ETF Market Direction Summary: 11-12-2009

On Thursday, equities finally hit a legitimate wall of resistance and started showing signs of a double top pattern (i.e. peaks at October and November highs). Although market news and economic data were a combination of mixed results, positive catalysts had absolutely no impact on Thursday’s trading.

Jason Zweig asks a very good question in a Wall Street Journal column:

ETFs Causing Bubble in Emerging Markets? (Wall Street Journal, November 10, 2009, Jason Zweig)

ETF Market Direction Summary: 11-11-2009

On Wednesday, the "new 52 week high club" was no longer an exclusive category for the Dow Industrials as the S&P 500 and Nasdaq 100 indices both made new 13 month highs. This expanding participation in new highs is in order if bulls are to sustain their momentum. Prior to this development, one of my concerns has been the asymmetrical character of this rally whereby a disproportionate share of technical leadership was emanating from the Dow, the most narrow of major equity indices representing the U.S. economy.

ETF Market Direction Summary: 11-10-2009

The most important observation about Tuesday’s session is the fact that the market was very stingy in giving back any of its 2% plus gains from Monday. Without major economic data or many earnings announcements, there were no strong catalysts to drive the market in a decisive direction. Bulls earned a well deserved day of rest after having pushed up the S&P 500 for the last 6 out of 7 trading days.

ETF Market Direction Summary: 11-09-2009

Today I shall deviate from the usual format of the ETF Market Trends™ report and indulge in the reminiscence of the zenith of my youth some 20 years ago, which marks the fall of the Berlin Wall and a time when I was in love with a young beautiful woman from Berlin with eyes cooler than the bluest hues of any ocean and a heart warmer than the most intimate of campside fire conversations shared over a bottle of good bourbon whiskey with strangers (only a real outdoors-man will appreciate the latter comparison).

Property prices in Asian countries have been rising at a staggering pace in the past few years due to the strength of their economies. Even during the global credit crisis last year prices did not decrease much, if at all, in most Asian countries.

In recent months, in addition to the spectacular run up in equity markets, Asian real estate markets have also heated up. In most countries this rise is not warranted based on fundamentals. While it's true that traditionally most Asians bought residential real estate as a place to live for life as opposed to making a killing via flipping, in recent years that attitude has been changing. Due to the availability of cheap credit, more Asians have become real estate speculators.

Friday’s comments will be brief due to schedule conflicts. Negative employment news had very little impact upon the major equity indices (i.e. Dow Industrials, S&P 500, and Nasdaq) which finished slightly positive while the Russell 2000 closed down by a small fraction.

Bullish events:

ETF Market Direction Summary: 11-05-2009

From the opening on Thursday, major U.S. equity indexes started the day on positive momentum and continually added to their intraday gains to close above the 90th percentile of their daily trading range.The DIA, SPY, and QQQQ have ended their corrections and re-established their support levels at the 20, 50, and 200 day moving averages. The only exception is the small-cap IWM which remains in both short and intermediate downtrends. However, the IWM did manage to participate in attaining a new 5 day high along with the other major equity indices.

The World Bank warns that the sudden appearance of billions of dollars of investment capital in east Asia is “raising concerns about asset bubbles” in equity markets throughout Asia and in real estate markets in Hong Kong, Singapore, Vietnam and indeed, mainland China.

ETF Market Direction Summary: 11-04-2009

Wednesday’s comments will be brief. As expected, the Fed Reserve left interest rates unchanged and reiterated its policy to keep interest rates near zero. It also emphasized for the first time that rates will remain near zero if inflation expectations are stable and unemployment remains high. The market responded with volatility and ceded most of its gains and the U.S. dollar weakened as well.

• Enlightened-American Portfolio: +33.5% YTD (my actual IRR, including cash balance)
• DJIA: +10.7%
• Nasdaq: +29.7%
• S&P 500: +14.7%
• DJ Wilshire 5000: +16.9%
• Russell 2000 (smallcap): +12.7%

All the major indices, except for the Dow Jones Industrial Average, booked losses ranging from 3% - 9% for the month of October. Our portfolio lost half a percentage point, despite the volatility in energy stocks. Much of the steady performance was attributable to the continued build of cash. In some instances, such as Intel (INTC), these cash-outs were forced as our call options expired in-the-money.

• No new positions taken.
• We were called out of our Intel position at $16 per share. We missed roughly 20% upside due to writing this call option but sometimes that happens when writing options. At the time, we wrote the option, Intel was trading around $15 1/2 and we had successfully sold a string of INTC calls to good benefit. While it may be easy to rue this move in hindsight, investors must not forget the lessons of this bear market -- cash on hand may be a less desirable but never regrettable option.
• Our Yamana Gold (AUY) position was reduced by 25% due to being assigned on our $9 Oct calls. We have been writing $9 calls on AUY for a year, thus booking good gains before getting called this past month. Gold mining stocks in general are good candidates for options-writing due to their historical volatility, which means bigger upfront premiums and relative assurance that general drops in stock prices will be reversed at some point in the near future.
• I reduced one position in the current portfolio by 25%, the details of which are revealed only to premium subscribers. Find out more about Enlightened American Premium here.

Our cash position currently comprises 46% of the total portfolio. While I am not enamored with this situation, I continue to hold cash rather than compromise our standards for investing. During huge rallies, it is easy to get caught up in the euphoria and feel a subtle urge to join the party. However, Seth Klarman has proven in the past that it is possible to outperform the markets even while holding huge chunks of cash. In fact, that is precisely what we have done this year, as the Enlightened American portfolio is now beating all the major indices, including the red-hot NASDAQ, despite 30%+ cash holdings for most of this year.

ETF Market Direction Summary: 11-03-2009

Bulls took advantage of dollar weakness and bought stocks in earnest to support the S&P 500 in its 2nd consecutive day of positive performance. Initially, stocks traded lower as the U.S. dollar continued to advance, but a surge in precious metals buying sent spot gold prices to a new 52 week high and forced the greenback to retreat and settle for a small positive close in the lower end of its daily trading range. A $6.7bn purchase of 200 tonnes of gold from the IMF by India’s Reserve Bank was responsible for this explosive move.

ETF Market Direction Summary: 11-02-2009

In answer to last week’s worry over a sustainable economic recovery, Monday’s key economic data points served as bullish catalysts for the day’s positive trading session:

ETF Market Direction Summary: 10-30-2009

U.S. Equities: The eve of Halloween was as good a time as any to scare investors out of the market. On Friday, signs of capitulation re-emerged as volume surged higher for major U.S. equity index exchange traded funds (see Vol % change numbers for SPY, DIA, QQQQ, and IWM in trend tables below). The VIX, our favorite fear indicator, spiked at 24% for the day. Short term support at the 20 day moving average has collapsed for nearly 85% of stocks and more than 56% of stocks are trading at least 5% or more below this moving average. The all important 50 day moving average, a reliable indicator for the intermediate-term direction for stocks, has also collapsed.

ETF Market Direction Summary: 10-29-2009

U.S. Equities: Thursday’s comments will be brief. The better than expected GDP results at 3.5% for 3Q-2009 caught bears, and even a few bulls, flatfooted. There were other events, but this was the primary catalyst for the movement in today’s market.

ETF Market Direction Summary: 10-28-2009

U.S. Equities: Selling was considerably stronger in Wednesday’s trading session and pushed the S&P 500 and Nasdaq Composite below their 50 day moving averages. The Dow Industrials surrendered its short-term uptrend status and reversed downward and is probing support at its 50 day moving average.

ETF Market Direction Summary: 10-27-2009

U.S. Equities: Tuesday’s comments will be brief. The bears are returning from hibernation and prowling about for prey. With the exception of the Dow Industrials, all of the major U.S. equity indexes are now in short-term downtrends.

ETF Market Direction Summary: 10-26-2009

U.S. Equities: Stocks closed down for their 2nd consecutive trading session as they gave up their initial gains after the first 3 hours of trading. Many label a rising dollar as the culprit for Monday’s selloff, but other factors weighed in as well:

ETF Market Direction Summary

U.S. Equities: IWM (Russell 2000) has resumed its short-term uptrend. ETFs in the major sectors and key industries have also reversed their downward trends, with the exception of IYZ, BBH, and PPH.