On Wednesday, high oil prices and the Fed’s release of the minutes from its April 30th meeting sent the markets tumbling. At first, it appeared that the major indexes were able to withstand the relentless upward trend in oil prices but, when the Fed decreased its GDP growth forecast and increased its 2008 inflation and unemployment rate outlook, the damage was done and the bears took over.
It would now seem unlikely that further interest rate cuts are under consideration, at least not in the near term, which does not bode well for equities.
This does not mean that the current domestic up trend is derailed, but it is interrupted. We’re still above the neutral zone and will hold our positions subject to our trailing sell stop points. Here’s where our Trend Tracking Indexes (TTIs) stand in relation to their long-term trend lines:
Domestic TTI: +1.89%
International TTI: -3.41%
After the recent upswing, some type of correction is certainly in order as long as it does not mark the end of the trend. The fact that we can never be sure whether there is continuation to the upside is one of the main reasons that we ease into a buy signal with only 1/3 of our assets. If the trend continues, we will increase exposure; if it turns out to be a false signal, our exit strategy will get us out before major damage occurs.
In the meantime, I have ventured into some other sector ETFs showing strong upward momentum, which should act as an equalizer should the domestic market head further south.
Contact Ulli