ETF Market Trends: China Has Awakened and Shaken World Markets

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 |  Includes: AGG, BBH, CEW, DIA, EEM, EWG, EWQ, EWS, EWT, EWU, EWX, EWY, FNIO, FXC, FXI, FXY, GLD, GMF, GUR, ICN, IEV, ITB, IWM, OIH, QQQ, REM, RSX, RTL, SMH, SPY, SWH, TIP, TLT, UNG, USO, VGK, VXX, XHB, XLF, XLK, XLP, XLU
by: J Clinton Hill

Market Direction Summary (01-20-2010)

Dow-30 -122.28 @ 10603.15; S&P 500 -12.19 @ 1138.04; Nasdaq 100 -27.53 @ 1867.95; Russell 2k -9.54 @ 639.61; VIX +1.10 @ 18.68; U.S. Dollar Index +0.91 @ 78.36; 10 Year Tsy Rates -0.48 @ 36.59; Crude Oil -1.32 @ 77.61; Gold -27.10 @ 1111.10; CRB -3.77 @ 279.48; DJ-U.S. Real Estate Index -2.30 @ 179.19

On a day absent of significant bearish events, let it be known that China has awakened and shaken the world’s markets with the potential impact of its lending policies upon the global economic recovery. Contrary to what many appear to believe, ground zero for the new world order may not be located in the western hemisphere.

Oh well, so much for a dramatic introduction… Let us get on to the business of rationalizing and analyzing the markets.

First, I must correct myself. Yesterday was more about passing a technical quiz instead of a test when benchmark equity indexes flirted with support levels near their 20 day moving averages.

Wednesday’s trading session was a pop quiz and the market scored an "F" for missing the China liquidity retraction event. This is not entirely bad as pop quizzes allow us to assess strengths and weaknesses and not take too much for granted before going into full battle.

The real test will be the 50 day moving average upon which, incidentally, all four major equity indexes, (i.e. Dow-30, S&P 500, Nasdaq 100, and Russell 2000) seem to be converging. In the meantime, the DIA, SPY, QQQQ, and IWM have reverted to short-term downtrends. Before the 50 sma (simple moving average) day of judgment arrives, there will likely be more tug of war skirmishes between bulls and bears.

Such indecision by market participants can be confusing, but analyzing patterns of daily price volume relationships does provide us with a few clues. Tuesday signaled that investors were selling into strength and last Friday betrayed market participants overwhelmed with panic as they dumped declining shares on rising volume.

This Wednesday witnessed a dominating but incestuous price volume relationship union between capitulating (40% price down & volume up) and apathetic (42% price down & volume down) sellers. It may not be kosher, but the bottom line is that institutions (falling prices on heavy selling) want to get out of certain stocks while buyers (falling prices on fading volume) are simply disinterested in buying anything for the moment.

Market Direction Drivers (01-20-2010)

Aerospace: Boeing (NYSE:BA), a builder of commercial aircraft, has $10bn in orders with bankrupt Japan Airlines. This represents @ 71 planes vs. its previously disclosed 21 fewer orders with JAL. Aerospace & Defense ETF (NYSEARCA:ITA) was down -1.2%.

Bond Market: December-2010 Producer Price Inflation (PPI) was more or less in line with expectations and accommodates the Fed’s policy to maintain low interest rates. Headline PPI was 0.2% m/m and 4.7% yr/yr while core PPI was flat m/m and up 0.9% yr/yr. Interest rates for the 10 year treasury declined -1.29% while treasury bond ETFs continued to ascend in their new short-term uptrends: [[[IEF] +0.34% and TLT +1.01%.

Coverage for the 4-week Treasury bill auction ($10bn) was extremely strong with a bid-to-cover ratio @ 5.69.

China’s Lending Policy:
Liu Mingkang, chairman of the China Banking Regulatory Commission, confirmed that some banks were asked to reduce lending in order to meet regulatory requirements. Many investors fear that a slow down in China’s economy will impact the global markets. Greater China region exchange traded funds were down: FXI -3.81%; EWT -1.96%; EWH -2.33%; EWS -2.62%; and VNM -3.2%. Industrial metals and mining and basis materials exchange traded funds were also negatively impacted by the announcement: XME -2.75%; SLX -3.12%; XLB -1.78%; and GDX -4.11%.

Financials:
The financial sector was visited with several postive earnings reports from key industry players. Bank of New York Mellon Corp. (NYSE:BK) beat analyst expectations by reporting earnings @ $0.55 per share; State Street Corp. (NYSE:STT) beat the street by a penny with 4Q-2009 results @ $1.00; Northern Trust Corp. (NASDAQ:NTRS) reported $0.83 profit per share which was 27% better than the average analyst estimate; other positive earnings surprises were issued by M&T Bank Corp. (NYSE:MTB) and Marshall & Ilsley Corp. (NYSE:MI). And of course. banking giant and bellwether, Bank of America Corp. (NYSE:BAC) showed improvement as it set aside $10.1bn in credit loss provisions for 4Q vs. an average $12.8bn over the previous 3 quarters. The SPDR Financial Sector (NYSEARCA:XLF) and Regional Bank Holders (NYSEARCA:RKH) ETFs displayed impressive relative strength with performances @ -0.26% and +1.35%, respectively.

Greece Sovereign Debt:
The prospect of sovereign default continues to shadow the markets as IMF Managing Director Dominique Strauss-Kahn evaluated Greece’s budget issues as "a serious problem." Exchange traded funds representing 2 out the 4 European PIGS traded down today: Spain (NYSEARCA:EWP) -3.74%; and Italy (NYSEARCA:EWI) -3.39%.

Real Estate:
Lower interest rates, e.g. 30 year mortgages averaging 5% vs. previous week’s 5.13%, are increasing mortgage demand. The Mortgage Banker’s Association (MBA) purchase index gained 4.4% for the week of Jan-15-2010 and its refinance index rose 10.7%. This positive data helped to blunt the recent decline in pending home sales and the home builder’s index. The Mortgage Reit ETF (NYSEARCA:REM) closed down -0.27% but succeeded in maintaining the support of its January 2010 lows.


December-2009 Housing Starts increased slightly to an annualized rate @ 557k vs. previous month @ 574k and consensus @ 579k. Permits jumped to @ 653k vs. previous month @ 584k. Dissection of its components revealed a 6.9% drop in single -family starts and a 12.2% rise in multi-family starts. Regionally, housing starts were weakest in the Northeast (-19%) and Midwest (-18.5%). The West (-0.9%) was relatively unchanged while the South (+3.3%) showed an actual increase. Despite the relative weakness, the buildup in permits offers a ray of hope for some homebuilders. The SPDR Homebuilders ETF (NYSEARCA:XHB) was off -1.95% and the iShares Home Construction ETF (NYSEARCA:ITB) was down -1.47%.

Technology / Semiconductors: ASML Holding NV (NASDAQ:ASML), Europe’s top semiconductor equipment manufacturer beat earnings estimates; Cree Inc. (NASDAQ:CREE) reported eps @ $0.38 vs. consensus @ $0.29; Rambus (NASDAQ:RMBS) settled its legal claims with Samsung and will receive $900mm and strike a new licensing deal. The Semiconductor Holders ETF (NYSEARCA:SMH) closed down -0.55% but in a show of strength recouped most of its earlier losses.

Technology / Computer Hardware & Systems: International Business Machines Corp. (NYSE:IBM) beat earnings estimates but disappointed with a reported 2.8% decline in its Q4-2010 business consulting revenue. IBM expects to earn $11.00 EPS in 2010. The SPDR Technology Sector ETF (NYSEARCA:XLK) closed down -1.61%.

Transportation:
CSX Corp. (NASDAQ:CSX), a leading economic indicator proxy and one of the four largest railroad carriers in the U.S., missed estimates by reporting operating earnings @ $583mm vs. consensus @ $613mm. Its stock closed down -6.26% while the Dow Jones Transportation ETF (NYSEARCA:IYT) was off -0.93%.

ETF New Highs and New Lows (01-20-2010)

ETF 5 Day New Highs: (Note * denotes 250 day new high)

  • U.S. Equities (XLV*, IHI*, PPH*)
  • International Equities (N/A)
  • Commodities (N/A)
  • Forex (NYSEARCA:UUP)
  • Bonds (AGG, IEF, MBB, MUB, SHY, TIP, TLT)
  • Real Estate (N/A)

ETF 5 Day New Lows: (Note * denotes 250 day new low)

  • U.S. Equities (DIA, IWM, QQQQ, SPY, IYZ, XLB, XLE, XLI, XLK, XLP, XLY, CRBQ, CUT, FAN, FDN, GDX, HAP, IAI, IGF, ITA, IYT, KOL, MOO, NLR, PHO, PXR, RTH, SLX, SMH, TAN, XME)
  • International Equities (EWC, EWW, EWZ, ILF, ISI, EWG, EWQ, EWU, IEV, VGK, EWA, EWH, EWM, EWS, EWT, EWY, FIX, VNM, EEM, EWX, GAF, GMF, GML)
  • Commodities (DBA, DBB, DBC, GLD, JJC, JJG, SLV, USO)
  • Forex (BZF, CEW, CYB, DBV, FXA, FXC, FXE, FXF, ICN, XRU)
  • Bonds (BWX, HYG, JNK, MUB, WIP)
  • Real Estate (ITB, REM, XHB)

Signing off at Hillbent on The Market Direction and ETF Market Trends™…

ETF Market Trends Monitor (01-20-2010)

U.S. Equity ETFs
Equity Indexes Price %Chg Vol% PMI ST MT LT
DIA (DJ Industrials) 106.03 -1.06% 53.82% 64 down up up
SPY (S&P 500) 113.89 -1.02% 65.36% 62 down up up
QQQQ (Nasdaq 100) 45.92 -1.44% 93.47% 42 down up up
IWM (Russell 2000) 63.91 -1.45% 24.11% 60 down up up
VXX (VIX Futures) 27.81 -0.04% 168.87% 3 down down down
Major Sectors Price %Chg Vol% PMI ST MT LT
IYZ (Telecom) 19.34 -1.28% -31.37% 30 down up up
XLB (Materials) 33.73 -1.78% 45.45% 53 down up up
XLE (Energy) 58.87 -1.56% -1.31% 61 down up up
XLF (Financials) 15.09 -0.26% 11.76% 62 up up up
XLI (Industrials) 28.94 -1.53% 30.02% 59 down up up
XLK (Technology) 22.68 -1.61% 79.63% 53 down up up
XLP (Consumer Staples) 26.73 -0.74% 27.26% 57 up up up
XLU (Utilities) 30.94 -1.06% 2.03% 56 down up up
XLV (Health Care) 32.72 -0.85% 151.11% 36 up up up
XLY (Consumer Discrtn) 29.97 -1.35% 2.95% 43 down up up
Key Industries Price %Chg Vol% PMI ST MT LT
BBH (Biotech) 100.91 -0.50% 118.80% 68 up up up
CRBQ (Global Commodities) 43.82 -2.43% 5.42% 44 down up n/a
CUT (Global Timber) 18.30 -1.88% 29.83% 44 down up up
FAA (Airlines) 32.69 0.46% 111.27% 100 up up n/a
FAA (Global Wind Energy) 14.85 -3.38% -36.35% 47 down down up
FDN (DJ Internet Index) 24.63 -1.60% -12.10% 41 down up up
GDX (Gold Miners) 45.73 -4.11% 62.13% 44 down down up
HAP (Hard Assets Producers) 34.34 -2.39% -5.59% 50 down up up
IAI (Broker-Dealers) 28.33 -0.56% -51.40% 83 down up up
IGF (Global Infrastructure) 35.18 -1.65% -24.90% 48 down up up
IGN (GSTI Networking) 27.52 -1.57% -48.76% 48 up up up
IHI (Medical Devices) 55.50 -0.78% 1030.85% 39 up up up
ITA (Aerospace & Defense) 53.46 -1.37% -21.90% 37 up up up
IYT (Transportation) 74.68 -0.88% 158.68% 98 down up up
KIE (Insurance) 36.73 -0.81% -13.45% 83 up up up
KOL (Coal) 38.38 -2.86% 7.45% 59 down up up
MOO (Agribusiness) 45.44 -1.79% 83.73% 46 down up up
NLR (Nuclear Energy) 23.25 -2.80% 22.21% 40 down up up
OIH (Oil Services) 128.70 -2.25% 28.80% 47 up up up
PHO (Water Resources) 17.12 -1.95% -9.98% 45 down up up
PPH (Pharmaceuticals) 69.44 -0.27% 191.27% 44 up up up
PXR (Emerg Mkts Infrastructure) 44.30 -2.64% -24.43% 55 down up up
RKH (Regional Banks) 82.52 1.33% 114.85% 68 up up up
RTH (Retail) 93.59 -0.68% -6.83% 54 down down up
SEA (Global Shipping) 14.99 -2.15% 16.62% 25 up up up
SLX (Steel) 64.61 -3.12% -0.96% 59 down up up
SMH (Semiconductor) 27.17 -0.55% 70.69% 95 down up up
SWH (Software) 42.62 -1.59% -77.27% 58 down up up
TAN (Global Solar Energy) 9.65 -3.98% 169.68% 19 down up up
XME (Metals & Mining) 54.90 -2.75% 48.92% 44 down up up
International Equity ETFs
Americas Price %Chg Vol% PMI ST MT LT
EWC (MSCI Canada) 26.12 -2.36% 52.47% 55 down up up
EWW (MSCI Mexico) 49.50 -2.73% 52.71% 2 down up up
EWZ( MSCI Brazil) 72.46 -2.89% 65.89% 60 down down up
ILF (Latin America 40) 46.87 -2.98% 34.48% 40 down down up
ISI (S&P 1500) 51.24 -1.08% 9.34% 58 down up up
Europe Price %Chg Vol% PMI ST MT LT
EWG (MSCI Germany) 21.92 -2.97% 5.16% 40 down down up
EWQ (MSCI France) 25.85 -3.22% -21.13% 52 down down up
EWU (United Kingdom) 16.65 -1.65% 64.83% 86 down up up
IEV (S&P Europe 350) 39.19 -2.56% 112.82% 57 down down up
RSX (Russia) 33.85 -2.65% 82.02% 50 up up up
VGK (Vanguard Europe) 49.00 -3.10% 10.13% 51 down down up
Asian-Pacific Price %Chg Vol% PMI ST MT LT
EWA (MSCI Australia) 23.21 -3.25% 8.90% 32 down up up
EWH (MSCI Hong Kong) 15.54 -2.33% 44.35% 55 down down up
EWJ (MSCI Japan) 10.23 -2.20% 28.18% 82 up up up
EWM (MSCI Malaysia) 11.07 -1.42% -16.25% 30 down up up
EWS (MSCI Singapore) 11.51 -2.62% -3.95% 46 down up up
EWT (MSCI Taiwan) 13.00 -1.96% 28.87% 73 down up up
EWY (MSCI South Korea) 49.48 -1.86% 28.04% 57 down up up
FXI (FSTE China) 41.14 -3.81% 100.34% 64 down down up
IF (Indonesia Fund) 10.12 -2.03% -7.22% 30 up up up
IFN (India Fund) 31.92 -2.09% -40.42% 43 up up up
VNM (Vietnam) 25.72 -3.20% -16.19% 55 down down down
Emerging Markets Price %Chg Vol% PMI ST MT LT
EEM (MSCI Emerging Mkts) 41.77 -2.41% 47.46% 50 down up up
EWX (Emerging Small Caps) 49.11 -1.50% -34.13% 61 down up up
GAF (Middle East & Africa) 62.91 -1.66% -27.38% 49 down up up
GMF (Emerging Asia Pacific) 74.68 -2.32% -26.19% 47 down up up
GML (Emerging Latin America) 78.74 -2.78% 42.19% 35 down up up
GUR (Emerging Europe) 46.28 -2.26% -11.93% 53 up up up
Alternative Assets
Commodities Price %Chg Vol% PMI ST MT LT
COW (Livestock) 28.96 -0.48% -37.42% 81 up up up
DBA (Agriculture) 26.11 -0.61% 36.76% 68 down down up
DBB (Base Metals) 22.28 -2.75% 26.05% 44 down up up
DBC (Commodities) 24.07 -1.88% -9.83% 46 down down up
GLD (Gold) 108.94 -2.31% -22.65% 30 down down up
JJC (Copper) 46.00 -2.69% 32.71% 38 down up up
JJG (Grains) 36.64 -1.21% 27.68% 71 down down down
PTM (Platinum) 19.45 -1.42% -19.44% 58 up up up
SLV (Silver) 17.57 -4.77% 51.15% 21 down up up
UGA (Gasoline) 36.11 -1.47% 40.35% 48 down up up
UNG (Natural Gas) 9.92 -1.68% -36.89% 18 down up down
USO (Oil) 37.89 -2.67% -3.62% 2 down down up
Forex Price %Chg Vol% PMI ST MT LT
BZF (Brazilian Real) 25.93 -1.33% -29.83% 20 down down up
CEW (Emerging Currency) 22.11 -1.03% -42.30% 31 down down up
CYB (Chinese Yuan) 25.28 -0.12% -41.96% 33 lateral lateral lateral
DBV (G10 Currencies) 23.50 -1.43% -42.11% 29 down up up
FXA (Australian Dollar) 91.00 -1.78% -1.46% 17 down down up
FXB (British Pound) 162.35 -0.60% -30.56% 47 up down up
FXC (Canadian Dollar) 95.18 -1.58% 36.11% 68 down up up
FXE (Euro) 140.78 -1.40% 1.03% 36 down down up
FXF (Swiss Franc) 95.29 -1.19% 8.70% 65 down down up
FXM (Mexican Peso) 78.52 -0.81% -48.64% 29 up up up
FXY (Japanese Yen) 108.75 -0.11% -54.51% 66 up down up
ICN (Indian Rupee) 25.40 -0.31% -20.22% 0 down up up
UUP (U.S. Dollar) 23.12 1.23% 25.45% 67 up up down
XRU (Russian Ruble) 33.52 -0.78% -37.80% 71 up down up
Bonds Price %Chg Vol% PMI ST MT LT
AGG (Investment Grade) 104.37 0.26% -17.34% 85 up down up
BWX (Int’l Tsy Bonds) 56.66 -1.51% 32.13% 11 down down up
EMB (Emerging Markets Bonds) 102.53 0.12% 46.09% 86 up up up
HYG (Hi Yld Corp) 88.99 -0.14% -2.74% 37 down up up
IEF (7-10 Yr Tsy) 90.20 0.34% -55.40% 37 up down down
JNK (Hi Yld Bonds) 39.63 -0.60% -13.43% 0 down up up
MBB (Mortgage Bonds) 107.24 0.01% 38.12% 47 up up up
MUB (Nat’l Muni Bond) 103.24 0.04% -2.19% 79 up up up
SHY (1-3 Yr Tsy) 83.45 0.00% 42.64% 17 up down down
TIP (Tsy Inflation Protect) 105.09 0.15% -18.17% 39 up up up
TLT (20 Yr+ Tsy) 91.74 1.01% -14.51% 94 up down down
WIP (Int’l Inflation Protect) 56.18 -1.32% -43.07% 8 down down up
Real Estate Price %Chg Vol% PMI ST MT LT
FIO (Industrial Office) 24.16 -0.17% -31.68% 95 up up up
ICF (Cohen & Steers) 52.68 -1.33% 128.09% 63 up up up
ITB (Home Construction) 12.77 -1.50% -45.99% 60 up up up
IYR (DJ US Real Estate) 46.11 -1.09% -8.27% 74 up up up
REM (Mortgage Reits) 14.87 -0.13% -5.09% 100 down up up
REZ (Residential Index) 30.92 -1.25% 17.81% 84 up up up
RTL (Retail Index) 21.67 0.00% -100.00% n/a up up up
XHB (Homebuilders) 15.55 -1.95% 70.43% 41 down up up
Click to enlarge

*PMI measures strength of % daily trading range on scale of 0 to 100

**ST = Short-Term Trend; MT = Intermediate Trend; LT = Long-Term or Primary Trend

***Vol% measures % change in daily volume vs. average daily volume
Market Momentum Diary: 01-20-2010

% Stocks > Mov Avg 20-Day MA 50-Day MA 200-Day MA
Today 60.37% 76.11% 85.70%
Yesterday 74.59% 83.17% 86.99%
Last Week 70.19% 80.88% 86.08%
Last Month 61.98% 62.21% 83.64%
Daily Market Stats NYSE NASDAQ
Advancers 771 743
Decliners 2286 1967
Advancing Shares 1141241200 611873000
Declining Shares 3767206000 1761871700
52 Week New Highs 238 58
52 Week New Lows 3 6
Click to enlarge

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