Sharp Upswing For Equity ETFs Despite Continued Negativity

[Chart courtesy of MarketWatch.com]

Despite a down opening for markets, Apple’s massive earnings caused quite a roar. The S&P 500 jumped 0.87% while the NASDAQ had a big gain of 1.14% as Apple roared ahead due to stellar earnings. However, the same optimism wasn’t echoed by Europe and Asia.

Furthermore, the Euro rose to $1.31 against the dollar while the 10-year Treasury fell down to 2.01%. Also, gold crossed above the $1,700 mark.

The Fed’s announcement of prolonged low rates appeared to be the big boost for equity ETFs. The possibility of QE3 might serve to establish an equity rally along the lines of QE1 and QE2. Yet, I only see this decision as a confirmation that the U.S. economic outlook is far from rosy, which might bring the bear market back into play at some point.

Given the continued weakness in the U.S. economy, Bernanke said that the Fed plans on keeping rates near zero well into 2014. Although some might argue this will cause significant long-term inflation, increasing rates would likely have a chokehold effect on credit markets and stymie bank lending.

Low rates are no guarantee of economic recovery especially since Bernanke doesn’t see the economy brightening up for at least another couple years. It’s clear that other policy tools have hit a brick wall, leaving quantitative easing as perhaps the only hope.

In a negative twist, German PM Angela Merkel is starting to come forward about losing faith in Greece, revealing her fear that the embattled country can muster the will to overcome its financial woes. Hopefully Europe will soon come to realize that cutting Greece off is for the greater good.

Amidst all the haggling over restructuring terms, hedge funds are unloading their Greek debt holdings. As its debt becomes increasingly worthless, I doubt Greece can convince investors to purchase new bonds.

As hedge fund manager George Soros has asserted, Europe is heading down the wrong path with austerity measures that could create debt deflation. With the World Economic Forum in Davos, Switzerland kicking off today, perhaps Soros and other economic and financial minds can come up with a solution to Europe’s woes and global recessionary forces.

While the Eurozone is mired in economic turmoil, the U.K. had a rough 4th quarter as its economy contracted 0.2%. Nevertheless, U.K. independence from the Eurozone is a major plus that should prove beneficial in the long-term.

Despite this continued January hot streak, which has warranted at least some additional equity/sector exposure, it’s wise to be cautious as continued uncertainty in Europe could derail this euphoric rally at anytime.

In regards to our Trend Tracking Indexes (TTIs), it’s worthy to note that domestically we have now reached a point that is +4.16% above the long term trend line.

Internationally, we have been in bear market territory since 6/16/2011; however, recent upward momentum has pushed the International TTI to within 0.39% of crossing its trend line to the upside, which would mean a new Buy signal for that arena.

Stay tuned to the blog for further updates, should an International Buy materialize.

About Ulli Niemann

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