Late Selloff Cuts Into Early Gains—Europe Continues To Boost Global ETFs

More of the same, as hopes for a financial rescue plan powered global ETFs higher, but a last hour selloff devoured more than half of the early gains.

Nevertheless, we closed up with gold and silver showing signs of life again after getting hammered last week. While the investing world remains on a bailout high, some reality set in late today when looking at the obstacles such a plan must overcome before it even can be implemented.

Talk abounds that this maybe the start of the fall rally, so the question is whether this rebound has legs or not. Remember, we have been stuck in a trading range of some 100 points for 2 months using the S&P 500 as an example. Every time we’ve reached the upper range, which we came close to today, a sharp selloff took the index back down to the lower end.

The Technical Indicator featured this daily S&P 500 chart, which clearly demonstrates the range we’ve been trading in:

You can see in the lower right corner, the wide sideways pattern (I have highlighted it in yellow), which has developed with the low end being around 1,120 and the high end being around 1,220. It’s only a matter of time that a break out will occur; the open question is will it be to the upside or to the downside?

Until we break out to the upside, there is no sense in trying to participate and chase the market up, only to watch it fall again. While domestic issues can affect the future direction of the trend, to me, the outcome of the European rescue efforts, or lack thereof, will be the main force in determining which way this market will be headed.

From a technical point, when looking at sideways patterns, it’s a known fact that the longer the sideways pattern lasts, the more powerful the breakout will be, now matter in which direction.

While today’s rebound in the metals helped our remaining PRPFX holdings, I will not increase those until we have clearly broken back up above its respective long-term trend line. Right now, we are still hovering -2.16% below it.

On the other hand, more weakness ahead may get us out of the market altogether.

About Ulli Niemann

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