Major Market ETFs Rebound — Fed Policy Remains Unchanged

While the Fed left current interest unchanged at record low levels, it will also continue with operation “Twist” by buying longer term treasuries and selling the short end of the yield curve.

The Fed’s view of the economy was considered “frustratingly slow” but appeared to be somewhat stronger than in October. After the announcement, the markets briefly sold off as traders had hoped for another round of Quantitative Easing. However, the Fed’s affirmation that they would in fact act, should the economy fall apart, was interpreted as a positive for equities supporting the rebound into the close.

The ADP National Employment report showing 110,000 private sector jobs had been created last month provided the necessary upward momentum after the sharp selloff of the last couple of days.  While ADP’s numbers are not necessary in sync with the upcoming employment report on Friday, it nevertheless gave some hope that the Labor Department’s numbers may show signs of improvement.

The Fed reduced growth projections for this year (1.6% to 1.7%—down from June’s 2.7% to 2.9%) and for 2012, they anticipate 2.5% to 2.9%, which is down from June’s estimate of 3.3% to 3.7%. Similar numbers were announced for the all important unemployment figures, which are to be 9.1% to 9.2% in October and 7.8% to 8.2% in 2012.

None of these projections are awe inspiring and simply confirm to me that we’re still not going anywhere and will remain stuck in ‘muddle through’ mode, as John Mauldin so eloquently puts it.

Given the turmoil in Europe, along with the Chinese and Australian housing bubbles, and an upcoming forced global economic slowdown, I see the above numbers as overly optimistic.

Nevertheless, all that matter to us are the trends in the market place and, domestically, we remain in bullish territory by +2.52%, while on the international side, we’re still below the line by -6.97% and therefore in bearish mode.

As the last couple of days have shown, a short-term directional change can strike without warning. If this type of market activity gives you headaches, stay out in cash or remain in some selected bond ETFs.

The Greek’s have upped the ante by attempting to go the democratic route and letting the people decide as to what their wishes are. This can have unintended consequences, and we’ll have to wait and see how this scenario will play out. At this time, the Greek barbershop is wide open and not only offers haircuts but scalping as well.

About Ulli Niemann

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