US Equities Pause Ahead Of FOMC Minutes; International Buy Signal Generated

[Chart courtesy of MarketWatch.com]

US equities hit the pause button on a placid August trading session, as investors chose to wait ahead of the Federal Reserve’s minutes from the last meeting due out ater this week as worries about Europe offset gains in the technology and banking sector.

The Dow Jones Industrial Average (DJIA), the S&P 500 and the NASDAQ all closed slightly lower. Within the 30-component Dow, the breadth remained negative with 19 stocks ending lower. The S&P 500 and the NASDAQ ended virtually flat, finishing fractionally lower.

Despite today’s non-action, our International Trend Tracking Index (TTI) has now firmly established itself above its respective trend line by +2.33%—at least for the time being. Effective tomorrow (8/21/12) a new Buy signal is issued for that arena. Let me clarify again which mutual funds/ETFs are affected and which are not.

Affected by this Buy signal are only “broadly diversified international mutual funds and ETFs.” In the past, some readers have taken this as a sign to purchase country ETFs, which is not correct. They run on their own cycle and need to be purchased when they cross their respective trend lines to the upside.

Just because the International TTI has generated a ‘Buy’ does not mean you have to participate. The last signal barely lasted 3 months (2/8/12 to 5/15/12) and resulted in a break even situation at best. With the events in Europe making headlines almost daily, continued volatility in the international arena is pretty much a guarantee.

Nevertheless, the trend is up, and a new ‘Buy’ has been generated as a consequence, despite economic realities painting a different picture. I suggest a trailing 7% sell stop on all purchases to control downside risk.

On the interest rate front, pushing down yields from recent highs, Treasuries advanced in early trade after the German central bank criticized the ECB’s unlimited bond purchasing program to bring down peripheral borrowing costs.

Making known its opposition to the market intervention plan, the Bundesbank in its monthly report said such decisions should be taken by elected representatives or sovereign governments, and not by central banks. Well, I call that another dressing down of ECB head Draghi who has a tendency to make promises without the necessary backup.

On the other hand, I have to admit that he has been successful in pushing the equity indexes higher, although sooner or later empty jawboning will not be enough, as these rallies eventually demand some backing to justify their lofty levels.

European stock markets finished in the negative territory, driven by banks and oil firms as hopes over the ECB’s intervention faded after the region’s central bank said it didn’t discuss capping peripheral yields with euro-bloc members after German news magazine Der Spiegel reported the bank may set target yields for Spain and Italy.

Spain’s IBEX 35 index slipped 1.2 percent while Italy’s FTSE MIB index finished one percent lower despite making solid gains earlier following Bundesbank comments. However, Spanish and Italian sovereign yields dropped to the lowest in more than six weeks ahead of Greek Prime Minister Antonis Samaras’ meeting with German Chancellor Angela Merkel Friday, where he’s expected to request an extension of new austerity measures to four years from the two years agreed earlier on.

In the ETF space, precious metals-linked ETFs gained the most as silver, gold and platinum advanced on the day. Silver for September delivery closed on a two-month high, adding 2.1 percent to close at $28.59/Oz. Platinum futures closed at its highest since early May after three straight sessions of gains after South African miners went on strike following last week’s police firing that killed 34 laborers. Gold futures for December delivery also added 0.2 percent to end at $1623/Oz.

The iShares Silver Trust (SLV) was among the day’s top gainers, jumping 2.64 percent on the day. Other silver-related funds such as the ETF Securities Physical Silver Shares (SIVR) and the Invesco PowerShares DB Silver Fund (DBS) closed higher, adding 2.62 percent and 2.46 percent, respectively. The ETF Securities Physical Platinum Shares (PPLT) rose 1.17 percent while trading volume jumped more than three fold Monday.

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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