ETF/No Load Fund Tracker Newsletter For Friday, June 14, 2013
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Friday, June 14, 2013
THEME OF THE WEEK: RED AND VOLATILE
The major averages ended in the red after early gains evaporated during the opening hour amid a variety of factors. Traders cautiously await next week’s two-day monetary policy meeting by the Federal Reserve, which could offer clues into the central bank’s plans for eventually reducing the pace of its stimulus programs.
Moreover, a slew of lackluster economic reports added downward pressure to stocks, as they failed to inspire a continuation of yesterday’s rally. The Dow Jones Industrial Average closed 106 points lower (0.7%) at 15,070. Yesterday, the Standard & Poor’s 500 Index bounced off its 50-day moving average, but today’s session saw the index get rejected by its 20-day average, decreased 10 points (0.6%) to 1,627. The Nasdaq Composite shed 22 points (0.6%) to 3,424.
Big news came as the International Monetary Fund cut its 2014 outlook for America to 2.7% from 3.0% and urged the central bank to carefully manage its exit from stimulus plans.
Elsewhere, Industrial production was unchanged in May, slightly below the consensus of +0.1%. Manufacturing output ticked up 0.1%, led by durables. The Producer Price Index (PPI) rebounded a broad-based 0.5% in May, its first increase in three months, and above the consensus of 0.1%. Moreover, the Reuters/University of Michigan Consumer Sentiment Index fell 1.8 point to 82.7 in the preliminary June reading. Economists expected a smaller pullback to 84.0.
Stocks ended a volatile week as the CBOE Volatility Index climbed to notch its highest weekly close of the year with investors adjusting their near-term volatility expectations. Financial stocks led the market’s decline on Friday, ending lower by 1.3%.
Stocks failed to carry over momentum from last week’s relatively upbeat May employment report, posting the first three-session losing streak this year to finish in the red for the week. For the week, the Dow fell 1.2%, the S&P 500 slid 1% and the Nasdaq lost 1.3%. The bulls were hamstrung out of the gates as Chinese inflation, lending, and trade data disappointed. But the bulk of the pressure came courtesy of festering concerns about further global stimulus measures amid the backdrop of lingering Fed asset-purchase uncertainty.
Meanwhile, the concerns were exacerbated by the Bank of Japan holding off on adding to its aggressive stimulus measures, as some had expected. However, losses were pared by upbeat reports on US jobless claims and retail sales, which did little to clear up Fed exit plan uncertainty, ahead of next week’s policy meeting.
All eyes are on the Fed again next week. What can we expect? Probably more of the same, in regards to uncertain market direction, should the Fed’s language about its potential tapering efforts remain non-committal.
Our Trend Tracking Indexes (TTIs) lost some steam and ended the week as follows:
Domestic TTI: +2.65% (last week +3.04%)
International TTI: +5.14% (last week +6.14%)
Have a great week.
READER Q & A FOR THE WEEK
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A note from reader Thomas:
Q: Ulli: Good morning. I need your opinion; I have a large share of my fixed income invested in HYG & JNK. Should I sell both positions at this time? Thank you.
A: Thomas: As you know, I let my trailing sell stops make those decisions for me, so that I don’t have to be emotionally involved. Depending on your risk tolerance, you can use a 5% or 7% trailing stop.
Figure out your high point from the time you purchased these ETFs, reduce that number by the dividends received, and then apply your sell stop. If it gets triggered, you sell; if not, you continue to hold. That’s what I would do.
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