ETF/No Load Fund Tracker Newsletter For Friday, September 30, 2011
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Friday, September 30, 2011
DEEPER INTO BEAR MARKET TERRITORY
The month is over and so is a horrific quarter. Equities have now dropped for five months in a row, as the worries du jour seem to deepen.
For one, the debt crisis in Europe shows no major signs of improvement other than the occasional band aid approach which, once it hits the headlines, seems to give a temporaty lift to the global markets, which appear to be starved for anything that could justify a rally.
Second, the Chinese economic is showing signs of weakening (3rd monthly decline in manufacturing) with the copper market, which is an indicator of prospective manufacturing activity, getting slammed at the tune of -25% in September. Copper had lost -6.1% in August.
Third, Europe’s engine that could, Germany, is slowing down as well, as a surprising drop in retails sales took the starch of their equity market.
Today’s late selling spree just deepened the move into bear market territory and worsened the past quarter’s returns. While all major indexes lost, the benchmark S&P 500 dropped -7.18% for the month and gave back -14.33% for the quarter, which makes it the worst quarter since the 2008-09 financial crisis.
While gold managed to gain +7.95% for the quarter, it does not tell the entire story as it lost -11.43% in September. That late drop hurt our core holding, PRPFX, the final 15% of which we disposed today.
We are now out of equities altogether, but still have a few isolated bond holdings for selected clients.
Our Trend Tracking Indexes (TTIs), especially the domestic TTI, seems to finally have caught up with the reality that an economic slowdown is unavoidable, which will result in lower equity prices. Here are today’s closing numbers:
Domestic TTI: -1.13% (last week -0.32%)
International TTI: -13.26% (last week -14.07%)
Of course, there is always the chance that October, along with the rest of the year, can show better results; but it can also be a lot worse.
Depending on the upcoming earnings season, especially the all important forward guidance, and the situation in Europe, we could see an upward spike again. However, since we’ve been in this 100 point trading range in the S&P 500 for some 2 months, I would not put any value on rallies that merely bring us back to the upper end.
Remember, Trend Tracking is supposed to get us onboard major trends and not minor ones. As time goes on, I will further elaborate as to where new entry points might be, however, at this point in time, I can simply not envision anything else but dead cat bounces. If circumstances change, you can be assured that I will change my view as well.
Have a great week.
READER Q & A FOR THE WEEK
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A note from reader Ian:
Q: Ulli: I have a quick question for you, which goes back to early September. I have half of my positions in cash as I was stopped out. The other half is still in PRPFX. I haven’t sold, but you called a domestic equity sell.
If I understand correctly, I should sell PRPFX and go all cash or hedge it with a bear fund? Is there any harm in riding PRPFX out until there’s more of a downtrend? I really enjoy your blog. You’ve saved me a boatload of money!
A: Ian: Sure, absolutely; since your question came in a few weeks ago, your last line of defense to take action is once PRPFX crosses its own trend line to the downside or has come off its high my more than 7%, both of which have now happened. Therefore, PRPFX is a ‘Sell’ according to my trend tracking rules.
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