Should we be attributing newfound enthusiasm for risk to economic data and corporate earnings? After all, Google (GOOG) did go “Megatron” with its recent report on profitability. Meanwhile, retail sales in the U.S. grew at the fastest pace in more than 8 months.
Then again, didn’t we just see consumer sentiment hit a 30-year low? And what about the downgrade on the sovereign debt of Spain. Is that already priced in?
I’d really like to believe that stocks are reverting to mean P/E ratios and that markets are returning to fundamental data. However, I don’t think we’re quite there yet; risk assets are still trading primarily on their “technicals.”
At the same time, most technical analysts would acknowledge that the environment for investing has improved dramatically. On 10/10, the S&P 500 closed above a 50-day trendline and the CBOE Volatility Index (VIX) closed below a 50-day trendline. Moreover, by 10/14, the VIX had closed below 30 for the first time since the first week of August.
It should be noted that the technical data isn’t entirely favorable either. For one thing, the S&P 500 has not been able to close above 1233 – the 10% correction mark -- since the correction became official in August. In fact, stocks hit resistance just shy of this area twice before and failed, sending stocks sharply lower. Equally compelling, the Vanguard MSCI Emerging Market Index Fund (VWO) is still looking to get over the hump by rising above its 50-day moving average.
Whether we’re still looking at one more failed relief rally or something much more substantial depends entirely on Europe. It’s one thing to be optimistic that an eventual agreement on recapitalizing European banks will occur; it’s quite another thing to ratify an agreement that is financially acceptable to investors.
I’ve been adding to client positions in a number of ETFs with impressive annualized yields, from iShares High Dividend Equity (HDV) to SPDR High Yield Bond (JNK). In some accounts, I’ve beefed up the tech weighting with the Apple (AAPL)-heavy PowerShares Nasdaq 100 (QQQ) and the iShares DJ Technology Fund (IYW).
Yet, even if you require more from the corporate earnings front, or more progress on the European talks, or a breakthrough where there’s technical resistance, you need to have a “Wish List” ready.
Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.