Even the bulls have been hedging their commentary lately. For example, Blackrock’s Bob Doll frequently points to accommodative monetary policy, strong corporate results and an increasingly self-sustaining economy as reasons for stocks to grind higher. More recently, though, the chief equity strategist acknowledged economic malaise by philosophizing, “A significant acceleration or deceleration in the pace of jobs growth has the potential to change almost anything.”

Translation? Stocks are currently pulling back. However, if corporations refrain from hiring on a large scale going forward, the anticipated sell-off may become a bearish nightmare.

Hedging commentary is one thing. Short-selling and/or a clear unwillingness to buy domestic equities is another. Indeed, you almost get the sense that the short sellers, “wait-n-seers” as well as the dip-buyers have collectively pre-determined that the S&P 500 will hit new lows in 2011.

On the flip side, emerging market small caps appear to have already hit their low point in mid-March. Their slow, steady decline actually began in November of 2010, as central banks around the world raised interest rates to fight inflation.

In other words, U.S. stocks may be fretting the end of the ultra-accommodative QE2 and/or Fed assistance beyond 0% interest rates. Yet small cap emergers are anticipating easier monetary policy as rate hikes come to a close.

How can you tell? Emerging Market Small Cap ETFs have been distancing themselves from their 2011 lows.

Emerging Market Small Cap ETFs: % Distance From 2011 Lows  
            % Above
Market Vectors Small Cap Brazil (BRF)     14.2%
WisdomTree Emerging Small Cap Dividend Fund (DGS)   11.3%
SPDR S&P Emerging Market Small Cap (EWX)    10.3%
IQ South Korea Small Cap (SKOR)      10.0%
Market Vectors India Small Cap (SCIF)     8.8%
Market Vectors Latin America Small Cap (LATM)   6.9%
Guggenheim China Small Cap (HAO)     2.9%
S&P 500           2.2%


Other encouraging signs? The SPDR S&P Emerging Market Small Cap Fund (EWX) reversed its bearish “death cross” in favor of the more bullish “golden cross.” More specifically, the 50-day moving average recently climbed back above the 200-day moving average.

EWX 50 200

You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can review more ETF Expert features here.

Disclosure Statement: ETF Expert is a web log (”blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.

Leave a Reply