Risk Levels Move Modestly Higher

By November 12, 2010Weekly Writeup

Yeah… it was a pretty bad week. The S&P 500 gave back 26 points and roughly -2.2% in value. The MSCI Emerging Market Index posted a disturbing -4.1% over the same 5 trading days.

What happened? The financial markets said good-bye to the mid-term elections as well as the Fed’s easy monetary policy via quantitative easing. In so doing, Wall Street decided to welcome back a variety of old fears.

What are those old fears? First, a developed country in Europe may not be able to pay its debts. In the “PIIGS” line-up, it was Ireland that came into focus. Second, the People’s Bank of China raised interest rates last month for the first time in 3 years. Now there’s chatter that China’s going to continue on a course of rate hikes to cool the country’s inflationary trend.

In truth, profit-takers have all but begged for some bad news. I mean really… how many weeks can stocks climb higher without a hitch? So there shouldn’t be any real surprise that stocks pulled back.

On the other hand, one can’t accurately predict when a pullback will become a correction. Worse yet, a correction can turn into a bear market if you’re not prepared.

Our primary indicators continue to show a healthy stock market bull. The S&P 500 SPDR Trust (SPY) and Vanguard Emerging Markets (VWO) are above 50-day trendlines, while the USD$ and the CBOE Volatility Index (VIX) are still below 50-day moving averages.

Nevertheless, the proximity of current prices to a 50-day support should give one cause to reflect. While there’s no reason to dramatically change your portfolio at the present time, you should note the modest changes to individual ETFs in our Fund Screener. Many Risk Levels have been raised a notch… it would be sensible to keep an eye out for changes to your specific holdings.

SPY 50

VWO 50

Dollar 50-Day

VIX 50 Day

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