Rally—Selloff—Rebound; Equity ETFs End Up Higher On Volatile Day

[Chart courtesy of MarketWatch.com]

Volatility took on a new meaning today, as the Dow raced to an immediate 260 point gain right after the open, then tanked during the mid-day session and actually dropped into negative territory, before a last hour rebound saved the day.

This type of market activity is clearly sign of confusion about the uncertain global economic outlook along with questionable news about the outcome of the European debt crisis.

Early enthusiasm about German lawmakers approving to expand the European Financial Stability Facility Fund (EFSF) drove global markets higher, but worries about the still overwhelming task at hand, including getting agreements from all 17 EU nations, took the starch out of the rally and down we went. According to reports, short covering may have played a role in aiding the last hour recovery.

Domestically, there were some positive reports for a change, as the number of people filing for unemployment benefits for the first time fell below the 400,000 level to 391,000. While that looks encouraging on the surface, the fly in the ointment is that many unemployment offices along the East Coast may not have been able to process all the claims after hurricanes forced shutdowns.

Additionally, the second quarter GDP estimate was revised from 1% to 1.3%.

I took the up day as an opportunity to reduce our portfolio holdings in PRPFX to about 16%. I will be looking to liquidate the balance as well, since PRPFX has now dropped below its long-term trend line by -3.46%.

As I said yesterday, this fund has lost the stability that I have come to appreciate since June of 2008, so I have to accept the fact that it has moved into bear market territory, and I will treat it accordingly. That does not mean I won’t purchase it again in the future; just at this particular time, it’s not a buy in my book.

Despite much jawboning to the contrary, I still believe that Europe’s problems are far from being over, and that a black swan event is entirely possible.

As recent selloffs have demonstrated, there is no place to hide, and all asset classes will get hammered to varying degrees. Having a high cash position is the only way to deal with these uncertainties effectively without suffering sleepless nights.

About Ulli Niemann

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