through-11102011/

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Market Commentary

Friday, November 11, 2011

EQUITY ETFS HAVE A BREAKOUT WEEK – WILL NEXT WEEK BE THE UGLY SHAKEUP?

Just when it looked like Europe was falling apart last Wednesday, markets somehow managed to finish the week on a high note, as the S&P 500 increased 1.95% today.

European indices also had a big day, especially the DAX, which rose 3.22%. Furthermore, the VIX retreated but stayed just above the 30 mark, indicating that there is still plenty of risk lurking in the markets.

In commodities, oil and gold gained 1.29% and 1.72%, respectively. With all the volatility in equities, gold has held its own and will likely continue to remain attractive if equities dive once again.

There seems to be a market sentiment downplaying European risk, which I don’t agree with whatsoever. As reiterated by Federal Reserve vice chairman Janet Yellen, the U.S. economy is still significantly linked to European banking institutions. A financial setback in Europe can easily impose severe stress to the U.S. banking system.

Italy today passed an austerity measure to reduce its debt load, although this doesn’t bode well for the country’s growth prospects. Italian bond spreads are still incredibly high relative to comparable German bonds and the transitional government, once Berlusconi’s gone, is still unresolved.

As noted by MIT economist Simon Johnson, troubled Eurozone nations have a significant amount of foreign debt ownership, making contagion a very real possibility if all goes wrong. For instance, 44.4% of Italian debt is held by foreigners while Greek debt stands at 57.4%.

Lest we forget, Greece still has no solidified political plan with PM Papademos as a mere placeholder. Day by day, the probability of default and Eurozone expulsion increases. In addition to Greece, Spain’s prospects worsened as it reported no growth in the third quarter, exposing the country to greater risk if contagion is transmitted there from Italy.

Taking a look at market trends, the S&P 500 still hovers below its 200-day MA (Moving Average) by -0.73%, a level which has acted as a glass ceiling during recent rally attempts. Our Domestic Trend Tracking Index (TTI) remains above the line by +2.33% as of yesterday, however, our international TTI is stuck in a rut unable to get out of bear territory (-6.41%), which is why we’ve avoided international equity exposure.

For me, it’s hard to rationalize why markets did well this week. One thing is for sure though – Europe’s problems will continue and risk won’t diminish until some sort of long-term resolutions concerning Greece and Italy are put in place.

As this week has shown, any negative news from the European theater can pull the rug out from under the equity market with lightening speed. This is why I’ll take refuge in my bond ETF and cash position while adding equity ETFs only on a selective basis.

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 Richard:

Q: Ulli: Recently, PRPFX stopped out. If memory serves, your back test of PRPFX presumed repurchases when prices crossed above Stop Prices plus 2%.

Not too long ago, PRPFX closed 2% above its Stop Price.  Do you recommend repurchasing PRPFX at this time, based upon the above criteria, or should we wait for different criteria?  Or is PRPFX no longer necessarily a recommended fund for the next Buy cycle?

A: Richard: Sure, that is one way to get back in, and an acceptable one with ETFs.

Since mutual funds have trading restriction, my preference is to delay the entry point and see PRPFX close back above its long-term trend line, which it did recently. Alternatively, if you prefer an earlier buy point, you could use the ETF equivalent of PRPFX as featured in model portfolios (#7).

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Do you have the time to follow our investment plans yourself? If you are a busy professional who would like to have his portfolio managed using our methodology, please contact me directly or get more details at:

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

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

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