Making Money Alert: Yellow Warning Light from U.S. Stocks

If you were looking for a reason to be cautious about the financial markets, then last week’s action in stocks offered you one giant yellow light. The selling in domestic stocks nearly across the board pushed the major U.S. averages below their 50-day moving averages last week, a first salvo in what could well be a wider sell-off.

Now, the breaking of the 50-day average does not mean that this current bull market is over, or that U.S. stocks now are headed into a downward spiral. The price action on Monday certainly was a positive for the bulls; however, what I do think is important is to view last week’s big selling as an early warning for the markets at large.

Take a look at the charts here of the price action during the past 12 months (through 4/14). As you can see, stocks in the SPDR S&P 500 (SPY) recently fell below the 50-day average, as did stocks in the PowerShares QQQ Trust (QQQ).

I do think the breakdown in the domestic equities last week does require you to take a look at how much equity exposure and risk you have in your portfolio.

Now, one thing to keep in mind is that every significant market pullback during the past 15 months actually has been a buying opportunity. If recent historical trends continue, then the yellow warning light we saw last week also may be a buy signal. However, I do suspect that the characteristics of this current pullback should make even the most ardent bulls a little worried.

Characteristics such as a very sharp slide off of their recent highs in market-leading segments such as biotech, semiconductors and other widely held stocks all could be a very bearish harbinger of things to come.

Then we have the action at the Federal Reserve, with the central bank basically sticking to its “taper” guns and withdrawing the monetary stimulus candy by $10 billion per month. Finally, market leadership is shifting from growth to value, and even to Treasury bonds, yet another indicator of a change in the current market milieu.

One area of the market making big headway of late is commodities. The charts here of the GreenHaven Continuous Commodity Index Fund (GCC) and the DB Commodities Tracking Index Fund (DBC) are prime examples of sectors trading in the opposite direction of stocks.

The bull market in commodities is one of the segments we currently are taking advantage of in my Successful Investing advisory service. If you’d like to find out more about what commodity ETFs to own, then I invite you to check us out today!

ETF Talk: You Could Watch Your Portfolio Climb with ALPS

For the past several weeks, we have discussed the exchange-traded fund (ETF) providers that are well known to the general public. We’ve featured well-established and large ETF providers, as well as the ETF divisions of large fund managers. The next few weeks’ ETF Talks will focus on niche providers. The first in this series highlights ALPS.

ALPS probably is best known for providing legal and management services to other investment companies, including some ETF providers that we have profiled previously, such as State Street. ALPS took its expertise in managing ETFs for other financial companies and launched its own ETFs in 2009. The twenty-first ALPS ETF was launched in February.

ALPS focuses on alternative, niche and themed investment products. One such fund is the ALPS Sector Dividend Dogs ETF (SDOG), which seeks to invest in a diversified selection of funds which offer superior yields compared to broad-based equity indices. Using each of the S&P 500’s 10 industrial sectors as its selection pool, SDOG invests in the five stocks with the highest yield in each sector.

This year, the fund has notched 2.13% growth, despite the market’s sharp pullback in February, as well as the latest one in recent weeks. Last year, the fund gained 29.31%. In addition, SDOG issues a quarterly dividend and pays a current yield of 3.42%.

Alternative and niche investments can help round out your portfolio, along with offering diversification and alternate value propositions when the broader market is stagnant or correcting. ALPS provides these kinds of alternative strategies, so you may want to see if one of their strategies, such as SDOG’s modification of the “Dogs of the Dow” technique to find value, is a comfortable fit for your investing style.

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an e-mail. You just may see your question answered in a future ETF Talk.

ETF Sector Spotlight: Emerging Markets

After last year’s marked underperformance, March brought with it happier times for the emerging markets. The Vanguard FTSE Emerging Market ETF (VWO), the largest equity emerging markets ETF by total assets, handily outperformed the S&P 500 (SPY) by almost 4%.

Moreover, for the week ended April 4, emerging markets funds actually saw net inflows, a big change from the record net outflows during the first quarter.

It remains to be seen whether these factors are just anomalies in a down market, or if they are harbingers of further gains to come. Either way, the emerging markets deserve your attention.

In this month’s ETF Sector Spotlight, we have compiled the 10 largest equity-focused Emerging Market ETFs that you should know about. This list shows you the many ways to play the emerging markets through ETFs. An investor could choose to invest in all emerging markets, select regions, select countries and even select sectors within regions or countries.

To see which funds made our Top 10 Emerging Market ETFs list, get your ETF Sector Spotlight today!

NOTE: Fabian Wealth Strategies is a Securities and Exchange Commission-registered investment adviser, and is not affiliated with Eagle Publishing.

Hall Wisdom

“The information is in the people, not in your head.”

— Edward T. Hall

The prominent anthropologist wasn’t referring to the movement of financial markets in the quote here but, in fact, this bit of wisdom from Hall does apply to stocks. That’s because regardless of which way you think the market should go, sometimes people act to buy and/or sell securities in counterintuitive ways. Realizing that “the information is in the people” signals for us to pay attention to the price action in stocks — and not on how you think or want the market to behave.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Making Money Alert readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Ask Doug.

In case you missed it, I encourage you to read my e-letter from last week’s Eagle Daily Investor about what 2014’s lower interest rates mean for investors. I also invite you to comment about my column in the space provided below my Eagle Daily Investor commentary.

All the best,

Doug Fabian

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