After 3 up days, the short-term trend abruptly reversed, and the major market ETFs slipped based in part on speculation that Fed chief Bernanke’s widely anticipated announcement tomorrow may not include a major stimulus idea.
If so, that lack of action could further accelerate the downward momentum and confirm the current bearish market tendencies.
Despite the rebound of the past 2 days, we’re still down about -1.34% from last week as measured by the S&P 500. This continued slippage is reflected in the Cutline report, as there are currently only 13 ETFs positioned on the bullish side, while 76 still hover below the line and in bear territory.
To repeat, the High Volume ETF Cutline report includes all ETFs above and below the cutline (trend line). 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 table:
Meandering around he unchanged line was the theme of the day until the last hour, when the bulls shifted into high gear and propelled equity ETFs to a third gain in a row supported by a better than expected durable goods order report.
Additionally, with the beating of the financial stocks over the past few months, there may have been some inkling that a potential bottom was in, after the 18% drop since
April and that in general stocks were cheap. Support for the S&P 500 is lurking at the 1,120 level, which has been touched seven times since August 8.
The whipping boy of the past couple of days was predominantly gold as the precious metal came sharply off its highs by some 5% today. No surprise there, since any asset class that rallies over 25% in less than 2 months is clearly subject to a correction.
Margin calls for buyers at higher prices may have played a role in the sudden pullback while central banks around world remain buyers of gold.
In regards to PRPFX, as well as its ETF equivalent, it was a down day as most of its components headed south, including bonds, gold, real estate, Swiss Frank and silver. It was just one of those days to serve as a reminder that there is no such thing as a perfect investment.
Our hedge has moved slightly into negative territory as the matrix shows:
Despite yesterday’s rally, the S&P 500 remains down by -2.6% from last Wednesday’s ETF Model Portfolio report.
As a result, some portfolios fell as well, but only slightly, while others bucked the trend and rose. The reason for the rise of most portfolios is that we have been stopped out of those holdings that are very volatile, which gives us a little more stability in this current environment.
Our #1 Trend Tracking Portfolio showed the largest percentage gain, despite some drag on our short component, as the markets rallied yesterday. Going the opposite way was the #7 portfolio, which is the top performer YTD, but seems to lag during sudden rallies.
Take a look at this week’s numbers:
Amazingly, today’s rebound was based on nothing but hope that the Fed’s Bernanke will pull another rabbit out of the hat this Friday via the mother of all stimulus proposals, which will solve all that ails the world.
The amount of bad news was small enough to stimulate markets around the globe in anticipation of what the Fed might come up with. My take is that it will be nothing spectacular with the result that hope will turn into disappointment.
In other words, if the Fed chairman doesn’t deliver the goods with the magnitude anticipated, the sell off could be ugly. This is not a forecast but simply my opinion at this point.
So far, it’s been a nasty August with the Dow and S&P 500 potentially facing their worst performance since early 2009, while the Nasdaq’s 11% slide, if it holds, will be its worst since October 2008.
Our Trend Tracking Indexes (TTIs) rallied as well and have reached the following distances from their respective long term trend lines:
I’ll be in planes and taxis for most of Monday and will not have a chance to write any blog posts or produce Tuesday’s ‘Mutual Funds on the Cutline’ report.
Regular posting will resume Tuesday afternoon PST with that day’s market commentary.