Dominique de Kevelioc de Bailleul: Octogenarian and 53-year financial markets veteran from Loyola, California, Richard Russell, announced it’s time to get out of stocks—pronto! The market expects a Greek exit of the EMU and further trouble from the other PIIGS, according to him. Read more…
First, April was not nearly as good as the bulls made it to be. Yes, the Dow Jones Industrial Average ($DJI) surged 5.5% during the first half of the month. But, in the second half, momentum slowed with the average rising just 1.7%.
Even then, the statistics don’t tell the whole story. From the Apr 16 close to the Apr 30 close, the Dow gained a mere 43 points, or 0.5%.
That’s a big difference in return for someone who bought the Dow Diamonds ETF (DIA) on Apr 16 instead of just a couple of weeks earlier. (DIA is an ETF that tracks the performance of the Dow.)
Secondly, volume is not signaling a lot of conviction on the part of buyers. Throughout March, the SPDR S&P 500 ETF (SPY) experienced average volume of 400 million shares per day. In April, daily volume declined to 287 million shares.
Yet, during this entire time, stocks have risen. And the higher they go, the more the rally is losing steam. That’s not good.
Thirdly, I’m worried about the banks.
Yes, everyone passed the stress test, but it was a questionable test to begin with. Plus, Bank of America (BAC) and 9 others have lots of time to raise funds. But, foreclosures are still rising, credit card defaults will get worse and, despite all of the analysis, nobody still knows how to value the toxic assets.
The government might keep the large banks afloat, but their stock prices and earnings could still suffer. And that alone would cause problems for the stock market. Not to mention that financial stocks (and related ETFs such as Financial Select Sector SPDR (XLF)) are overdue for a pullback based on technical analysis alone.
Fourthly, as earnings season comes to an end, we should see fewer positive revisions to profit forecasts. The ratio of positive to negative revisions typically falls after earnings season, even during good times. I don’t see any reason for this to change.
A drop in positive revisions would be one less catalyst for stocks to go higher.
Finally, the General Motors (GM) situation remains unresolved. If bankruptcy proceedings turn messy, it will cause a big disruption across the entire automotive industry. This, in turn, could create problems for the market.
Fortunately today has been a healthy reprieve from the fallout. There has been little to no signs of a worsening flu pandemic. People are not dropping like teenage girls at a Beetle’s concert (or an Obama sighting). And share prices have found enough of a reason to continue their climb even after a solid week of gains from the equities market.
Wall Street appears to be undecided about next week’s action, however. About half of the crowd is calling for a fizzle, while the other half is calling for more gains based on signs the economy is improving at a faster-than-expected rate (the stimulus worked!).
The answer will come from Mexico. Watch the iShares MSCI Mexico ETF (NYSE:EWW), which has the perfect ticker considering the current flu scare, over the next few trading days. It will be a strong indication of what Wall Street thinks of Mexico’s economic chances.
If the fund lags the market, I expect the equities markets to eventually turn around and follow Mexico into the red. If the ETF is a strong leader, however, it means the fears were way overblown and the equities market as a whole is undervalued.
ETF DAILY NEWS TAKE: Stocks gave up big gains a day after ETF Daily News posted The Bear ETF’S Are Getting Ready For “Sell In May And Go Away”! The big winners today were the bears, but will the blood in the street continue to put the bulls away for the summer?
After six strong weeks, stocks had a very difficult day. As we’ve said previously, a decent-sized pullback after such a big run-up seemed likely. How the market responds the next few days will be important in setting the near-term trend as we hit the busiest part of earnings season. There will be a lot of company data and projections to chew on over the next two weeks, but that will just be an appetizer to what the government has to say about its bank stress test on May 4th.
Stocks plunged to start the week. The Dow fell -290 points to 7,842, while the S&P dropped -37 points to 832. The Nasdaq, meanwhile, lost -65 points to 1,608. Oil nosedived -$4.45 to $45.88 a barrel, while gold climbed $19.60 to $887.50 an ounce.
The bears have been hibernating for the past 6 weeks, giving the bulls some glimmer of hope. The legendary saying “Sell In May And Go Away” is fast approaching and the bears are getting ready for an INVERSE ETF party.
Some investors do not beleive the worst financial crisis in history would lead to a recession only lasting 18 months. This would make this recession the shortest on record for a financial disaster this big! See chart link here: http://etfdailynews.com/blog/?p=701
What has changed in the last 6 weeks? Unemployment is still near 10%? Foreclosures are still on the rise? Banks are still not lending? The commercial real estate market hasn’t popped yet, or has it just started to? See Link: www.cnbc.com/id/30239789
Here are some inverse ETF’s that are sitting at recession lows. These ETF’s will make large upward moves if the bears plan to reunite at their May reunion!
- FAZ-The investment seeks to replicate, net of expenses, 300% of the inverse daily performance of the Russell 1000 Financial Services Index.
- DXD-The investment seeks daily investment results, before fees and expenses, which correspond to twice the inverse of the daily performance of the Dow Jones Industrial Average index.
- QID-The investment seeks daily investment results, before fees and expenses, which correspond to twice the inverse of the daily performance of the NASDAQ-100 index.
- SRS-The investment seeks daily investment results, before fees and expenses, which correspond to twice the inverse of the daily performance of the Dow Jones U.S. Real Estate index.
By: David Bettencourt ETF Daily News