ETF Expert

Are investors being lulled into a false sense of complacency? They may be.

Consider the following:

1. One brief trading day ago, the S&P 500 hit 1039 to set yet another intra-day peak in the 6-month cyclical bull. What’s more, the U.S. markets finished August out by closing less than 1% from a closing high on August 27. Meanwhile, the Claymore BRIC Fund (EEB) that represents Brazil, Russia, India and China is nearly 6% off its closing high set back on August 7.

2. After watching the CBOE Volatility Index (VIX) steadily decrease from March through mid-July, we’ve seen the VIX stabilize near 25 for over 6 weeks. Not only is 25 still somewhat elevated on a historical basis, but the current VIX at 26 and climbing is threatening a 50-day moving average. Simply stated, if volatility holds at 25 and/or heads much higher, we’re likely to see large selloffs on major stock indexes.

3. Over 3 months, we witnessed the strongest moves from the riskiest stock assets. Developing markets like South Korea (EWY) and Malaysia (EWM) were particularly solid. Moreover small caps in the Russell 2000 (IWM) and tech in the Nasdaq 100 (QQQQ) pushed double digit percentage gains.

Yet the story is completely different for the singular month of August. Later-stage bull market winners like large-caps in the iShares S&P 500 (IVV) outhustled both the small-cap Russell 2000 benchmark and the Nasdaq 100. Similarly, developed market indexes like the iShares Europe 350 (IEV) trounced emerging markets like iShares Brazil (EWZ) and iShares South Korea (EWY).

The evidence that investors are shying away from risk continues to mount. Emerging markets, particularly China, began pulling back from cyclical bull highs earlier than developed markets. Volatility (VIX) is in a holding pattern. And riskier assets didn’t perform as well in the month of August as large-cap U.S. and Europe.

Does this mean that all is lost? No… I don’t think so. Yet I’d be prepared for a difficult September with tight stop-loss protection. Equally important, I’d want to see compelling evidence of riskier stock ETF participation (e..g., small cap, tech, emerging markets, etc.) going forward.

If you’d like to learn more about ETF investing… then tune into ”In the Money With Gary Gordon.” You can listen to the show “LIVE”, via podcast or on your iPod.

Disclosure Statement: ETF Expert is a web log (”blog”) that makes the world of ETFseasier to understand. Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.

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