ETF/No Load Fund Tracker Newsletter For Friday, February 10, 2012

ETF/No Load Fund Tracker StatSheet





Market Commentary

Friday, February 10, 2012


After several days of gains, markets finally dropped, with the S&P 500 falling a modest 0.69%. European and Asian indices were more substantially in the red. In commodities, oil and gold were also down.

Demonstrating the volatility in fixed income, the 10-year Treasury fell below 2% to a yield of 1.97%. Most startlingly, the VIX had a massive jump of 11.65% to rise above the 20 level. We’ll have to see if this foreshadows more volatility in the near future.

If anything causes a bigger spike in volatility, it would likely be the effect of an unfavorable outcome in Greece, especially if it’s unexpected. Greece not only has internal dissension, but it must finalize a deal with will be agreeable with bondholders and the troika. From my point of view, we’re on high risk alert.

Although Greece made some progress yesterday, the tension is greater than ever. Not only are unions upping the ante with more strikes, but five Greek politicians resigned due to disagreement over austerity measures. Papademos is in a tight spot as some politicians want to go ahead with the fiscal cuts in order to receive bailout funds and keep Greece in the Eurozone while others can’t muster the nerve to accept the cuts and face public backlash.

While Greece worries about getting its bailout money, it appears that Portugal will need more aid than expected. Germany’s finance minister hinted that the planned $100 billion plus bailout package may not be enough, especially as Portugal’s borrowing costs for medium-term to long-term debt are well into double digits.

In the U.S., dismal housing numbers are not going away, prompting Bernanke once again to stress the importance of a turnaround in housing to help the U.S.’s economic fortune. Despite a decrease in mortgage rates, housing hasn’t dramatically improved.

With regards to our Trend Tracking Indices, our Domestic TTI is currently sitting at +4.89%, giving us justification to hold on to our domestic equity ETF exposure. Meanwhile, for the first time since September 2010, we’ve generated a buy signal for international equity ETFs, as the International TTI has emerged from bear territory (as posted on 2/7/12) to sit at +1.96%. Nevertheless, we want to be more cautious in the international sphere where there is more volatility.

This past week was generally mild in terms of market activity, but in the wake of today’s big jump in volatility and further signs of strain in Europe, we’ll have to see if next week brings more downside. Make sure you have your trailing stop losses implemented in case this happens.

Have a great week.




All Reader Q & A’s are listed at our web site!
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A note from reader GH:

Q: Ulli: “Concerns linger over the European banking system with regards to capital shortfalls. There is speculation that a number of banks that submitted proposals for achieving capital adequacy might still not reach a necessary target of 9% tier one capital. With 30 banks that collectively need roughly $150 billion in capital to meet this target…”

I don’t know why there should be any concern. As we’ve learned in the age of intervention (since March 2009), targets move. Sometimes targets disappear…and new ones appear.

Honestly, I think that idea has a lot to do with why markets are less volatile and steadily moving upward now. Can investors be blamed for becoming complacent?

I’ve been overly skeptical of long positions for years now. And I’ve only recently become more “daring” when moving money into ETF’s. And my idea of daring is increasing positions in consumer staples!

Do you think I’m a good measure of market direction to the upside, or a contrarian indicator that screams “SELL”!? (tongue-in-cheek)

A: GH: Well, you could be a contrarian indicator…

I agree with what you said in terms of targets and your overall skepticism. That’s why my preference is not to make market interpretations but let the trends be my guide. I have found over the past 25 years that my personal assumptions and opinions are not necessarily aligned with market direction.

It’s far more effective to follow the long-term trends and use trailing sell stops to control downside risk while accepting the fact at the same time that you will be wrong occasionally and that subsequent whipsaw signals are simply part of the equation.



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About Ulli Niemann

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