The Big Picture for the Week of May 30, 2010

It appears as though things are getting a little dicier in the market. Emotion is clearly elevated as indicated by the now, but probably only temporary, ability of the market to have huge swings in a given day or big moves in one just one direction for a day. My thought along these lines has been that these exaggerated moves are signs of a fragile market. Fragile does not have to mean that it will implode or even go down in a meaningful way from here, maybe a run down to the low we’ve hit twice recently will do it but of course we don’t know at this point. For now the 200 DMA still looks important. The huge, I tweeted it was a panic, rally on Thursday stopped about a point under the 200 DMA, one point. Friday was obviously a down day and the S&P 500 is currently about 15 or 16 points below the indicator. From having one eye on CNBC it seems like most of the TV guests view this as a correction in a bull market while more people in print view the rally from a year ago March as a bear market rally or what I like to call a feel good rally. Throughout I have been saying that the worst financial crisis in 80 years won’t wrap up in 18 months and that at some point there would be a another decline that would scare the hell out of people. Whether the low for the current move is in or not, an emotion fueled, fast run back to 1200 will not be...

Why Do You Have To Use An ETF?

Early in the day yesterday Matt Hougan from IndexUniverse and Paul Justice from Morningstar were on CNBC to talk about ETFs that invest in Europe. Simon Hobbs seemed to ask most of the questions and apparently was feeling feisty. Matt seemed to favor Germany and the Nordics (I am a big fan of the Nordics myself) and (sarcasm alert) shockingly Paul went as broad as possible. Then Simon asked what’s the matter with stock picking, why does anyone need an ETF, why not just buy a stock? Then he asked if this line of questioning was heresy. Matt noted that many investors are not very comfortable picking stocks which is true and he also made a similar argument as I make for country selection which ETFs allow for. Paul suggested the Vanguard European ETF (VGK) or the iShares EMU ETF (EZU). Paul also made a case for healthcare that seemed out of context to the interview. Matt laced into him for picking VGK and EZU because they take in the good and the bad. The premise of the conversation seemed off to me. The question is not should people buy ETFs that invest in Europe. From the top down the first thing to decide whether or not to invest in Europe and then depending on that answer what is the best way to do it. If you do want in, are you most interested in a country, a sector or the whole thing? If you want the whole thing, this would make no sense to me but some folks must want something like VGK, you know what to buy;...

Why Do You Have To Use An ETF?

Early in the day yesterday Matt Hougan from IndexUniverse and Paul Justice from Morningstar were on CNBC to talk about ETFs that invest in Europe. Simon Hobbs seemed to ask most of the questions and apparently was feeling feisty. Matt seemed to favor Germany and the Nordics (I am a big fan of the Nordics myself) and (sarcasm alert) shockingly Paul went as broad as possible. Then Simon asked what’s the matter with stock picking, why does anyone need an ETF, why not just buy a stock? Then he asked if this line of questioning was heresy. Matt noted that many investors are not very comfortable picking stocks which is true and he also made a similar argument as I make for country selection which ETFs allow for. Paul suggested the Vanguard European ETF (VGK) or the iShares EMU ETF (EZU). Paul also made a case for healthcare that seemed out of context to the interview. Matt laced into him for picking VGK and EZU because they take in the good and the bad. The premise of the conversation seemed off to me. The question is not should people buy ETFs that invest in Europe. From the top down the first thing to decide whether or not to invest in Europe and then depending on that answer what is the best way to do it. If you do want in, are you most interested in a country, a sector or the whole thing? If you want the whole thing, this would make no sense to me but some folks must want something like VGK, you know what to buy;...

Does The 200 Day Matter This Time?

I disclosed buying shares of ProShares Ultrashort S&P 500 (SDS) late last Friday as it was the second day that the S&P 500 closed below its 200 DMA. I also telegraphed well ahead of time that that is exactly what we would do when and if the time came. An important thing to remember, and I say this a lot, is that an actively managed portfolio is a series of decisions and some of those decisions will be wrong. What matters more is whether a decision is wrong over some reasonable period of time as opposed to a few days or a week. That being said anytime I place a trade for clients I think about whether the trade will be immediately “wrong.” This is more of a personal amusement thing as no trade I have ever placed for clients was done so with the intention of getting out in a week. The purchase of SDS last week was not immediately wrong but of course the market could go up to take back the 200 DMA and as mentioned when I disclosed the trade I would act in a very tactical manner. To the title of this post a breach of the 200 DMA is sometimes a short lived thing and not a precursor to down a lot. It does seem that the 200 DMA does matter this time. The behavior since the breach has not been that healthy–panic buying is not healthy– and as Dennis Gartman might say the chart wants to go from the upper left to the lower right. And again if I am wrong I...

Does The 200 Day Matter This Time?

I disclosed buying shares of ProShares Ultrashort S&P 500 (SDS) late last Friday as it was the second day that the S&P 500 closed below its 200 DMA. I also telegraphed well ahead of time that that is exactly what we would do when and if the time came. An important thing to remember, and I say this a lot, is that an actively managed portfolio is a series of decisions and some of those decisions will be wrong. What matters more is whether a decision is wrong over some reasonable period of time as opposed to a few days or a week. That being said anytime I place a trade for clients I think about whether the trade will be immediately “wrong.” This is more of a personal amusement thing as no trade I have ever placed for clients was done so with the intention of getting out in a week. The purchase of SDS last week was not immediately wrong but of course the market could go up to take back the 200 DMA and as mentioned when I disclosed the trade I would act in a very tactical manner. To the title of this post a breach of the 200 DMA is sometimes a short lived thing and not a precursor to down a lot. It does seem that the 200 DMA does matter this time. The behavior since the breach has not been that healthy–panic buying is not healthy– and as Dennis Gartman might say the chart wants to go from the upper left to the lower right. And again if I am wrong I...