ETFs Caught in a Firefight Between U.S. and Europe Problems

Ulli Market Review Contact

[Chart courtesy of MarketWatch.com]

After yesterday’s gains, markets took a step back today as the S&P 500 dropped 2.00% in the wake of weak U.S. corporate earnings and nervous anticipation ahead of tomorrow’s European summit meeting. In commodities, oil and gold rose 1.73% and 2.99%, respectively. The dollar remained relatively flat against the Euro, sticking to $1.39/Euro, while volatility took a big leap today, spiking 10.12%.

Anemic earnings today suggest mixed economic signals, making it difficult to determine where the U.S. economy is heading. Barring the Netflix debacle, large firms such as 3M and Amazon came in below estimates, with the latter dropping 15%.

Meanwhile, economic indicators appear to indicate we are in a trough. For instance, consumer confidence is now at a 2-year low while the August S&P/Case-Schiller index figure indicated that for 20 major cities, property values fell 3.8% from one year earlier. The continued beleaguered state of the housing market still doesn’t look sit well for the economy with the prospect of more homes heading underwater. If you think the U.S. is bad though, take a look at Europe.

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Equity ETFs Seem To Be Ignoring Europe – Domestic Buy Signal Generated

Ulli Market Review Contact

[Chart courtesy of MarketWatch.com]

Political deadlock in the wake of yesterday’s Eurozone meetings that failed to produce a definitive plan on how to deal with the continent’s mounting debt didn’t seem to faze markets in today’s trading session as the S&P 500 rose 1.29%. On the international front, the Nikkei, Shanghai Composite, FTSE, and DAX also posted gains.

In relation to earnings, Caterpillar’s above consensus performance provided some hope for the U.S. economy with regards to manufacturing, helping markets see some green. Also, there was a boost in M&A activity that was promising. Yet, the big story is still Europe.

While it appears that markets aren’t heavily taking European uncertainty into account right now, there’s no denying that Europe’s house is not in order. Member nations and Greek debt holders still can’t decide on the size of the haircut although 60% has been suggested as a minimum to help Greece stave off default given that it will need $350 billion in aid through the end of the decade. But it gets worse than that.

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Last Week In Review: ETF News And Blog Posts To 10/23/2011

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 10/23/2011.

Again, the markets assumed a positive outcome of this weekend’s European summit based on hopes that all debt issues will be resolved. The news headlines were chockfull of announcements showing unity and agreement between the German’s and the French only to be questioned hours later.

It’s simply been a week of insanity in how markets reacted to nothing but wishful thinking. By the end of this weekend, we will hopefully know more about the alleged master plan, unless the leaders decide that they don’t really have much to go by and simply postpone any hard decisions under the pretense that more meetings are needed.

If you followed my sell stops rules, you should no longer have any equity exposure at this time with the possible exception of a couple of sector/country/bond ETFs, or hedged positions.

This week, we covered the following:

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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/