ETFs Stay Relatively Calm, But That May Change Very Soon

[Chart courtesy of MarketWatch.com]

Markets appeared to be in the gray zone today, finishing modestly on the upside after an initial dip. The S&P 500 went up 0.48% while European indices such as the DAX and CAC 40 hit some road bumps, dropping 0.87% and 1.92%, respectively. Also, Asian equity markets finished on the downside.

Despite recent hyperactivity in the VIX, it remained essentially flat today. While the last two days have been pretty quiet with little volatility, we are still above the 30 level, keeping us in risk on mode. And on the commodities front, oil nearly hit the psychological barrier of $100, ending at $99.36, which was its highest since July.

Investors might be waiting for Italy to complete its transition to the new government headed by Monti, but it doesn’t look too rosy as Monti is experiencing some friction in trying to form a Cabinet.

We can’t detract from the fact that Italy’s yield levels are unsustainable even with ECB intervention in purchasing bonds. Monti has a lot of hope that unions will accept cutbacks and that austerity can be implemented to ease the debt burden. Yet, the reality is far more complex, as Italy is stuck in a trap where it must spend to boost growth while trimming its $2.6 billion debt load.

In relation to the U.S. economy, retail sales exceeded forecasts while Goldman Sachs CEO Lloyd Blankfein projected accelerating growth for 2012, although I remain skeptical that our growth prospects will improve. Unemployment and housing data are still meager, and until those areas brighten up, I can’t envision a steady recovery in the near future.

Some good news for the day was the strong performance in some sectors such as technology, and in commodities. For instance, QQQ rose 1.11% on the day, and has been above its 39-week MA for one month. Furthermore, last week’s ETF leader, United States Oil (USO), gained 1.50% and is now well above its 39-week MA.

In our current risky market atmosphere, there are still ETF opportunities with prices well above their trend lines worth taking advantage of, if you are looking to follow the major trends.

It’s been a somewhat uneventful couple days in markets so far this week. However, I believe that things can quickly change if investor sentiment regarding Italy becomes more negative.

European leaders can try to sugarcoat their problems with Eurozone unity rhetoric, but the hard data suggest otherwise. I put my faith in the latter.

Disclosure: No holdings

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
This entry was posted in Market Review and tagged , , . Bookmark the permalink.

Comments are closed.