Making Money Alert
The International Equity Drubbing
05/05/2010
Tuesday’s violent drop in stocks certainly rattled equity markets around the globe. These markets already were skittish about the recent debt downgrades in Greece, Portugal and Spain. And, news that the European Union hadn’t yet reached a solution to Greece’s debt crisis really ramped up the international selling. In fact, Tuesday’s sell-off sent some rather heavily watched world indices below their long-term, 200-day moving averages.
Check out the price action here in the chart below of the iShares MSCI EAFE Index (EFA). This widely followed exchange-traded fund (ETF) is pegged to the performance of stocks traded in Europe, Australasia and the Far East. Basically, EFA can be seen as a proxy for international equities, sans the United States, throughout the globe.
As you can see, EFA plunged well below both its short- and long-term trend lines, after having made a pronounced run higher from early February to early April. But the international equity drubbing really kicked into high gear during the last week, and that selling went into hyper-drive on Tuesday.
It was much the same story for stocks traded in China. A glance here at the chart of the iShares FTSE/Xinhua China 25 Index (FXI) shows that it also now trades below both its short- and long-term moving averages. Again, this decline comes after a period of stellar upside from early February through early April.
Both of these charts clearly show the prevailing trend in international markets, so if you have a lot of international equity exposure here, you absolutely must have stop-loss orders in place on all of your international equity positions. With the endgame in Greece still undecided -- and with deadly riots in the streets over proposed austerity measures --we just don’t know how far international equity markets can fall.
The upside to this international equity sell-off is that now that these sectors have fallen below their 200-day moving averages, any resurgence in these stocks that takes them back above the international market's 200-day average likely would serve as a green light to get back into these sectors.
You see, by shaking out much of the nervous money in these stocks, and by waiting for these sectors to climb back above their long-term trend lines, you may hitch a ride on a revitalized bull market in international equities. Of course, this is a big if at this stage, especially considering that we just fell below the 200-day average on Tuesday. But I don’t think it’s ever too early to start thinking about potential buying opportunities, and while those opportunities may be a ways away, my radar is tuned to the inevitable recovery in the international equity segment.
One more interesting thing about international markets here is the percentage that these indices now are below their respective 200-day averages. In the table below, we see the “worst of the worst” when it comes to global markets.
As you can see, Spain and Italy top the list of international markets with the largest gap between current share price and their respective 200-day moving averages. Australia and Taiwan are the two international markets holding up the best here, but even these markets are in the red with respect to this all-important metric.
This table clearly shows the negative trend in markets around the globe, and it should serve as yet another reason to protect your holdings from any further international selling.
If you want to find out when international stocks are safe to buy again, then you need my Successful Investing advisory service. Our International Plan uses the movement of our proprietary International Fund Composite to tell us when to sell and when to buy international stocks. If you want to be ready for the next international equity market buying opportunity, then check out Successful Investing today.
A Flight to Safety
In the midst of the current equity sell-off, we’ve seen a big-time flight to safety in U.S. Treasury bonds. The chart below of the iShares Barclays 20+ Year Treasury Bond fund (TLT) clearly illustrates the heavy money flow into Treasuries during the last couple of weeks.
This move should come as no surprise to you, as money has a way of seeking safe harbors in times of rough waters. To be certain, bond and equity investors in Europe don’t want to tread those raucous seas right now, so much of that capital has made its way across the Atlantic and into bonds.
How much longer this bond bull can last is anyone’s guess, but I think that as long as the risk is perceived to be too great overseas, long-term Treasury bonds will remain above their 200-day moving average.
ETF Talk: A Retail Ray of Light
The stock market’s striking decline in recent days does not mean that investors have no place to take advantage of an economic rebound. One of the most likely sectors to attain sustained growth is retail.
The SPDR S&P Retail ETF (XRT) is a fund that seeks to replicate as closely as possible, before expenses, the total return performance of the S&P Retail Select Industry Index. State Street Global Advisors designed the ETF to produce portfolios that have low turnover, accurate tracking and reduced costs. The chart below shows how well the fund has performed in recent months.
A big factor in this fund’s favor is that consumer confidence is starting to rise again, and that trend should buoy the prospects for retailers significantly. A key indicator that recently grabbed my attention is the Conference Board Consumer Confidence Index, which climbed to 52.3 in March and rose further in April to 57.9. The index now is at its highest reading in about a year and a half. The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households, and it has become a respected barometer of projected consumer spending. The latest survey results, released April 27, found that the percentage of consumers expecting business conditions to improve in the next six months climbed to 19.8% from 18%, while those predicting that conditions will worsen dipped to 12.6% from 13.6%.
Consumers also expressed increased optimism about the jobs outlook. The percentage of consumers anticipating more jobs in the months ahead increased to 18% from 14.1%, while those expecting fewer jobs declined to 20% from 21.4%. Reduced fears of job losses also should bode well for retailers.
In addition, U.S. government economic data for the first quarter of 2010 provides reason for optimism. Real gross domestic product (GDP) -- the output of goods and services produced by labor and property located in the United States -- grew at an annual rate of 3.2% in the first quarter of 2010, compared to the fourth quarter of 2009, according to preliminary data from the U.S. Bureau of Economic Analysis. In the fourth quarter, real GDP increased 5.6%, so the U.S. economy clearly is on the upswing.
The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures, private inventory investment, exports, and nonresidential fixed investment that more than offset decreases in state and local government spending, as well as a decline in fixed investment. Imports, which subtract from GDP, increased. However, rising imports are a sign of increased consumption.
I currently am not recommending XRT, but I am watching it closely here. If you think the rise in retail is sustainable as the economy recovers, this ETF is a fund that you may want to consider adding to your portfolio during market pullbacks.
If you want my advice about which ETFs to buy and to sell, as well as the appropriate stop prices to use, please sign up for my ETF Trader service. As always, I am pleased to answer your questions about ETFs, so do not hesitate to email me by clicking here. You may see your question answered in an upcoming ETF Talk.
The Top 10 Income ETFs
In a recent radio show broadcast, I offered my listeners a free special report, “The Top 10 Fixed-Income ETFs for 2010.”
I made this report available for free, because I believe most fixed-income investors are using the wrong investment vehicles to achieve their goals. Many people still are using expensive mutual funds and/or individual bonds to generate a steady income stream but, in my opinion, the best tools for generating income are low-cost ETFs.
To help you identify the best income ETFs out there, I decided to compile a watch list -- and to make it available to my listeners. Now, I’ve taken this offer one step further and I’m making this top 10 income ETF list available to you, the Alert reader, absolutely free.
Unfortunately, the current low interest rate environment has prompted many fixed-income investors to take on more risk than they should, precisely at the wrong time. Most investors have forgotten that fixed-income investments can and do go down significantly, especially during periods of credit distress.
At Fabian Wealth Strategies, we specialize in actively managing fixed-income exchange-traded fund portfolios for our clients. We build portfolios that deliver monthly yield with the protection of a sell discipline on all positions. In addition, we have the capability to own funds that take advantage of a volatile interest rate environment.
Do you want help to assess your fixed-income portfolio’s current position in the market ahead? If you have any questions about the assets you own or strategies to increase your fixed-income exposure, call us right away at 800/391-1118 to schedule a free portfolio analysis.
This offer is available for goal-oriented investors with more than $250,000 in their investment portfolios. Please be prepared to discuss and/or fax us your latest portfolio statements so we can know exactly what holdings you currently own. We look forward to working with you to achieve success in 2010.
NOTE: Fabian Wealth Strategies is a Securities and Exchange Commission registered investment adviser, and is not affiliated with Eagle Publishing.
To Live Is to Fly
We all got holes to fill
And them holes are all that’s real
Some fall on you like a storm
Sometimes you dig your own
The choice is yours to make
Time is yours to take
Some dive into the sea
Some toil upon the stone
Well to live’s to fly, awe low and high
So shake the dust off of your wings
And the sleep out of your eye
--Townes Van Zandt, “To Live is to Fly”
The great folk singer/songwriter’s work is a bastion of heartfelt wisdom, pain, anguish and joy. In what is considered one of the best folk songs ever written, Van Zandt tells us that we all have problems, some come from the outside, and some are of our own making. The key to tackling these problems is to confront them in whatever manner best suits you, and to embrace the inevitable lows and highs that come along with being human. Now I ask you, what could be more insightful than that?
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 Alert readers, send it to me, along with any comments, questions and suggestions you have about my radio show, newsletters, seminars or anything else. Click here to ask Doug.
Sincerely,
Doug Fabian
P.S. Don’t miss out on the 22nd annual MoneyShow Las Vegas, May 10-13, 2010, at Caesars Palace. This event will be your one-stop resource for the comprehensive education, efficient research, and valuable advice you need to make smart investment decisions in 2010 and beyond. Join me and hear leading experts reveal where they see growth opportunities in stocks, bonds, ETFs, commodities, and options. Also hear about which overseas markets may outperform in the near term. Visit The MoneyShow Las Vegas to register FREE online, or call 800/970-4355 and mention priority code 017444 today!
P.P.S. My publisher, Eagle Financial Publications, is now on Facebook. Click here to see our page and be sure to become a fan when you get there.