“Public opinion is no more than this: what people think that other people think.” — Alfred Austin

For those of you who haven’t had a Playbill handy, the latest revival of the drama known as the Greek sovereign debt crisis played out into the wee hours of Tuesday morning, as euro-zone finance ministers and the related cadre of state officials crossed the T’s and dotted the I’s of an agreement that will once again provide bailout funds to the struggling Mediterranean country.

In exchange for the lofty sum of slightly over $170 billion to be provided by the euro-group, consisting of the euro-zone members’ financial leaders, Greece has pledged to yet another round of austerity measures that are targeted to create a steep reduction in its debt-to-GDP ratio. The ratio currently sits at around 160%, and the stated intention by both the Athens government and its once and future lenders is to lower it to 120%.

Never mind that there seems to be a dearth of actual investors, economists, and political leaders that believe Greece will be able to attain such a stunning turnaround in a mere seven years. To a large extent, that’s not really the point. What it does accomplish is to allow both Greece and the rest of the euro-zone to continue to stare across the card table and see who will call the bluff as to whether a default will actually occur.

Will it be the Greek government, who has, up until the moment the new agreement was signed, protested extremely loudly that its citizens would not tolerate being squeezed beyond the point they already have been? Perhaps it will be Germany, who has insisted that greater accountability in the form of increased belt-tightening is the necessary cost of remaining in the euro-zone, although the countries are so entangled that it would be hard to say who would suffer greater economic hardship should a default actually occur.

In any event, the latest bailout is simply a stopgap measure, in the sense that the new agreement is only the first of a series of steps that requires a quarterly review process, one put in place to assure that the terms of the loan are being followed. It is possible that, as soon as Greece holds its next elections in April, the conditions required in exchange for the current bailout funds will be called into question.

Though part of the new agreement focused on having Athens stay the course regardless of who the ruling party turns out to be, eventually it will be up to the Greek populace to either honor the terms or to ultimately default.

For the moment, at least, it won’t be a surprise to see Wall Street respond with a subdued cheer as it puts to temporary rest the high level of concern investors have rightly held as the Greek drama has unfolded. The equity market’s current Bullish trend shall likely continue, though it will likely be timid until more certainty is restored around the euro and its Union, if indeed it ever shall be.

In the meantime, the matter of oil and the Middle East has returned to the radar of traders and investors in a big way, courtesy of Iran.

Tehran has reacted to further threats of embargo by the European Union by returning the favor and threatening to immediately withhold shipments of crude to both Britain and France. In addition, Iran promised to halt future shipments to any other European country that participates in the embargo.

The result of all this economic saber rattling was that oil futures hit their highest price level in over nine months. As of Tuesday morning, the spot market showed bids above $105 per barrel.

As far as the U.S. domestic economy goes, the coming week’s round of economic data, including existing home sales, new home sales, and the latest consumer sentiment report will give investors a chance to show how they are weighing the players on the playing field, and if domestic positives, should they indeed be in place, trump international concerns.

ETF Periscope

Full disclosure:  The author does not personally hold any of the ETFs mentioned in this week’s “What the Periscope Sees.”

Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Daniel Sckolnik and/or Sabrient. Daniel Sckolnik and/or Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.

“The real voyage of discovery consists not in seeking new landscapes, but in having new eyes.” — Marcel Proust

The recent uptrend in the equity market has not only been due to some improved metrics on the domestic economy, but as well, to the vague promise that the euro-zone drama has inched its way towards some sort of resolution of the matter of a default by Greece.

This past Friday’s combination of EU news and the subsequent market reaction has, however, revealed once again that the uncertainty of the EU sovereign debt crisis is likely to remain as perhaps the most critical obstacle to Wall Street’s pursuit of a serious Bull Run.

Once again, investors grew spooked by the apparently never-ending drama referred broadly as the EU sovereign debt crisis, and they took the opportunity to lock in some profits from the impressive recent run-up in stock prices as a precautionary measure.

The deep fears of investors over the whole euro-zone debt crisis has been effectively calmed these last five weeks, a period that has seen both the S&P 500 Index (SPX) and the Nasdaq Composite Index (COMP) boast consecutive gains during those weeks. But Friday saw all three of the major indexes, including the blue-chip Dow Jones Industrial Average (DJIA), suffer their worst losses so far this year. And, while the drop was widely attributed to the euro-zone uncertainty, it was no doubt exacerbated by the University of Michigan/Thomson Reuters report that its consumer sentiment index had fallen from 75 to 72.5.

This one-two punch left the Dow down close to 90 points, dropping the index for a 0.5% loss on the week. Meanwhile, the SPX shed 9 points, falling to 1342. While it suffered a relatively small 0.2% drop, it is worth noting that this corresponds to resistance met at the benchmark index’s 1350 level. Technically speaking, this 1350 level may serve as a reflection of the battle line drawn between the success and failure of the current round of Greek debt negotiations.

Up until Friday, recent expectations were running fairly high that somehow, someway, the Greek government would muster the political will to sign off on the latest austerity demands required by a number of euro-zone finance ministers in exchange for a second bailout package. However, it became increasingly clear throughout Friday’s trading session that no firm commitment would be forthcoming from Athens, at least not during the course of the trading day.

There is an essential disconnect between the requirements of the euro-zone finance ministers for Greece to tighten its fiscal belt, and the actual citizens of that country, who are racing headlong into a recession that seems highly likely to worsen if austerity continues to trump growth. So, while Greece continues to stare into the face of a 19 billion dollar debt bill coming due on March 20, the Greek politicians must walk the fine line and high wire of somehow satisfying the demands made by its creditors who won’t fork over a shiny new loan unless strict conditions are met, and its citizenry, who have taken to the streets in protest of having to suffer increasingly harsh conditions.

It is a tight tightrope that needs to be kept taut, though all objective indicators would seem to point in the direction that some slack must be cut somewhere, somehow. It is a cat-and-mouse game, with some serious consequences resulting from how it will all end up being played out.

What the Periscope Sees

The VIX (Chicago Board Options Exchange Market Volatility Index) shot up by 11.6% on Friday, which gave the “fear index” its biggest jolt in about three months. Sitting at 20.79, it nevertheless remains at the low end of its recent six-month trading range. As such, and with the euro-zone sovereign debt crisis hardly resolved, using this explosive index as a hedge continues to make sense. The 11.6% jump clearly illustrates the value of the VIX as an excellent vehicle for hedging your portfolio.

If you are convinced that the EU drama has yet to be effectively baked into the price mix of the equity market, consider pairing up a trade on a VIX-based trading vehicle, such as the VXX (iPath S&P 500 VIX Short-Term Futures ETN), with the next Bullish trade you put on.

While most successful “pairs trades” obviously limit upside potential to a certain degree, adding this type of hedged play to the mix might just allow you to sleep a whole lot better at night, even if you happen to be having dreams of Italian espresso, French croissants, and arguing euro-politicos.

ETF Periscope

Full disclosure:  The author does not personally hold any of the ETFs mentioned in this week’s “What the Periscope Sees.”

Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.

“A round man cannot be expected to fit in a square hole right away. He must have time to modify his shape.”  –  Mark Twain

The Bulls have grabbed the momentum by the horns and seem poised to ratchet the trend up a notch or two. As long as investors are convinced the EU sovereign-debt beast has been momentarily tamed, the next blast of positive domestic economic news could carry the equity market above its pre-subprime mortgage crash levels.

Provided, of course, that the next U.S. news cycle blast accentuates the positive.

Exactly how much momentum did the equity market assume last week? Quite a bit, as Friday saw the Dow Jones Industrial Average (DJIA) hit its highest level since May 2008, ending the week at 12,862, up 1.6%.  The benchmark S&P 500 Index (SPX) performed even better, rising 2.3% over the course of the week’s five sessions, which gave SPX a fifth week in a row of gains. And finally, the Nasdaq Composite Index (COMP), which has been on its own five-week tear, posted a 3.2% rise this past week.

For many investors, over and above these impressive stats, was the fact that 2012 is off to one of Wall Street’s fastest starts in 25 years. Year-to-date, the SPX is up 6.9%, and sits comfortably atop its 200-day moving average, as well as the psychologically important 1300 level. The 1300 mark could now become a strong level of support for the SPX, providing for a blast-off point for the next leg up.

Two key elements occurred that allowed the uptrend established this year to continue. First, the U.S. Labor Department reported Friday morning that almost a quarter of a million jobs had been added to the economy. This number was better than many economists had anticipated, and had the dual effect of dropping the unemployment rate to 8.3% and prodding investors to buy stocks after the report was released early in the trading day.

The other element that occurred or, more accurately, didn’t occur, was the fact that nothing unexpected emerged from out of the EU. This is hardly to say that a wave of good news emerged from the beleaguered euro-zone. It was more a matter of there being no news that shocked investors.

So are investors now willing to shrug off EU concerns and focus on the current round of good domestic news? Well, they are willing, of course, but events could shift that sentiment quickly, despite the current Bullish momentum.

What could some of those events look like? For one thing, the Greek government seems to be thumbing its nose at the demands being made on it by the European Central Bank, the International Monetary Fund and the European Commission, collectively referred to as the “Troika.” What the Troika wants is for Greece to sign off on a number of labor and fiscal reforms in exchange for receiving yet another round of loans necessary for Athens to meet some of its debt obligations.

If the Greek government fails to reach agreement with the Troika, it will have a domino effect of dark circumstances that investors may currently be convinced has already been baked into the market.

Sentiment, however, can shift on a dime, and even a New Year’s worth of momentum could find itself running smack into a new wall of concern, followed by a reversal of that very same momentum.

What the Periscope Sees

With the EU crisis hardly resolved and the VIX (Chicago Board Options Exchange Market Volatility Index) sitting at a seven-month low, traders and investors alike should view this moment as an opportunity to latch on to what may be considered some severely discounted insurance.

It makes sense to ride the trend-train on its continued trajectory, but makes no sense to assume that all the potential issues that could arise from a euro-zone collapse has been adequately addressed.

Consider buying a volatility hedge via the VXX (iPath S&P 500 VIX Short-Term Futures ETN), one way to play the VIX right now.

ETF Periscope

Full disclosure:  The author does not personally hold any of the ETFs mentioned in this week’s “What the Periscope Sees.”

Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.

“If it’s a penny for your thoughts and you put in your two cents worth, then someone, somewhere is making a penny.”   — Steven Wright

As the World Economic Forum (WEF) wraps up its annual meeting in Davos, Switzerland, on Sunday, a large chunk of its agenda will be reexamined around the table of the first European Union summit of 2012, which convenes on Monday.

And, judging by Wall Street’s response last week to large chunks of chatter that emerged from the closely watched “meeting of the minds” of world leaders and key financial and business experts, the euro-zone seems to remain the central concern of investors for what is likely to be the indeterminable future.

There is no question that Wall Street is primarily in an uptrend. Dating back from late November of 2011, the Dow Jones Industrial Average (DJIA) has skyrocketed a whopping 11.5% as of market close last Friday. The steep gains hardly came in a straight and steady progression, however, as a new round of euro-jitters shook up the market mid-December.

Still, the uncertainty seems to have given way to a certain degree of New Year optimism as solid U.S. corporate 4Q earnings have, on the whole, been slightly better than expected, and economic indicators out of Washington seem to indicate an economy that is moving very slowly and in tiny increments, yet somehow is managing to achieve a degree of steady growth.

January’s market gains have been consistent, at least for the first three weeks, as all three of the major indexes have moved steadily into the Bull’s camp. However, that trend tapered off somewhat last week as a consistent trickle of negative sentiment emerged out of Davos.

The result was that the Dow suffered its first losing week since mid-December, and was the first time this year that doubt appeared to reassert itself, though every time a wave of selling seemed to threaten to dominate, a succession of buyers responded and more or less righted the ship.

Landing at 12,660, DJIA was off 0.5% for the week. The benchmark S&P 500 Index (SPX) was up, but just barely, ending at 1,366, up 0.5%. Lastly, the Nasdaq Composite Index (COMP) turned in the best performance of the trio, coming in at a 1.1% profit.

What emerges from the EU summit should reveal the depths that the euro crisis has been effectively baked into the market.

A key point of overlap between Davos and Brussels, where the EU summit shall take place, is the recognition of the need of a “firewall.” This term references a necessary level of funds that are widely regarded by the European Central Bank (ECB), the International Monetary Fund (IMF), and many euro-zone leaders to be sufficient to handle a default by one or more of the PIIGS (Portugal, Ireland, Italy, Greece and Spain.)

Many world leaders at Davos, including U.S. Treasury Secretary Timothy Geithner and U.K. Prime Minister David Cameron, have re-emphasized a demand that Europe adds substantial funds to accomplish such a firewall.

The scale of the current debt crisis can be better seen when you take a look at the numbers currently put aside to halt the dominos from toppling should defaults actually go into affect. The European Financial Stability Facility (EFSF) boasts a total of 780 billion euros, while providing lenders the ability to access 440 billion euros. Geithner, in particular, has been shouting for months that the euro-zone members need to increase the leverage of the fund to accomplish that purpose. The IMF, meanwhile, is currently seeking to raise about 750 billion in euros in order to better handle additional issues that might arise out of the euro-zone crisis.

There may continue to be enough positive news from the corporate earnings reports due out next week to deflect from any negative noise from across the pond. While one could balance out the other, a concurrence of sentiment from corporate America and the EU could set the tone for the market in a clear way.

In either direction.

ETF Periscope

Full disclosure:  The author does not personally hold any of the ETFs mentioned in this week’s “What the Periscope Sees.”

Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.

“Confusion is a word we have invented for an order which is not understood.” –  Henry Miller

The Dow Jones Industrial Average (DJIA) rose by almost a full percentage point on Friday, but like so many aspects of the current market, that number is somewhat misleading.

Tech leader IBM powered the Dow to its fourth winning day in a row, which left the blue-chip index up 2.4% on the week. However, with IBM being the highest-priced component within the Dow universe, its upward move, coming in at over 4%, disproportionally raised the Dow’s bottom line.

For comparison, if you take a look at the S&P 500 Index (SPX), it gained a relatively paltry 0.1% on Friday. However, the benchmark index, which offers a far more accurate read on the equity market in general, did manage to gain 2% on the week, placing it at a level not seen since late July of 2011. It now has a very minimal cushion of 1% atop the psychologically important 1,300 level, while also sitting relatively high above its own 200-day moving average.

Rounding out the big three indexes, the Nasdaq Composite Index (COMP) lost 0.1% on Friday, suffering defeat at the hands of the bad beat investors put on Google (GOOG) following its unenthusiastically received 4Q earnings report.

Fourth quarter earnings season has, on the whole, been the prime mover for the mini Bull Run that Wall Street has experienced since the ball dropped on the New Year. Though the numbers reported by companies so far have generally met analysts’ expectations, the upward trend in stocks year-to-date can be at least partially attributed to the fact that, so far for the year, domestic reports out of Washington have fallen into the “neutral-to-fair” category.

Probably a far greater factor in January’s current upward trend has been the fact that negative noise out of the euro-zone has been minimal. And, while investors are hardly dancing in the streets due to enacted solutions geared towards solving the EU debt crisis, sentiment does seems to be leaning towards the possibility that the worst of the matter may be baked into current stock prices.

This assumption may prove to be a major flaw, at least in the long term.

While the new head of the European Central Bank (ECB), Mario Drahi, has so far managed to convey the right sentiments at the right time, helping to effectively offset some of the rumors and innuendo that have at times injected high doses of volatility into the market, the euro-zone remains a powder keg simply due to the massive debt owed by the PIIGS (Portugal, Ireland, Italy, Spain and Greece). There is only so much that Germany, France, and even the International Monetary Fund can do to stem the bleeding without inflicting wounds on themselves.

The fact remains that the weapon of choice expounded by both investors and the broader European Union, deeper austerity measures, is nothing if not a prescription for recession for EU member-states. And, with an estimated 18% of profits of S&P 500 companies coming from Europe, it is not a stretch to see that a slump in EU growth will impact both U.S. and global investors in a major way.

In the meantime, enjoy the Bull, but don’t be shy about humoring the Bear and offsetting your portfolio with a few smart hedges.

What the Periscope Sees

Speaking of hedges, one of the Periscope’s favorites remains the VIX (Chicago Board Options Exchange Market Volatility Index), which serves as a reasonably good read on investor sentiment in general, and an excellent tonic to a reactionary market specifically.

On Friday, the VIX ended the day at 18.28, a number that it hasn’t seen in six months. Prior to last summer’s “euro-swoon,” the VIX had established a solid support level around 15. On the other hand, once the cracks in the EU began to come into sharper focus, the VIX zoomed up close to 50. With some of the euro-zone issues being addressed but not solved, there is a good risk-to-reward trade to be made here.

While you can’t trade the VIX directly, you can use one of several liquid ETFs that track the Volatility Index. The most popular and most liquid choices continue to be the VXX (iPath S&P 500 VIX Short-Term Futures ETN), which tracks the near-term futures, or the VXZ (iPath S&P 500 VIX Mid-Term Futures ETN), which tracks VIX mid-term futures.

ETF Periscope

Full disclosure:  The author does not personally hold any of the ETFs mentioned in this week’s “What the Periscope Sees.”

Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.

“Life is a series of natural and spontaneous changes. Don’t resist them — that only creates sorrow. Let reality be reality. Let things flow naturally forward in whatever way they like.”  — Lao Tzu

They’re back.

That same gang of market overlords who so badly botched the ratings of billions upon billions of dollars in sub-prime loans during the new millennium ’s first decade can be found once again front and center of a new action that could send the market into a serious tailspin.

Except this time, they might actually be getting it right.

In a report released after Friday’s market closing, and one that will be studied closely by analysts and investors, Standard & Poor’s continued to roil the European Union with its latest round of downgrades.

In spite of herculean efforts to defend its monetary and fiscal condition, France found itself on the receiving end of an S&P smack down. The triple-A credit rating that the French government brandished like a badge of honor was unceremoniously taken away, replaced with a slightly less shiny double-AA-plus, with the additional insult of a negative outlook added for affect.

During a press conference on Monday, France’s beleaguered President, Sarkozy, insisted the ratings agency’s action wouldn’t impact France’s economic policy or decisions.

Maybe, maybe not.

What it could do is affect the cost of borrowing for the euro-zone’s number two economy, and that’s something that would have a direct impact on France’s financial affairs.

Is the downgrade deserved? Arguably, yes, at least according to S&P. It seems that the ratings agency isn’t quite convinced that many of the downgraded countries, including France, have taken sufficient action to “address ongoing systemic stresses in the eurozone.”

In plain English, all the EU countries that were taken down a notch besides France, including Austria, Malta, Slovakia and Slovenia, as well as Spain, Italy, Portugal and Cyprus, which were taken down a pair of notches, aren’t really earning enough to pay off either their current or projected debts.

And, with the flawed “en vogue” opinion that fiscal austerity will somehow reverse this situation currently holding sway, it is unlikely that the euro-zone will avoid a recession, if not an outright disorderly dismantling.

So now Wall Street and the European bourses will figure out if these new ratings have been adequately “baked in” to the current price of the equity market or if a further price adjustment to the downside will be warranted.

Should investors decide that more heat needs to be added to the recipe, it will strongly influence the direction that the market will trend for the first half of 2012.

 What the Periscope Sees

 At the birth of the New Year, the Periscope took a peak out towards the investment horizon of 2012. Here’s a quick recap of the ETFs that were picked:

 EUO (Proshares UltraShort Euro) serves as a good way to play Europe to the downside. EUO tracks the euro and corresponds to 2x (-200%) the opposite of the daily performance of the U.S. dollar price of the euro. Year-to-date, it is up 5%.

FXI (iShares FTSE China 25 Index Fund), tracks the FTSE China 25 Index, and, made as a short play, offers an opportunity to bet that the China bubble may be due for a pop. YTD, down 6%.

GLD (SPDR Gold Trust), which tracks gold bullion, is the ETF of choice for many gold traders and investors, many who feel that gold has corrected adequately and has found a new base of support. YTD, up 5%.

AMJ (Alerian MLP Index ETN) tracks the Alerian MLP Index. MLPs (Master Limited Partnerships) were created as a tax incentive for energy investors during the Reagan years. Alerian remains a solid play on the MLP energy sector. YTD, down 0.1%.

This foursome, which serves as something of a “multiple-pairs trade,” remains as a reasonably good play for the moment, as it just may be able to handle whatever the market tosses its way.

ETF Periscope

Full disclosure:  The author does not personally hold any of the ETFs mentioned in this week’s “What the Periscope Sees.”

Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.

The first week of the New Year seemed to reveal a Wall Street that remained both cautiously optimistic yet timidly skittish at the same time, continuing a trend that developed over the month of December.

The Dow Jones Industrial Average (DJIA) gained ground for a holiday- shortened week that continued with a level of light trading that has remained a hallmark of the holiday season.

The DJIA ended the week at 12,359, up 1.2% for the New Year. The benchmark S&P 500 Index (SPX) also started the year up slightly, gaining 1.6%. The SPX has ended above its 200-day moving average for the last four sessions, something it has been unable to accomplish at any time since last July. The tech-heavy Nasdaq Composite Index (COMP) showed the most strength of the leading indexes, posting a 2.7% gain on the week.

This week should test investor sentiment at a deeper level, as the new earnings season continues to unfold at a more rapid clip.

The corporate picture that emerges from the next wave of earnings reports will find itself in stiff competition with the news from across the Atlantic, considering that last week’s latest round of Italian bond-selling revealed the fact that investors continue to factor in a high level of risk in the yield, currently above 7% on the 10-year note. This level of cost of debt is generally regarded as “unsustainable” by investors on both sides of the ocean.

In spite of positive economic news out of Washington in the form of last week’s jobs report, the fact remains that, should the new numbers out of corporate America skew to the short side, any negative news from out of the euro-zone will be amplified to a high degree.

What the Periscope Sees

One ETF that has appeared recently on ETF Periscope’s radar is UNG (United States Natural Gas Fund), which tracks natural gas futures. UNG is currently close to the lowest levels it has ever been at, closing Friday at 6.64. Though there remains a certain risk that it will remain at these levels for a while, it may have hit bottom, and is finding support at its current level. As such, it may be a good time to add this to your portfolio as a longer term energy play, either by buying the ETF itself or by purchasing call options several months out.

ETF Periscope

Full disclosure:  The author does not personally hold any of the ETFs mentioned in this week’s “What the Periscope Sees.”

Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.

“By letting it go it all gets done. The world is won by those who let it go. But when you try and try, the world is beyond the winning. “ — Lao Tzu

For numerous Wall Street investors, the past year had all the marks of a funhouse run amuck. Little fun, lots of muck.

Whipsaw market action created vertigo amongst even seasoned money managers.

Frequent doses of high volatility scared away small retail investors in droves, but not before they realized that the pockets of their portfolios had been picked yet again by the wild price gyrations that trailed in the wake of whatever boat happened to carry the most recent cargo of news.

Gold bugs multiplied exponentially as the shiny metal scaled the walls of record highs, only to be rudely confronted by the sound of a pop in the bubble.

Tears and fear could be seen and felt as the devastating effect of nature’s one-two punch of earthquake and tsunami took its toll on Japan, both in human suffering and global economic impact.

The bad comedy of political theater out of Washington left more observers than usual scratching their heads and wondering if there was even a remote chance that any adults would appear to send the mischievous rascals mistakenly put in charge off to their rooms without any supper.

Then there was Europe, up to its continental eyeballs in sovereign debt. Despite perhaps an intrinsic flaw in its monetary structure that offered no exit, the European Union held periodic summits promising results that were not to be.

However, the pronouncements were often made with sufficient conviction to rally the troops of Wall Street investors to the cause, sending prices higher until they recognized that no real solutions had been put into play.

As the Periscope has noted before, it wasn’t a bad year to have simply taken the year off, retreated to the sidelines on some tropical beach, ready to emerge around the New Year, tan, fit and ready to invest.

In any event, now is the beginning of the New Year, and a perfect time to throw the runes and make fearless predictions.

Here, then, are a few more for your consideration and entertainment.

What the Periscope Sees

If the euro-zone does, in fact, have structural flaws that remain outside the practical realm of repairs, then a bet against the euro would be a reasonable one to make. To this end, the ETF EUO (Proshares UltraShort Euro) serves as one way to play Europe to the downside. EUO tracks the euro and corresponds to 2X (-200%) the opposite of its daily performance of the U.S. dollar price of the euro.

Relatively speaking, China has traveled below the radar on the screen of economic news, at least as far as Wall Street was concerned. A review of the world’s formerly fastest growing economy might lead an investor to consider that the Sino bubble has, while not exactly burst, surely sprung a slow leak. Whether it can be repaired faster before it deflates further will be a key to global growth in 2012.

A short play on FXI (iShares FTSE China 25 Index Fund), which tracks the FTSE China 25 Index, could prove to be a good way to go.

If you prefer a rosier take on the direction the market will take, here’s a couple of ETFs that could ride the wave of an upward trend.

Gold has experienced what by any measure can be considered a serious correction since its highs earlier in the past year. It is now hitting levels that should offer a discounted point of entry for both new and old gold bugs. GLD (SPDR Gold Trust), which tracks gold bullion, is the ETF of choice for many gold traders and investors. Go long the precious metal.

Finally, AMJ (Alerian MLP Index ETN), tracks the Alerian MLP Index. MLPs (Master Limited Partnerships) were created as a tax incentive for energy investors during the Reagan years. They have generally proven to be a solid performer in both Bull and Bear markets, and Alerian is perfect for playing the MLP energy sector.

Have a safe, healthy and prosperous 2012!

ETF Periscope

Full disclosure:  The author does not personally hold any of the ETFs mentioned in this week’s “What the Periscope Sees.”

Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.

“A man is usually more careful of his money than he is of his principles. “ — Ralph Waldo Emerson

Investors seemed to have bought, literally, into the whole “Santa Claus Rally” mindset, sending the major indexes on an upward sleigh ride last week. Is this a case of “Jingle Bulls” taking the reins and steering the Dow into the black for the year on a wave of upbeat sentiment? Or is there something more substantial to the mini-buying spree that Wall Street has been on for the last four trading sessions?

Last week, the key factor that seemed to impact investors the most was the comments made on Tuesday by Vítor Constancio, the Vice-President of the European Central Bank.  He managed to convey his contempt of those who questioned the structural integrity of the European Union’s monetary union by stating that it was both “absurd” and “unthinkable” that the euro would, in the long run, fail to hold up.

Surprisingly, these seemed to be the magic words that Wall Street wanted so badly to hear whispered into its collective ear, as the Dow Jones Industrial Average (DJIA) jumped up 3.6% for the week, the S&P 500 Index (SPX) gained 3.7%, and the tech-laden Nasdaq Composite Index (COMP) added 2.5%.

To many investors, the more critical numbers were those that indicated the gains on the year. As of Friday, the DJIA was up over 6% for the year, while the benchmark SPX stood at a year-to-date 0.6% gain. Even the COMP, a laggard for much of the year, saw some light at the end of the tunnel, though it remained off by 1.3% for the year.

Whether investors continue to ride the good feelings in an upward trend over the year’s remaining four sessions remains to be seen.

However, the fact is that trading volume is on the low side, which is par for the course for this time of year. Also, a lot of the move up can likely be attributed to the traditional end-of-the-year window dressing created by fund managers to decorate their portfolios. Taken together, it might leave doubters to wonder if the rise will continue for any real duration into the New Year.

It will also be worth recalling that the pattern of the equity market over the last four months has been the same: Good news from the European theater results in a rise in the market, while the other shoe can usually be found extremely close by. And, when that other shoe does indeed drop, the market follows it down.

This time might be different. But probably not.

Hedge your bets, take a breath, and enjoy the transition into 2012.

ETF Periscope

Full disclosure:  The author does not personally hold any of the ETFs mentioned in this week’s “What the Periscope Sees.”

Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.

“There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest of them have to pee on the electric fence for themselves. “ – -Will Rogers

As the year fades into its final two weeks, it remains something of a coin-flip as to whether or not Wall Street ends the year in the red or the black.

Whether investors find themselves in an upbeat holiday mood, or if they instead assume the sour vestige of a Christmas Scrooge will likely be left up to the sentiment of buyers and sellers of Italian and Spanish debt.

Last week saw the equity market falter after a pair of previous winning weeks. The Dow Jones Industrial Average (DJIA) shed 2.6%; the benchmark S&P 500 Index (SPX) ended down 2.8%; and the laggard of the trio, the Nasdaq Composite Index (COMP), suffered a 3.5% loss.

As has been the case for most of the last four months, last week’s whims and whimsies of an erratic Europe market dictated which way investor sentiment blows. There seemed to be a recognition on Wall Street that the latest and final round of agreements, made at the European Union’s final summit of the year, might not actually solve the deep systematic ills of the euro-zone. This recognition may have forced investors to reconsider the recent round of buying that buoyed the market during the first couple of weeks in December.

The news that seemed to have the most impact on the market was the latest round of saber-rattling that Standard & Poor’s Ratings Service conducted, threatening to drop down by a notch the credit rating of no less than 15 of 17 of the euro-zone member nations. France seemed to be the country that stood to lose the most, however, due to its relatively high debt load.

S&P, it would not be hard to recall, is somewhat fresh off its return to relevance after garnering lots of press, and more than a fair degree of consternation, when it downgraded the United States government’s triple A rating back in August.

Wags may have inferred a certain level of payback had ensued after Congress began to investigate, though somewhat belatedly, S&P’s and Moody’s role in helping to crash the market in 2008 by virtue of their failure to rate home mortgage bonds with anything even remotely close to what could be considered any degree of accuracy.

Still, only a true cynic might consider that the rating agencies are locking in their power when they can. Never mind that Finch jumped into the fray last week as well, lowering its outlook on France to negative, which, in ratings-speak, suggests that there is slightly worse than an even-money bet that the euro-zone economic powerhouse will shed its AAA rating within the next two years.

The coming week should reveal the direction Wall Street shall end the year, as the auctions of both Italian and Spanish bonds will be closely followed to see if the “sale” made by EU leaders at last week’s summit will translate into anything resembling longer term investor confidence.

What the Periscope Sees

Last week, the VIX found itself darting below 25 for most of the week, well toward the low side of its trading range of the last four months. It has also dipped below its 200-day moving average.

This is somewhat unexpected, as the high level of uncertainty that has emanated out of Europe recently could have easily sent the “fear index” significantly higher, representing a rise in uncertainty.  Apparently, a lot of the fear of a EU break-up has been baked into the market already. Still, at it currently stands, the VIX remains at a good price as a potent hedge against a further stark drop in the equity markets.

ETF Periscope

Full disclosure:  The author does not personally hold any of the ETFs mentioned in this week’s “What the Periscope Sees.”

Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.