THE FINAL NUMBERS
NEWS: A mildly weak open turned into one of the worst days in weeks for the US stock market. The Dow finished the day lower by 207 points or 1.6%. The S&P 500 took a bigger hit, dropping 25 points or 1.8%. The NASDAQ tumbled 44 points or 1.8%. Oil closed at a new record high, finishing up $1.69 at $123.53/barrel. Gold fell $6.50 to $871.20/ounce after the US Dollar rose.
THE BOTTOMLINE: The market was due for a pullback, but I am not happy with the magnitude of today’s drop that took the S&P 500 back below the 1400 breakout level. I expect a quick snap back above 1400 by the end of the week if the bulls want to remain in control of this market. A failure to get back above 1400 on the S&P 500 is very negative in the short-term and will result in technical selling, especially in the financials. The financial sector was the major culprit of the late-day selling with the SPDRs Financial ETF (symbol: XLF) dropping 3.9% on the session.
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McCALL’S CALL - FALSE BREAKOUT?
NEWS: One day after I was praising the breakout of the major indices, the S&P 500 fails to hold above 1400 and is in danger of more downside in the coming week.
THE BOTTOMLINE: Not only has the S&P 500 failed to hold above very important support, the index also triggered a sell signal on the RSI indicator. When the RSI falls out of overbought territory it triggers an RSI Crossover Sell Signal; this occurred today. At the same time the RSI created a Negative Divergence. When the S&P hits a new high, the RSI should follow with a higher high. When the price continues to increase as the RSI does not, it creates a divergence; in this case it is negative. The combination of the 2 RSI sell signals is concerning in the short-term and could lead to more downside on the index. I will look for support at the 1375-1380 area, approximately 1% below today’s closing price. The chart below gives you more insight into the 2 RSI sell signals.
DAILY ETF BULLETIN - THE DIFFERING WORLD OF ENERGY ETFs
NEWS: With oil topping $122 today, the energy sector has attracted investors with varying degrees of market knowledge. This can be dangerous because not all stocks are created equal and the same can be said for the energy ETFs.
THE BOTTOMLINE: The HOLDRS Oil Service ETF (symbol: OIH), PowerShares Energy Sector ETF (symbol: PXI), and PowerShares DB Energy ETF (symbol: DBE) all sound similar to me. So for the novice investor it may result them buying the energy ETF that happens to pop into their head first. When in actuality, the three energy ETFs could not be any farther from the same.
OIH is composed of a basket of energy stocks that deal with equipment, services, and drilling. PXI on the other hand has an array of energy stocks that include the major integrated companies as well as the refiners. The top then holdings of each ETF are nearly 100% different. The performance year-to-date also varies; OIH is up 7% and PXI has gained 13%. DBE has blown the doors off both ETFs, gaining 32% in 2008. So why has DBE done so much better than its competitors? For starters, they are not competitors. Both OIH and PXI invest in energy stocks and DBE invests in commodity futures. DBE is made up of futures contracts in crude, gasoline, heating oil, and natural gas. Investing in an energy stock and energy commodity is like night and day to the astute investor.
The point I am trying to convey to you is that ETFs can be great tools for the individual investor, however they can be dangerous in the wrong hands. Before considering putting your hard-earned money into any ETF please consult a professional.
Have a great night,
Matt McCall
www.pennfinancialgroup.com