Developing Country Worries? Never Fear, The U.S. Is Here!

Mon pic

[Chart courtesy of MarketWatch.com]

1. Moving The Markets

There was not much good news from the markets today, but not much terrible news either.  It seems that fearful investors are selling off equities worldwide due to shaky economies and plunging currencies in the developing world. While the sell-off in the U.S. has not been as notable as in Europe or Asia, investors are definitely retreating. This continued sell-off pushed the Dow, S&P and Nasdaq lower today. Remember, the turbulence was set off last week by a report from China on a downturn in its manufacturing, which many believed to be indicative that the world’s second-largest economy is slowing.

The U.S. Federal Reserve is adding some icing to the troubled developing world cake. By cutting back the stimulus, money that was formerly invested outside the U.S. in search of higher returns is now making its way back given that domestic rates here are expected to rise. While all of this may seem scary, let’s remember that the IMF expects the global economy to grow 3.7% this year, which is up from 3% last year. Because growth is picking up in the developed world again (U.S., U.K. and Germany) we are in a much better position to pick up the slack of a slowdown in developing countries such as China. The U.S. housing market has rebounded, American consumers are paying down debts, and we have seen decent corporate earnings thus far in 2014.

What is important to remember is that the S&P 500 gained almost 30% last year, which is just unfathomable to many. Because many investors realized tremendous gains there are many who are on edge waiting for the market to correct itself. So, any news that smells kind of funny will make them pull the trigger to sell in order to protect these gains. So let’s try not to get too over-reactive on every piece of news coming out of the developing world, because things are not looking so bad here in the U.S.!

Our 10 ETFs in the Spotlight slipped with the indexes, and I am tracking the pullback closely. None of the featured ETFs has triggered its trailing sell stop, but one just slipped below its long-term trend line.

2. ETFs in the Spotlight

In case you missed the announcement and description of this section, you can read it here again.

It features 10 broadly diversified ETFs from my HighVolume list as posted every Monday. Furthermore, they are screened for the lowest MaxDD% number meaning they have been showing better resistance to temporary sell offs than all others over the past year.

In other words, none of them ever triggered their 7.5% sell stop level during this time period, which included a variety of severe market pullbacks but no move into outright bear market territory.

Here are the 10 candidates:

MaxDD

XLP just crossed its trend line to the downside; however, its trailing sell stop (see table below) has not been triggered yet. All others remain in “buy” mode meaning their prices are above their respective long term trend lines by the percentage indicated (%M/A).

Since we have holdings in XLP, I will monitor this position closely. If it slips further, I will liquidate before its sell stop gets triggered in order to minimize the downside risk. You would think that XLP being one of the more conservative ETFs you can own would hold up better than others during a correction as we are seeing now, but it didn’t. So it may very well to be the first “casualty” of this market pullback.

Year to date, here’s how the above candidates have fared so far:

YTD

3. Domestic Trend Tracking Indexes (TTIs)

Our Trend Tracking Indexes (TTIs) headed further south, but they remain on the bullish side of their respective trend lines:

Domestic TTI: +2.16% (last close +2.67%)

International TTI: +3.69% (last close +4.34%)

About Ulli Niemann

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