ETF Periscope: Between a Rock of Gibraltar and a Hard Currency Place

 

 

 

“I used to jog but the ice cubes kept falling out of my glass.” — David Lee Roth

 

 

Careful what you say. The markets are pretty sensitive right about now.

 

Unlike the majority of 2011, when the markets primarily shrugged off bad news with a casual sort of indifference, there now appears to be some cracks appearing in the confidence of investors. The past week’s relatively poor economic news threw the Bull hard to the floor, and it remains to be seen exactly how fast it can rise.

 

If you haven’t been paying attention, you might like to know that several key indexes fell for the fifth straight week.

 

For the week, the Dow Jones Industrial Average (DJAI) lost 2.3%, at one point testing 12,100 for support before edging up slightly to close at 12,151. The S&P 500 Index (SPX) fared the same, also down 2.3% and ending at 1,300. The previous level of support that was considered a significant technical marker, 1,333, was convincingly breached on Wednesday and may now prove to serve as a formidable level of resistance. The Nasdaq Composite Index (NASDAQ) joined the smack-down party, also dropping 2.3% on the week.

 

Back in March, following the Japan tragedy, the equity market blinked, yet quickly regained its composure in a staggeringly fast fashion, taking a mere two weeks to regain its lost ground. That the Dow could make up a 600-point deficit in so short a time, in spite of the numerous questions that lingered as to the global impact of the disaster, was certainly a testament to the faith, misguided or not, on the part of investors world-wide.

 

This past week saw the Dow shed over 400 points in just three days, and the apparent trigger was nowhere nearly as catastrophic.

 

True, the European Union’s debt crisis has been slamming into the ears of investors for the last several weeks, on a scale not heard since last year’s wave of media noise concerning the PIIGS (Portugal, Ireland Italy, Greece, and Spain) saturated the financial sections of newspapers and blogs. But really, that particular danger has remained lurking all the while, hidden in plain view.

 

Also true, Friday’s Labor Department report seemed to catch economists off guard, which really is nothing new. Still, 54,000 new jobs created in a county the size of the U.S. can hardly be considered robust. And the unemployment rate rose, rather than fell. A 9.1% unemployment rate at this point in the “recovery” seems a bit high. However, it’s not much of a surprise to anyone who has been actually out in the real world, where significant moans of lack can be heard by just about anyone who is listening.

 

Apparently, economists don’t get to visit the real world that frequently. Who could blame them? Nobody likes a sad face.

 

So what is going on here? Is this newfound sensitivity to actual data by the markets possibly becoming the new trend? Is this “shaky” market the result of investors actually bringing their attention to “bear” on fundamentals, or is something else going on?

 

It is an extremely reactive market right now. It’s a skittish market, perhaps due to concerns that the termination of QE2 by the Fed might actually have an impact on the economy. Or perhaps it’s because the U.S. government is playing footsy with itself over the prospect of having to raise the debt ceiling, even though any sensible group of legislators would be loath to embrace the prospect of facing a lowered national credit rating, global financial meltdown, that sort of thing.  How comforting for all, that sense always trumps politics in Washington.

 

But I digress.

 

The nervousness is, for whatever reason, there to be seen, as evidenced by last week on Wall Street when the downward ride from Wednesday right through Friday seemed to indicate that bargain shoppers of stocks are yet to be convinced that what they are seeing are really much of a bargain at all.

 

At least not yet.

 

Perhaps the prices of stocks will look more attractive in the coming week if and when the bottom proves to have not fallen out. If this shift of perception occurs, then last week’s 2.3% drop across a broad slab of indexes may yet be regarded as a minor, albeit necessary, correction. In any event, fear feeds on fear, and it may be as good a time as any to bone up on your hedging skills, just in case the slight case of skittishness turns into a full-blown case of the jitters.

 

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.