Waiting For A Big Move As ETFs Show Little Action

[Chart courtesy of MarketWatch.com]

Not a lot of movers and shakers in the market today as the S&P 500 finished up only 0.19%.

While most of the indexes hovered near zero, tech got pretty battered as the NASDAQ fell 0.99% based on Oracle’s weak earnings, having a domino effect on other tech stocks such as IBM.

Although I hesitate to say we’re in risk-off mode, the VIX reached its lowest level since late July, ending just below 22. On one hand, this can be interpreted as a positive sign to gain an entry point into selective equities. Nevertheless, I believe markets will start swinging more again once the holiday season is over and volume picks up again.

Trying to catalyze credit flow, the ECB gave over $645 billion in long-term loans to European banks. With liquidity drying up and banks hesitant to lend, these loans will hopefully provide the fuel to get the European economy up and running again. If anything, we’re seeing evidence of a financial system hampered by contagion and starved for funds.

Italy’s outlook became grimmer as it announced a 0.2% drop in third quarter GDP growth. Given that more austerity is on the horizon, Italy is set for a long period of economic growing pains. With a never-ending spate of bad news, I bet red wine sales are up though.

Even if the PIIGS can stave off expulsion from the Eurozone, there’s no doubt that they are descending into economic stagnation. While we focus on forces impacting financial markets such as bond yields and the like, the exodus of PIIGS citizens foreshadows an anemic real economy down the road.

Meanwhile, the UK is considering more quantitative easing to spur growth. Although the UK wishes not to be a part of the EU Treaty, it’s still prone to the harmful effects of the EU debt crisis.

As U.S. politicians are unable to agree on budget reduction measures, Fitch has now threatened to drop the U.S.’s AAA rating due to its spiraling debt load. Adding more negativity for the U.S., after yesterday’s encouraging housing data, there was a 14% downward revision in existing home sales since 2007, worsening the already ugly housing situation.

And in Asia, central bankers have reduced Japan’s growth forecast as exports have fallen in part due to a strong Yen.

In the last couple months, we’ve seen brief rallies in equity ETFs where the windows of opportunity are often very small. However, trying to capitalize on this can be a fruitless endeavor, warranting the use of bond ETFs to guard against those untimely dips.

About Ulli Niemann

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