The ETF-Letter Blog

The Fed raised the discount rate, not the fed funds rate. The discount “window” is used by troubled banks to get quick cash in short-term loans. The fed funds rate is what banks lend to each other, and permeates the economy.

This is good news, because it indicates greater confidence in the banks, in a still easy-money environment. Expect the market to rise on Friday!

Regards,

Paul Accampo

Our speculation that the market is emotionally driven seemed to be proven on Tuesday, although there was some solid good news in the Empire State manufacturing report. The pre-market commentary was about an announcement from Barclays Bank that sent European shares much higher.

Everything in the Tracking Table was up except for JPS, currency, and natural gas. The strongest ETF’s were TAN, GUR, EWA, SLV, XME, FCG, USL, JRS, KOL, NLR, DBC, EWO, RQI,  and SEA, all over 3%.

We dropped puts on everything but FCG, the euro vs. dollar ETF. The dollar fell the way it previously has when stocks have rallied, but it is also getting buying pressure because of doubt about the euro. We are skeptical about Europe because the Greek problem is not resolved. There could still be a dispute–however, if you wait for resolution, the opportunity to profit will pass. You have to take risk to make money. The dollar vs. euro could quickly reverse if the squabble over fixing Greece continues.

We bought XME as a commodities play as it ran up 3.76%. We also bought IBB and JNK on the strength of their moves. We bought AOD to accumulate it, even though it did not move much higher. We have tight stops on everything. 

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 Regards,

Paul Accampo

Monday and Tuesday seem to be confirming that the blow-off last week was largely emotional, as we speculated in our Letter dated February 1. Earnings news continued good as did economic bulletins on Monday and Tuesday.

To those who think the economy is terrible, that the market is overbought and must go down, the news keeps chipping away at their beliefs. Traders throw up their hands and buy, not expecting the rally to last.

The catalyst was housing starts were slightly higher, in line with forecasts. This news ramped up real estate and homebuilders today.

The top Tracking Table funds on Tuesday were JRS, up 5.31%, XHB, USL, XAL, RQI, and PKB, all up over 2.5%. JRS and RQI are real estate, PKB is homebuilders.  

The rally was very broad, about 80 funds went up. The only ones that fell were SLV, HHH (internet), AOD (yield), UUP (dollar), TBT(inverse LT bonds), GMF (Emerging Pac Asia), and KRE (regional banks). RKH, the other regional bank funds was week, but higher.

Regards,

Paul Accampo

Editor, The ETF Letter

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Thursday started off with mixed news: Jobs dropped a bit, the Philly Fed moved up a bit, and the Leading Economic Indicators became positive. Other news was more negative.  China is tightening bank standards to slow down its growth rates as inflation accelerated (FXI dropped 3.7%) . Obama moved to limit proprietary trading by investment banks (XLF dropped 2.85%). GOOG announced lower profits on weak advertising revenues (GOOG dropped 4.3% AMC).Earnings were good. American Express the biggest U.S. credit-card issuer by purchases, said fourth-quarter profit more than doubled amid a surge in customer spending and lower expenses for future defaults (AXP dropped 1.9%). 

We’re not sure that this news by itself explains the 213-point drop on Thursday. The most surprising news to U.S. investors may be the China actions. If we add the fact that many traders think there should be a correction, there is probably enough fear out there to create a sentiment shift. The VIX popped from 18 to 22. in apparent confirmation. Possibly the Massachusetts news, which “revealed” that Americans are pessimistic, according to the pundits, has aided in the shift.

Our portfolio suffered broad losses on our loose stops. We did buy a few stocks that sharply declined and a put on our IWM holding. One holding, KRE (Regional banks) soared 3.10%, possibly because they were not affected by Obama’s plan. Regional banks are nevertheless threatened by mortgage losses, so we need to be watchful.

Capital preservation is paramount; while we expect bounce soon, even if it’s only in reaction to two sharply down days, we will sell or protect our holdings from further losses, while looking for bargains.

We’re getting a lot of volatility back into the market. I just listened to a trader compare where the market is today with where the Dow was post 1929. That chart shows that this year should be volatile and down overall. While everyone has theories, I see no useful connection between the Great Depression and the current economy, even though unemployment is high and many pundits are predicting a “double-dip” recession.

There was lots of pundit talk about yesterday’s rally in healthcare, supposedly because a republican was winning Massachusetts. When was the last time you bought a stock on an election result in a single state? Check the chart of IHF, and you see that healthcare companies have been on a continuous rally since March, 2008, a period during which passage of the bill looked increasingly likely. IHF fell and recovered with the rest of the market today. Our interpretation is that healthcare wins with the bill because of increased business. The current rally may be long in the tooth, but we’ll probably buy any pullbacks.

What the news is showing is a very gradual recovery. Earnings are mostly good with INTC and IBM blowing away their estimates, housing is picking up, manufacturing is recovering, and inflation remains under control. While the market may panic from time to time, it won’t ignore a continuing stream of improving news.

The dollar is recovering causing commodities, particularly gold to fall. The rising dollar is causing foreign countries to purchase U.S. treasuries and equities, helping the Fed fund the deficit. The deficit isn’t good, but being unable to fund it would be very bad. Meanwhile, We’re not worried about hyper inflation until we see it, and the probably indicator will be wage inflation, which currently non-existant. If the recovery is very gradual and interest rates are gradually brought back to normal, the Fed may be able to avoid the doomsday scenarios so popular with pundits.

Therefore, in spite of the ups and downs, we remain bullish, with the expection of a slow market rise in 2010. We note that RKH (Regional Banks) was up 1.3% today. Don’t know why. We’ve been buying KRE, which was off only 0.17%.

Nevertheless, the market dropped today as much as 180, recovering to minus 122 on not-to-bad news today. If this pattern continues–falling on relatively good news–we will act to protect our capital by buying in-the-money puts or dropping weak ETF’s.

 Gold is over–Check this ugly chart of GDX. It broke below a wedge, and is close to losing major support.

Regards,

Paul Accampo

The market seems to have stabilized a bit after a downward gap and subsequent 12-point Nasdaq drop on the combination of increases in China’s bank reserves to slow their economy, and an Alcoa miss. It was also the end of a 6-day bull run. Gold, semi’s solar, foreign ETF’s, alternative energy and commodities took the biggest hits.

We think this market will turn around on good earnings news from companies like the banks and Intel Bloomberg has a survey that says S&P 500 companies surged 62 percent during the fourth quarter in the first increase since 2007, according to the average analyst estimate .

SMH, GDX, TBT (inverse treasuries), GDX, SMH, TBT, TAN, EWA, PBW, FXI, EPP, GUR, XME, and MOO took the greatest hits.

Regards,

Paul

Today’s market gapped higher, lost the gap, and then worked its way up to a 45 point Dow Gain and a .21% Nasdaq Composite loss. Precious metals, real estate, and retail remain the weakest category in our ETF Tracking Table. The market was mixed, with about 50% of funds we monitor gaining.

Best performer’s were EWO, SEA, EWD, GLD, JPS, XLU, GUR, EWA, all over 1%. Austria (EWO) was the strongest fund–it gapped up and then rose higher during the day.

Alcoa (AA) reported and missed after the market closed, which may cause a bit of a drop tomorrow. As of 6:50 PM EST, S&P futures were 3.5 points below the close.

We regard this move as a buying opportunity, on the assumption that earnings will be generally good. If we start seeing more negative reports, of course, everything could change.

Although many issues fell, theVIX opened at a new multi-year low and recovered to 17.55, a strong indication that traders expect a positive market ahead.

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 Regards,

Paul Accampo

We haven’t had much to say about the snooze fest the market has given us since Monday. The commentary seems to be pointing to Friday’s Jobs number as a market-mover. We’ll be watching, but are continuing to keep loose stops. With good news from the manufacturing and retail sectors, we are not jumping to conclusions on the negative housing news.

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The Dollar (DX) moved up more than all the major averages, providing a further indication that the inverse relationship between the dollar and stocks is breaking down.

The overall market tone is bullish, evidenced by recent new lows on the VIX. EWZ, FXI, and GLD are the largest drags on our portfolio. We may cover with puts if this weakness continues tomorrow.

CleanTech(PZD) has made a strong move recently. We are also watching Clean Energy, (PBW) for an upward move.

Were back after a week on vacation and rather pleased with this market! Of the ETF’s we track, the strongest are FAA, KOL, TAN, SEA, EWO, MOO, FXI, XME, GUR, GDX, OIH. All are up over 1.5% after a dip on the opening. The news was very strong last week and yesterday, but is mixed today, with factory orders offsetting a weak housing report. Coals are moving strongly, as are emerging Europe and Asia. We think sentiment is bullish, but remain sensitive to the changes this month.

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We tried to hedge our “Market Sentiment Indicator” by saying that the bearish rising wedge offset rising averages and  With more follow through today, the pattern is void, upside resistance is breaking down, and we need to switch the Market Sentiment Indicator to “Upward-Base.”

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