The ETF-Letter Blog

In the ETF-Letter, we watch UUP, the dollar vs. a basket of currencies, as an indication of what is going on with currencies. We don’t pretend to understand foreign exchange, but can see when things are happening, and they did on November 12. UUP was up 1.42% on the day. Oil futures (USL) was down 2.41%, and Brazil (EWZ) was down 3.29%. What’s the relationship here?

Thursday saw news articles saying that emerging market countries were experience acute problems from the dollar’s fall–concern that their exports would become uncompetitive. For example the Brazilian real is up 33% against the dollar this year. This has obviously helped the big gains in EWZ. The news was an attempt by foreign banks to buy dollars against their currency.

We’re not sure, but the trigger to the day’s sell-off was a high crude inventory report that sent oil down. Much of the speculation in oil is like that in gold, metals, and commodities–a refuge from a weak dollar. The dollar has been getting considerably weaker. When oil fell, it triggered a sell-off in gold (GLD) followed, and the dollar spiked higher. This may have led to the big EWZ  emerging market sell-off. Similar problems exist for currencies in Korea, and othe Asian countries. Russia is very vulnerable because so much of its exports are from energy.

The actual damage was only 94 Dow points and a 3.29% drop in EWZ. Our stop triggered a put purchase to neutralize the position.

It is difficult to tell whether there is any impact of the forex uncertainties for the market, although the possibility exists that a further rise in the dollar could tank all foreign ETF’s.

The decline was broad, causing the Tracking Table to go 100% in the red for the day–except for stalwart HHH, which gained 0.07%.

This is the kind of action that could be a precursor to a larger decline. We will maintain tight stops and take the portfolio to cash and cash equivalents (stock + put) if we get an aggressive sell-off on Friday.

While caution is warrented, currency issues can be arcane–a low dollar helps U.S. exports. The ultimate result may simply be a temporary dip in foreign ETF’s. Stay tuned.

Regards,

Paul Accampo

Editor, ETF Letter

We are operating with no news, ahead of a holiday. Volume was much lower than yesterday. The S&P ended flat (off 0.02%). The top performer was Internet (HHH), followed by emerging Europe (GUR), and semi’s (SMH). Real Estate (IYR) was hot early, then fell 2%, and recovered to -.5%.

Many of the HOT foreign ETF’s took a rest. UNG is close to a new low–Looks like winter was not enough to offset the fact that massive supply depresses prices. We’re glad we did not jump back into India (EPI). It lost 2% vs. Brazil (EWZ) which lost onlyt 0.45%. We added to SMH and XLE.

We’re trying to get the portfolio into leading sectors with out going back to our previous configuration of 20 funds. We are currently at 14, excluding PFF, AOD, and JNK, which pay out high dividends. We try to keep them when the market sells off.

For a free copy of this week’s ETF-Letter, go to www.etfdiscipline.com.

This rally was a bit of a surprise, but at least the model portfolio was mostly prepared and enjoyed gains across the board.

Top ETF’s were GUR, KOL, IYR, EWD, RQI, EWA, EPI, RNP, EPP, EEB. All were up over 4% on the day. As mentioned about a week ago, we narrowed down our international scope, and are focusing on Brazil (EWZ), Australia (EWA), Asia (EPP). GUR is extremely volatile, and Brazil and India (EPI) in the longer term perform about the same.

Realty had been subdued but came on strong mid-morning. Our put on IYR sold. The stock gained 4.7%.The REITS had been a hold, and popped back with RQI and RNP. We will probably buy one back, but want to see some support before doing so. We prefer to keep these long-term if we can, but will not tolerate a big drop. REITS have a long way to go. Two years ago, RQI (5.34) was at 27!

Our put on PFF didn’t sell because of a wide price spread. Don’t use puts with PFF!

The news seemed a bit vague–it all came from Europe, and had to do with a statement out of the G20 that they would keep interest rates low. Alan Greenspan quoted old news in a very positive speech, saying stock market gains are “reliquifying” the American economy.

The Nasdaq is now at 2154. There is resistance at 2191. It could easily get there tomorrow if this rally continues. We will be moving stops because we don’t expect a breakthrough for a while. This will be the third try.

If the market rolls over, it will form a head-and-shoulders pattern and be vulnerable at least down to 2039, the latest bounce.

For a free issue of Yesterdays’ ETF-Letter, go to www.etfdiscipline.com

Regards,

Paul

Today we had a broad advance that was not too steep. The highest gain of ETF’s we track was PBW, which rose 3.85%. Eight funds were over 3%, but only 6 of the 80 funds were in the red, and they consisted of currency, oil, commodities, gold and silver. The VIX dropped 8.3% from 28.1 to 25.4, following the pattern of the past few months.

For our weekly letter, visit our website at www.etfdiscipline.com

The strength of the day’s actions makes us think that the roll off after the Fed announcement yesterday was traders selling long positions that didn’t move higher after the announcement. We saw was more of the same from the Fed, leading to traders thinking that low interest rates are a sign that the economy won’t recover. We don’t buy it. Today’s market rose on lukewarm news.

There is a continuing tension between a stream of good news and the sense that the market is overbought. The recent sell-off takes away much of the “overbought” argument. This morning, we guess that institutional players returned to the market and made some long-term bets. The economy continues to improve and we expect the news stream to continue to be positive.

Alternative energy (PBW) topped the charts, followed by regional banking, small caps, and industrial metals. India (EPI) and Brazil (EWZ) were top performers. We increased our stake in EWZ. Unless EWZ wanes while EPI waxes, we’ll stick with EWZ to keep the portfolio simple.

Powershares Building and Construction (PKB) rose 3.4%, far better than homebuilders (XHB). PKB focuses on building materials and has companies like Armstrong worldwide, Home Depot, Mohawk, and Loews.

Biotech (IBB) is on the rise, possibly because of lots of noise about flu vaccines. It has a 3-day uptrend, although was volatile yesterday. We may go in with a tight stop tomorrow.  

We will consider PBW, PKB, and IBB for future additions to our portfolio.

We are still cautious, but are encouraged by the VIX, and will watch for a further drop to the 23 area.

For a free copy of the latest ETF Letter, go to www.etfdiscipline.com/OrderCurrIssue.html

As the market opened, there seemed to be ebullience ahead of the fed announcement. News on housing and jobs was good and the market rose as high as 134, fell off after the announce and then regained its high. The Fed did nothing, meaning rates are low, but also telegraphing that the economy is not so good.

So far, it looks like sentiment is still negative, in spite of the brief rally.

The next impact is from tomorrow’s news, which includes European interest rates, jobs, and productivity and costs. The releases are likely to be moderately good. If the market sells off, we will have a signal that the negative sentiment from last week has not turned around.

International ETF’s, as we have been commenting, are on the move. Top ETF’s are GUR, EWO, EWZ, EWD, EEM ILF, FXI, EEB, EWI, EZU. These are the likely leaders if we get a rally.

Watch CSCO earnings tonight. They can move markets.

To learn how we analyze the market in the ETF-Letter, goto www.etfdiscipline.com

Regards,

Paul Accampo

IWM moved up all day from above yesterday’s low to yesterday’s high, forming a big-body candle that covered the body of yesterday’s doji. This bounce established support at 55.22. The VIX, which peaked near 32 yesterday, fell to 28.6, just above yesterdays low. Recent history shows the VIX falling rapidly when a rally begins, so if we see this pattern, we’ll get bullish. Again the

These charts give us some lines in the sand. If the IWM stays above support, the VIX continues below yesterday’s low, and the rally is broad, we will buy selectively.

The top funds were GDX, IYT, SLV, XME, PXJ, OIH, DNP, GLD, TAN, TBT, and EWZ, in that order. Increases were 7% declining to 2%. everything else was below 1%. Large caps did not take part, as the Dow was off 0.18% at -17.53, having recovered from a low of -40. In contrast, IWM was up 1.5%, indicating a possible end to the weakness in small caps.

We will stay away from IYT.  Ninety percent of its gain was in the gap opening on the news that Warren Buffett was buying a railroad. Now that the excitement is over, we would expect IYT to return to normal, which was weaker than the IWM.

Tomorrow will be a trader’s delight, and we’ll need to be careful not to commit to swing positions too soon. We get mortgage applications, Challenger/ADP jobs, ISM services at 10:00 EST, and of course, at 2:15, the big one, the FOMC announcement.

We have previously stated that a continuously news stream is battling with the trader notion that the market is overbought. Last week, traders got what they wanted, and in the last few days we have seen sentiment shift to bearish, as the market did not respond to Monday’s good news. Tuesday’s rally was positive for 2/3 of the ETF-Letter Tracking Table. This breadth may indicate that bearish sentiment is breaking down under an onslaught of good news. We suspect that Ford’s billion dollar profit helped people feel better about American industry.

That makes the FOMC announcement a game changer. The Fed could change its language to telegraph a future point in time when they might raise rates. That could cause a huge reaction in the markets at 2:15 EST, particularly if negative.

We’ll guess that foreign ETF’s will be less affected, and look at buying EWZ, if we buy anything ahead of the Fed.

The VIX is likely to stay high until after the FED announcement.

To see our views in the most recent ETF-Letter, peruse our website, www.etfdiscipline.com to see what it’s about, and click on “Free Current Issue” to get your copy.

Regards,

Paul Accampo

Today’s market was volatile. The Dow gained 1.6% at the open, fell 1.8%%, and then regained 1 %, for a net gain of 0.8%, the VIX followed inversely and closed at 29 after hitting a high of 31. The broader market did not commit to anything—the advance-decline line ended about where it started: zero. There was a lot of intra-day volatility.

The IWM is our main bellwether in this market, because it has been weak. It fell 1.8% before recovering to down 0.2%. The IWM chart is in a steep downtrend at 280% per year. If it breaks support at 54.8, watch out for a big drop.

We think the VIX will be a useful gauge of when to commit money to this market. The next uptrend, if recent history is a guide, will put the VIX in a sharp multi-day downtrend, if it has staying power. Per our plan, we did nothing with the ETF-Letter portfolio, and will continue to wait until a viable trend develops.

For a free copy of the latest ETF Letter, go to www.etfdiscipline.com/OrderCurrIssue.html

 Regards

Paul Accampo

Yesterday’s strong rally was on low volume and the S&P went up faster than the Russell, whereas the Russell went down faster than the S&P the day before.

Major news coming out at 10:45 and 10:55 EST. That will probably determine today’s direction. Market is opening on a down gap.

Regards,

Paul

Today the short-term traders may have gotten the blow-out they have been expecting. The carnage was much greater than indicated by the Dow (1.21%). The S&P 500 fell 2%, the nasdaq 100 fell 2.3%, and the small cap Russell 2000 fel by 3.38%.  The only green in the Tracking Table was Treasurys (TLT), the dollar, (UUP), the dollar/yen (FXY) and  inflation-protected bonds (TIP).

The IWM has been our canary in the mineshaft. We warned about the double-top and the bearish engulfing candle. We have now completed a rounding top and broken 57.53 on increasing volujme. The chart shows broken support levels. The next support is at 55, and we could get there overnight.

Every stop in the Model Portfolio was triggered, except for HHH, JNK, and XLK. This suggests that tech held up bese. Internationals and real estate were very were very weak; we sold all of our real estate CEF’s. In order of percentage loss, the worst funds were RQI, EWO, GUR, EWZ, KOL, PBW, GDX, PXJ, XME, SEA, EEB, and ILF. All lost in excess of 5%; RQI lost 7.99%.

At this point we need to pay attention to two things: when will there be a reversal, and what funds will lead us out of it? A reversal could start as early as tomorrow. We’ll guess that Asia will panic overnight (follow FXI after hours and the S&P 500 [ES] futures overnight to find out), and the U.S. market, seeing lower prices, will start to rally. Looking at the IWM chart (to follow the same index check the TF futures overnight), it looks like we could go to 55 before a rally starts.

Unless something has happened to the fundamentals, the funds that will move quickest in the short term are likely the ones that went down quickest. The volatility that took them down quickly will bring them back quickly. The other argument would be that funds that held their prices during the sell-off are likely to lead.

Right now, we don’t know what will happen. We’ll watch realty and internationals for a rebound, and compare them with whatever progress HHH and XLK make on the rebound. We’ll watch the Stochastics to confirm the next rally.

The main thing right now is to have a play–spend time during the next few days executing trades that you have previously planned.

Have a good evening!

Paul Accampo

Good evening!

Today we had some moderately good spending news, but a very negative consumer confidence report that caused the market to shoot down. There was a lot of damage “under the hood” that you didn’t see in the big cap averages. The Dow gained 0.14%, the S&P 500 lost 0.46%, and the Russell 2000 lost 1.40%.

ETF’s with the most strength were  healthcare, biotech and drugs–plus oil TLT, IHF, USL, XLE, TIP, UNG, JPS, XLV, FXY, UUP, and IHI. We are not going to chase oil, and will watch whether XLV actually bounces. It traded inside yesterday’s big-body candle.

Hardest hit funds were EPI, EWZ, GUR, EWK, SLV, ILF, EWO, EEB, XME. These were all funds in which our portfolio has big positions. We did not sell most, however, because they did not reach the strong resistance levels below which we set our stops.

The downdraft triggered a sale of GUR and EWO, and purchase of puts on EWZ and EPI. We has bought a protective put on XLF yesterday.

We expect better news from the durable goods report tomorrow, and since we’ve had three successive down days, the market is likely to get some support before either reversing or continuing down.

Since good earnings didn’t push the market up, we think sentiment is bearish: good news will hold it steady, bad news will take it down further.

Regards,

Paul Accampo