Tuesday Outlook: Commodities, Emerging Markets

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Sunday night was a great example of the how markets are affected by different time zones and an evolving news cycle. Asian markets were up significantly but European markets followed weakly. Then US markets were quite weak and ETFs related to Asia, for example, didn’t match the rally. EWH [Hong Kong ETF] was down 1.40% Monday while indexes there rose 3%. That’s a big miss but it reflects what becomes stale out of time zone index data. Further, it represents that there is little decoupling taking place.






As expected low volume allows the few remaining traders the opportunity to push indexes around and possibly exaggerate moves. Barring unexpected news, the real action probably won’t begin in earnest until most traders are back by the middle of next week. In the meantime, we’ll continue to amuse you until Wednesday.

Have a pleasant day.

Disclaimer: Among other issues the ETF Digest maintains long or short positions in QLD, IWM, UWM, XLY, XLV, RXL, XLP, UGE, IEF, UUP, DBC, DEE, GLD, DZZ, EFA, EFU, EEM, EEV and FXI.

Comments

[fatcat:]

I can still manage to lose money,even in a boring market like this!

2008 Aug 26 06:50 AM

[David White:]

Good article. News is important though. There is a lot of bad news around lately. It almost has to push the market lower. Also we are in the dog days of August now. It is a good time for a decline before a possible October rally???

One particularly interesting point is that the VIX just bounced off its support at 18.50. From the weekly chart it looks like it could be headed up to 30+ again. Last time it did this the SPY lost 17 points, and the DJIA lost about 1800. We could possibly see a repeat. The news has been particularly bad. Now there is a lot of talk circulating about bank failures in addition to all of the normal woes. Further the European economy seems to be weakening. They have been big buyers of US products recently. If they slow down their buying due to a weakening European economy and a stronger US Dollar, the US economy may really fall hard. Exports have been our one bright spot lately. Without them, the US economy would have slumped a lot further a lot faster. It is looking like it may get there yet. Ouch! Hopefully the decrease in oil prices due to a stronger US dollar (and less hedging on the US dollar with commodities), will help to offset the coming European weakness. It seems critical that the US reduce its importation of oil as much as it can to reduce the strain on the economy from that quarter. Carpool people.

2008 Aug 26 08:11 AM

[David White:]

When Martin Weiss starts coming out with lists of major banks that may fail in the near future, you know there is trouble on the horizon. He was even talking about splitting up your assets to make sure they were all insured by the FDIC. Most of the banks he has listed are the ones we all have been hearing write down notices about: Citi, Wachovia, WaMu, HSBC, ETrade, etc.

2008 Aug 26 08:18 AM

[Sidj:]

On Friday Warren Buffett reiterated his belief the U.S. economic downturn will be longer and deeper than many people think and that inflation will continue to rise.

2008 Aug 26 08:30 AM

[David White:]

If all the financial news wasn't bad enough, there is hurricane Gustav over Haiti about now. Its future destination isn't clear at this time. By Wednesday we should know if it will threaten oil in the Gulf. If so, that would likely push oil up, which would likely push the equities markets down in the current environment.

2008 Aug 26 09:11 AM

[kkin365:]

Being a novice, I would appreciate your focusing on a few charts and adding action-based comments. Your work is valuable, but it is 'way above my head. Still, I check in, as often as I can, to learn -- it will be a long process, though. Thanks for posting your work for all to appreciate. I'm sure others would like to join me in thanking you for your valuable service.

2008 Aug 26 10:02 AM

[ksmithdc:]

Interesting read. Thanks.

2008 Aug 26 11:08 AM

[sacking:]

Excellent charts and comments. I think the comments on the trading bands and choppiness of the markets are clear comments that novices taking positions by at this time actually isn't a good thing. I went long ILF a week ago. Chart is similar to EEM and EWZ. Though oil could test $100, I doubt it's going lower than that, and seems to be creating support in this $112-118 area. With all the natural resources available to them, I'm hoping the Brazil market will be a good long-term investment. And as was stated above, more hurricanes are on the way.
And the American markets seems just too choppy for an investor.
Thanks for all your research and comments. I look forward to seeing your charts every week.

2008 Aug 26 11:32 AM

[David Fry:]

Thanks for your kind comments everyone.

I've posted before the intent of our charts is to provide what is viewed, in our opinion, as a range of possibilities from an intermediate [weeks] perspective. It's not a prediction and we're not in that business.

We also are repetitive in markets covered because, in our view, these are the markets that matter and/or have the maximum impact currently.

2008 Aug 26 03:33 PM