ETFs Simmer Off After a Big Day

[Chart courtesy of MarketWatch.com]

Markets started off the trading week with a roar, but calmed significantly today as the S&P 500 edged out a 0.02% uptick at the last minute. However, major European indices such as the DAX and CAC 40 had down days.

Hovering around the $1.30/Euro mark, the Euro retreated once again, falling to $1.29/Euro, a further sign of European concerns. In fixed income, the 10-year Treasury rose to a yield of 2.00%, still a very low level historically.

There is further concern about capital adequacy among European banks after Italy’s biggest bank, UniCredit, announced it would sell nearly $10 billion shares at a steep discount to raise funds. Although the ECB has taken unprecedented action as of late to ensure stability in the banking system, systemic problems remain ever present.

Fear in the banking system hasn’t dissipated as European banks still had nearly $600 billion deposited which the ECB. Despite recent efforts by the ECB to boost lending, many banks would rather earn peanuts on their money than face counterparty risk.

To address its own banking issues, Spain has asked banks to create a $65 billion plus buffer for property loans gone bad. For a country with a significant percentage of property distress, Spain’s plate of financial issues keeps piling up.

Although less of a concern, Germany only sold roughly 80% of its 10-year bonds in an auction today, suggesting continued investor skepticism although the yields were low, which is a somewhat encouraging indicator.

Last week, I talked about the January effect, which has some historical basis and advocates. It will be interesting to see how the month transpires, but in this type of unprecedented market environment, trading based on this effect is not a risk worth taking.

Positive December retail data and an increase in car sales in the U.S. are a promising sign although more concrete consumer numbers are necessary to get an idea of where the economy is on a household spending level.

Although it’s too early to be sure, falling property prices for a fourth straight month in China are pointing toward a brewing property bubble. This in tandem with worse than expected GDP figures as of late doesn’t bode well for the emerging power.

Though ETFs barely moved today, the spate of economic data coming out in the U.S. and Europe in the coming days should better illuminate where we might we heading. In the meantime, stick to my recommended trailing sell stop discipline in case markets nose dive.

About Ulli Niemann

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