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3 Market-Defining ETFs Suggest More Stock Pullbacks To Come

24 July 2012 at 1:30 pm by Gary Gordon     Bookmark and Share    Follow EtfExpert on Twitter

European headlines are getting the lion’s share of the blame for across-the-board stock weakness. And, in fact, every investor worry pales in comparison to Eurozone debt concerns.

On the other hand, weak corporate forecasts and earnings misses are also making the rounds. Most troubling?¬†The world’s largest package delivery company, United Parcels Service (UPS), missed quarterly expectations and¬†slashed its¬†profit outlook for¬†the full-year¬†period of 2012. About a month ago, Federal Express (FDX) offered up similar warnings. (And yes… deliverers are blaming the uncertainty in Europe¬†as well as uncertainty in the euro-dollar itself.)

Many investors view UPS and FDX as barometers for business health because they transport millions of packages daily. Similarly, the iShares DJ Transportation Fund (IYT) demonstrates just how fragile the economy may in fact be. The current price of this exchange-traded tracker of transporters (e.g., railroad, trucking, air freight, etc.) is currently below a long-term trendline.

IYT 200

Even as most of the chatter surrounds the usual Eurozone suspects — Greece, Spain, Italy — the media granted less attention to a disturbing¬†Moody’s downgrade. Perhaps unexpectedly,¬†Moody’s altered its outlook of the German economy from “neutral” to “negative.”¬†If the 4th¬†largest economy in the world crumbles, then a European¬†recession may eventually go global.

The iShares MSCI Germany Fund (EWG) provides an idea of whether or not investors expect German equities to rebound quickly. Unfortunately, the current price of EWG is near its June lows. Worse still, the downtrend appears intact, as EWG has run into stiff resistance on its last two attempts to recover its 200-day moving average.

EWG 200

Many continue to celebrate the resilience of U.S. stocks in a jittery global environment. However, the jubilation may not last much longer. Whereas large-cap barometers like the S&P 500, Dow and NASDAQ are still trading above their respective trendlines, the small-cap space is far less convincing.

The iShares Russell 2000 (IWM), a premier gauge, is retesting a technical downtrend. If IWM cannot turn it around soon, those without a plan to reduce risk could see severe damage to account values.

iwm 200

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Disclosure Statement: ETF Expert is a web log (‚ÄĚblog‚ÄĚ) 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.

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