SPDR S&P 500 ETF Trust Technical Update and Bill Gross Assessment

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September 26, 2014 1:04pm NYSE:BOND NYSE:SPY

bill grossDavid Fabian: Just when you think everything is looking good, the market pulls a fast one on you. That’s what happened to me this week on the day after I posted our monthly video (see below) stating large-cap stocks were still indicating a bullish uptrend.


Thursday proved to be rather good day for the bears with a drop of 1.6% that has many traders worried that the Alibaba IPO was the ultimate top. More importantly, the SPDR S&P 500 ETF (NYSEARCA:SPY) broke below its 50-day moving average for the fourth time this year.

SPY

I generally regard this technical event as a yellow flag in the market that is owed some caution with a healthy dose of reality that little damage has been done so far.

All three previous attempts at a correction this year ended in some mild probing below this intermediate-term support line and then a blast off to new highs. There is no way to know if this time will be any different, but with the market only 2.26% off its all-time high, I am not ready to dive into the bunker quite yet.

September volatility is nothing new to contend with and I wrote about several conservative ETF strategies that may be options to hedge your portfolio.

The real test for stocks on the downside is if they will break that previous line of support near $190 that was established in August or will this be a shallower pullback?

Some additional thoughts on international markets, commodities, currencies, and high yield bonds in the following video may help shed some light on this matter.

Bill Gross To Leave PIMCO

The financial world and more specifically the bond market was rocked this morning by the news that Bill Gross would be leaving PIMCO and joining Janus Capital Group. Gross was an original founder and long-time Chief Investment Officer of this bond fund giant.

While rumors are swirling about his departure, it’s pretty obvious from recent headlines that the relationship between Gross and PIMCO had grown toxic this year. It certainly can’t be easy to go through a change of this magnitude after 40+ years of success and many are wondering how PIMCO will fair in his wake.

My initial reaction is that there is going to be some short-term volatility and asset outflows from this news. Investors will be nervous about changes and that may impact mutual funds and closed-end funds that PIMCO manages. However, a single man certainly didn’t manage $2 trillion all by himself.

PIMCO has a deep bench of talented individuals such as Dan Ivascyn, who is a deputy-CIO and under consideration for possibly succeeding Gross as the top investment guru. Ivascyn manages the successful PIMCO Income Fund (PIMIX), which has been a core holding for both our income and growth clients for some time now.

I would caution against immediately throwing in the towel on PIMCO funds just because of this shakeup. My initial recommendation is to wait and see what the transition plan will be and how they plan on navigating these changes. It will certainly be an interesting Q4 in the bond world.

This article is brought to you courtesy of David Fabian from FMD Capital Management.


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