Thursday, June 11, 2009

The Market in ETFs

We've spoken quite often about how dominant ETFs seem to be in the overall market; sweeping themes seem to be much more important than in the past, where individual stocks moved independently. I thought it would be instructive to show some of the major sectors that most in the investing community are keeping an eye on and tell the current story via "ETF".

First, the S&P 500 which as we said in our weekly roundup is deciding which way it wants to go in its 'triangle'

The very crowded trade is a combination of the following ... as the dollar weakens

....the flood of money into commodities continues. The CRB Index is almost identical to the S&P 500 as it is as critical resistance - the 200 day moving average

Throw any associated oil index up with the CRB Index, for example Oil Services is one I am keeping my eye on as it has quite a few component stocks I favor on 'reflation' thesis.

And as goes reflation, commodity strength so go the BRIC countries...

Back stateside, technology has been a leader ... when an economy comes out of recession the institutional money flows to semiconductors. That's just how it is, and will always be... it's a "leading indicator" of recovery. Per the playbook.

They also fly into consumer discretionary, even if evidence on the ground of a true recovery is suspect. Even if gasoline jumps to near $3, and job losses mount. That is just "the playbook".

Or even if interest rates start to rise choking off the house ATM

Commercial Real Estate? No longer a problem for the market, the obligations are slowly but surely being pushed onto the taxpayer. Speculators rejoice - they get the profits, taxpayers get the future losses.

Financials? See Commercial Real Estate - thank you taxpayer

And that's the market for you at the 40,000 foot point of view. Technically speaking of those major groups there is no significant weakness in any of these charts excluding the US dollar and bonds. Even consumer discretionary as we head to mid teens "real" unemployment is in good technical conditions... Uncle Ben has done his job. Create enough paper money - every asset must be inflated. Federal Reserve 101, as taught by Alan Greenspan.

So this is the world via squiggly lines; and with so much institutional money which now buys the chart, no matter the fundamental story - until we see these conditions change materially shorts are to remain temporary and not the main thrust of a portfolio. If the S&P 500 breaks the 20 day moving average for the first time since early March, it will be time to revisit. Until then, market participants eagerly buy all dips.

And that's the story of the current market, as told via ETFs

Short TLT in fund; no personal positions

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