Equity ETFs Wobble, Then Turn Into A Sell Fest

While doing what is expected can be a good thing, it can also backfire, especially when Wall Street is clamoring for a serious assist from the Fed to boost the ailing economy one more time.

Well, that did not happen, and disappointment set in pulling the rug out from any early upward momentum. As the chart from MarketWatch.com above shows, we closed at the lows of the day, which may invite more selling tomorrow.

The Fed’s Operation Twist is designed to keep long-term rates low hoping/wishing to jumpstart the economy. The FOMC in its notes remarked that economic weakness has continued, unemployment remains high and housing is a disaster. Also, further downside risks to the economy remain while global financial markets are strained.

While that is really nothing new, it makes it official and traders on Wall Street did not like it one bit, and selling accelerated during the last hour.

In other words, the Fed was shooting rubber bullets, which makes me wonder if they really have any live ammunition left. Through my lens, this latest effort will not improve economic growth any more than QE-1 and QE-2 did. After all, it’s not the lack of lower interest rates that ails this country but too much debt on every level…

Our Trend Tracking Indexes (TTIs) closed the day with the following positions relative to their long-term trend lines:

Domestic TTI: +1.01%

International TTI: -12.65%

Right now, it seems that we have moved away from the upper end of the 6-week trading range of the S&P 500 (1,220), and it remains to be seen if we now again head back down to the lower end. Any further sustained weakness and our Domestic TTI will move back below its trend line, which would confirm my current stance to be out of the market with most equity ETFs.

Events from Europe did not come into play and affect today’s sell off but, as we’ve seen in the recent past, that can change in a hurry.

About Ulli Niemann

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