US Equites Head South As Greece Takes Center Stage Again; VIXY Vaults, EWP Sinks

[Chart courtesy of]

US equities headed south again, extending losses for the third straight day amid fresh concerns over Greece at a time when its bigger neighbors Spain and Italy are clearly heading for trouble.

The “troika” of the International Monetary Fund, the European Council and the European Central Bank reached Athens amid speculations that the country will miss its deficit-reduction target attached to the rescue-package and may have to restructure debts worth €200 billion.

Domestically, Tuesday’s weak Richmond Federal Reserve manufacturing data and a spate of recent uninspiring corporate earnings numbers didn’t help stocks either.

The Dow Jones Industrial Average (DJIA) lost 104 points, its third straight session of three-digit losses, an event not seen since September. The Dow’s breadth continues to be negative with 26 of the 30 components within the index closing lower.

The S&P 500 Index (SPX) fell 12 points with telecom and energy hitting the ground hardest. All the 10 business groups closed lower.

Treasuries advanced as yields on five-, 10- and 30-year government debts traded at fresh lows for the second day in a row after Moody’s downgraded the outlook on Germany to negative from stable, stating that further contributions from Berlin will affect the growth of Europe’s powerhouse. Manufacturing activity across Europe shrank in July while German PMI reading tumbled to a three-year low.

The benchmark 10-year Treasury yield dropped two basis points to 1.40 percent while the yield on 30-year bonds dropped four basis points to 2.47 percent in late afternoon trading, as the allure of safest assets increased despite the WSJ reporting that the Fed may seriously consider another round of assets purchase soon.

ETFs in the news:

As markets turned choppy amid disappointing earnings and economic news, the so-called fear-tracking volatility index surged, leaping 9.94 percent on the day. The ProShares VIX Short-Term Futures ETF (VIXY) was among the day’s top percentage gainers, jumping 4.28 percent as risk remained off the table. The Barclays iPath S&P 500 VIX Short-Term Futures ETN also made solid gains, vaulting 4.27 percent on the day.

As the Spanish debt-situation gets worse by the day, funds linked to Madrid continue to get hammered. The iShares MSCI Spain Index Fund (EWP) plunged 4.08 percent over worries that Spain is about to request a full-blown bailout package soon as the country’s 10-year borrowing cost crossed the 7.6 percent mark, setting a new euro-era record. The iShares MSCI Italy Index Fund (EWI) also sank, losing 3.93 percent on the day.

Things are getting dicey in Europe, and there is no way of knowing if the first domino has finally fallen. Right now, it appears that way, so make your plans to protect the downside of your investments via my recommended sell stop discipline.

If you are somewhat more aggressive, you can wait liquidating your domestic holdings until our Domestic Trend Tracking Index (TTI) crosses over into bear market territory. After today’s close, the Domestic TTI remains on the bullish side of the trend line by +1.95% while the International TTI has sunk deeper into the bearish zone and sits at -4.46%.

Disclosure: No holdings

About Ulli Niemann

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