Looks like I will be sitting out this week, or at least monitoring the market the next couple of days.
Similar to last week, this week's prediction is soft. Given the market condition, it is hard to accurately predict market trends. Remember cash is a position to consider until we get past this reactionary period.
| Symbol | Date | Long Trend | Short Trend | MV Rank |
| RWR | 08/01/2011 | Pos | 1.23% | 6 |
| EPP | 08/01/2011 | Neg | 0.69% | 4 |
| VB | 08/01/2011 | Pos | 0.68% | 9 |
| ADRE | 08/01/2011 | Neg | 0.51% | 8 |
| DBC | 08/01/2011 | Neg | 0.38% | 1 |
| IEV | 08/01/2011 | Neg | 0.09% | 7 |
| IVV | 08/01/2011 | Pos | -0.04% | 5 |
| EWJ | 08/01/2011 | Pos | -0.22% | 2 |
| TLT | 08/01/2011 | Neg | -0.36% | 3 |
| ILF | 08/01/2011 | Pos | -1.26% | 10 |
| Analysis: Negative overseas - 7 5(Int) |
| Selection: VB for week of 08/08/2011 |
John asked me to make a Macro commentary each week so here is this week's view. S&P downgraded US Treasury debt on Friday from AAA to AA+. This has never happened and views on what this means are varied. It's either a non-event or a major problem depending on whom you read. Regardless, it's not positive. The US-T market had represented 60% of the world's AAA sovereign debt and still is the most liquid market in the world. That won't change. Bond funds which can only carry AAA-rated credit will have to make decisions on what to do but there really is not an alternative. The other factor that may make the downgrade little more than symbolic is the USD is still the world's reserve currency. That also hasn't changed and won't anytime soon.
ReplyDeleteMore importantly than the downgrade, is Italy. All of the focus in the EU until recently has been on Greece but it now appears Italy's situation cannot be ignored. Over the weekend Germany essentially said, "Italy is too big to save". Italy has the 3rd-largest GDP in the Eurozone and the statement out of Germany is important because the bulk of the bailouts in the EU are coming at the expense of German taxpayers and Germany is suffering from bailout fatigue. Emergency meetings are being held on Sunday in the EU to figure out what to do. It appears that the ECB (the EU's equivalent to the Fed) may turn on the printing presses. This also is significant because the ECB wasn't suppose to do that. The belief has always been that country-specific issues would always remain country-specific. Well, not any more so it appears. One person's view whom I read is Italy represents Lehman Bros. x10 in terms of overall market impact.
Another item of note from last week was the ISM number (manufacturing survey) was a big miss and that caused one of the big down days last week. There is growing concern that the US will be headed back into recession. Also from last week was the jobs report... still not good news there either.
Last week was also important from a technical perspective as key support levels were blasted right through to the downside and 200-day MAs were also violated to the downside. Most market observers will tell you we are now in an overall downtrend until proven otherwise.
Oil has dropped on concerns of a world-wide market slowdown. Gold was up last week on the macro concerns but silver took a beating as it is still seen as an industrial metal as much as a precious metal. If the economy tanks, I expect the gold/silver ratio to widen quite a bit eventually representing a buying opportunity for silver. Disclosure, I own AGQ which is 2x SLV.
We are due for a rebound from last week but it will all depend upon what happens in Europe. I have been 90% cash the last two weeks due to the uncertainty of the US debt ceiling issue. I saw it as a 1-up vs 20-down risk/reward scenario. I didn't trust TLT because if the debt deal didn't happen, interest rates would have rocketed up and TLT would have tanked. Irrelevant for last week considering the model was in IVV. Now with the theatrics in DC behind us, I was prepared to jump back in with both feet into the Asset Class Selection Model on Monday but with Europe (Italy) front and center, I will likely stay in cash another week. I will make my final decision in the morning.