ETF/No Load Fund Tracker Newsletter For Friday, July 13, 2012
ETF/No Load Fund Tracker StatSheet
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Friday, July 13, 2012
US STOCKS BOUNCE BACK ON BANK EARNINGS; IYG RISES, VIXY CRASHES
US stocks rallied Friday with the Dow Jones Industrial snapping a six-day losing streak as banking stocks jumped following a stronger-than-anticipated earnings result from JP Morgan. The bank posted $5 billion in earnings in Q2 despite conceding $5.8 billion in trading losses so far this year through its “London Whale” trader. Let’s see what the effect will be next quarter.
US debts lost allure as 30-year Treasury bonds bounced off from near-record lows amid speculations global central banks initiate stimulus measures to prop up growth. We will find out soon about that possibility which, during the last rumor, ended up being nothing but postponed disappointment.
The Dow Jones Industrial Average (DJIA) surged 1.6 percent, closing 0.4 percent higher over the prior week. Within the Dow’s 30-component index, all but one ended in the positive territory, led by the nation’s largest bank JP Morgan (JPM), up six percent on the day.
The S&P 500 Index (SPX) rose 1.7 percent, up only 0.2 percent over last Friday. Led by the financial-sector index, all of the 10 business groups finished in the green.
Treasuries fell as yield on the benchmark 10-year securities rose 0.02 percentage points to 1.49 after a Labor Department report showed producer price index gained 0.1 percent for the first time in four months. Yield on 30-year bonds climbed 0.01 percentage point to 2.57 percent in late afternoon trading.
ETFs in the news:
As financials rallied following banks’ earnings release, major equity ETFs reversed a week-long losing spree on Friday. Markets were also upbeat that China would hopefully announce stimulus measures after China’s GDP grew 7.6 percent in Q2, year-on-year, against 8.1 percent in the first quarter. This was the country’s slowest growth since 2009.
The iShares Dow Jones US Financial Services Index Fund (IYG) surged 3.03 percent after major US bank stocks rallied following JP Morgan’s 6 percent jump on the day. Bank of America, Citigroup, Goldman Sachs and Morgan Stanley all grew between 3 and 6 percent on the day.
Other financials-related funds such as the Financial Select Sector SPDR Fund (XLF) and SPDR KBW Bank ETF (KBE) also made impressive gains, rising 2.80 percent and 2.69 percent, respectively.
Wagers on further stimulus increased after Federal Reserve Bank of Atlanta President Dennis Lockhart said more assets purchase by the Fed might be coming sooner than anticipated.
The so-called fear-tracking CBOE Volatility Index (VIX) slumped 8.67 percent as risk sentiments improved, pushing the ProShares VIX Short-Term Futures ETF (VIXY) down by 5.77 percent. VIXY is down 60.22 percent year-to-date and trading below its 52-week low level.
Our Trend Tracking Indexes (TTIs) dropped early in the week but then recovered with the markets ending this Friday as follows:
Domestic TTI: +2.56% (last week +2.63%)
International TTI: -2.73% (last week -2.23%)
Have a great week.
Disclosure: No holdings
READER Q & A FOR THE WEEK
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A note from reader Don:
Q: Ulli: I’ve been pouring over your publications and website to more fully educate myself on how to be a better investor. I am learning a lot, but there is one key concept I am still fuzzy on. Would you please explain M-Index more fully?
I gather that the M stands for momentum and that higher numbers indicate higher momentum. But, where do the numbers come from? How are they derived? And especially, what do we need to know about those numbers when it comes to making investment decisions? Is it wise to only invest in funds that have a larger momentum number? Is there a range that indicates a sweet spot; for example higher than 5 but lower than 20?
Thanks again for being willing to share your knowledge. It is very much appreciated!
A: Don: All terms are explained in the Glossary posted at the top of the weekly StatSheet. In case you missed it, here’s the link:
As I said, the higher the number the more volatile the ETF. There is no such thing a sweat spot. I use it to merely compare one ETF to another. In the end, the best way for most investors is to use one of my Model ETF Portfolios (when the domestic TTI is in Buy mode), which gives you a good balance of bond and equity holdings. Use one that fits your risk tolerance.
When that is combined with my recommended sell stop discipline, you have a better handle on downside risk, which is essential in today’s volatile global market environment.
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