Major Market ETFs Plunge During Last Hour

The markets did their best cliff dive imitation during the last hour of trading and surrendered all gains of what appeared to be a nice rebound.

Causing the sudden change in sentiment were comments from Fed chairman Bernanke, during which he saw the recovery as uneven and also warned against a “sudden fiscal contraction” if spending would not be brought under control.

Apparently, there had been some wishful thinking among Wall Street Traders that the Fed might continue its purchase of Treasury securities (QE-2), since the chairman saw the recovery continuing, albeit at a “frustratingly slow pace.” When he did not commit to another round of easing, the markets fell off a cliff, as the chart above (courtesy of shows.

Yesterday, some of our holdings in small cap ETFs (VB, VBK) had triggered their trailing sell stops and moved below them by about -7.8%. I was watching the rebound develop early on, but it did not have enough momentum to convince me that holding off for another day would be a wise decision, so I liquidated VB and VBK.

Since VB was held in 2 of our 6 ETF model portfolios, I adjusted those as well, which you can see in tomorrow’s updated post.

Looking at the chart above, it’s far from certain the major indexes have reached a bottom. When markets close at the lows for the day, there is a good chance that more weakness lays ahead, which may not bode well for tomorrow’s opening.

Be sure, to monitor your sell stops and execute them as they get triggered.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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