Business Magazine

ETF Periscope: Are the Markets About to Slip in the Greece?

Posted on the 16 May 2011 by Phil's Stock World @philstockworld

Courtesy of Daniel Sckolnik, ETF Periscope

Share

Are the Markets About to Slip in the Greece?

by Daniel Sckolnik of ETF Periscope

“This is one of those cases in which the imagination is baffled by the facts.” — Adam Smith

ETF Periscope: Are the Markets About to Slip in the Greece?
Timing is everything. Certainly a truism in regard to the markets, and frequently just as accurate a statement in regard to individuals on the world stage. Really, could anyone have a worse sense of timing than the current chief of the International World Bank?

True, the European sovereign debt crisis has recently begun to re-emerge onto the front pages of newspapers and financial blogs on its own, after having been relegated, primarily, to the far recesses of the business pages for majority of the last year. Showering 157 billion dollars onto a problem, in this case, Greece’s bailout by the European Union and the IMF, tends to have that effect, or at least, hopefully so.

However, even with an increasing level of protests on the streets of Greece, ongoing posturing by individual EU countries to withdraw from the common currency of the Euro, and rising levels of frustration by Germany at providing additional levels of bailout funds, it is likely a safe bet to say, outside the relatively small number of business and financial news junkies who follow such events, that the majority of Americans probably haven’t been following this particular storyline that closely.

That is likely to change, at least for the time being. And why is that?

Simple. The story has just added the crucial elements that catch just about everyone’s attention. Sex and scandal. 

As mentioned, timing is everything. So, while a key European meeting of the IMF is scheduled to take place on Monday, during which time a discussion on giving an untold number of additional billions to Greece is certainly high up on the agenda, it will be held without the IMF’s managing director, as he is currently being detained by the NYPD, who arrested him Sunday in New York on suspicion of sexual assault upon a hotel employee. And, while it is obviously both too early and quite unfair to pass judgment on the man at this moment, his guilt or innocence is, unfortunately, largely irrelevant, at least in terms of the publicity the IMF and its current mission is about to receive.

How will the equity market respond to the news? Likely, it will shrug it off, though it could cause a serious dip down upon opening Monday morning, not because the IMF chief is irreplaceable, but because of the new scrutiny the problems of the EU shall receive. However, the real impact could have a more prolonged affect.

How so?

It is a matter of perception. While news of continued instability among several of the PIIGS (Portugal, Ireland, Italy, Greece, Spain) is not much of a surprise to anyone who has been paying attention, it might become another brick in the wall of the bigger picture. The potential of additional bailout dollars going to Portugal and Ireland would indicate a deep systemic problem that will not go away no matter what the level of resolve of the European Union might be.

Still, if it was a stand-alone event in the macro-economic picture, the markets would likely be swayed, but not shaken. But it’s not. Add in the ongoing chaos in the Middle East/Northern Africa political scene and you could understand how volatility in the markets might get amped up.

Oh, and what about commodities? Yes, gold, silver, and crude oil are all battling for some levels of stability, but they are seemingly not there to be found. Particularly among the precious metals, the jury of speculators remains out as to whether the bubble has popped or a new round of opportunity buying has arisen.

Taken together, all these events could arguably start to take on a certain level of negative synergy.

That’s not even taking into consideration a rather extended foray into “Recession Land” here at home. For example, last week’s Labor Department report on consumer prices showed an unadjusted 3.2% jump in prices. For some odd reason, whenever these inflationary numbers are recited, the data is often given with the caveat that the rise in prices is due to the high cost of gas at the pump, as if that is somehow reassuring. Not much has changed in the last several months in regard either to the housing markets or the unemployment issues with which the country continues to wrestle.

The point, then, is that a bright spotlight on the EU’s problems, regardless of the situation that caused the illumination, may affect the markets more in the long term than the short term.

Human nature being what it is, we like a good scandal. The markets, however, might prefer dark sunglasses to a hot glare.

What the Periscope Sees

One man’s scandal is, of course, another paparazzo’s fine payday. There are, in any market conditions, opportunity. In that spirit, here are a few ETFs presented for your consideration.

One of the tools I use in evaluating ETFs is Sabrient’s ETFCast Rankings. They consist of more than 300 ETFs (exchange-traded funds) that are ranked and scored via 19 of Sabrient’s proprietary analytics, that, when taken together, offer a forward-looking take on the markets.

To begin with, consider XLV (Health Care Select Sector SPDR), which tracks the Health Care Select Sector Index. This index includes companies from these industries:  pharmaceuticals. health care providers & services, health care equipment & supplies, biotechnology, and health care technology.

Technically speaking, XLV is well above both its 50-day and 200-day moving average and is at its all-time high.

Also consider PPH (Merrill Lynch Pharmaceutical HOLDRS), which is not linked to a specific benchmark.  On the technical side, PPH is also situated well above its 50-day and 200-day MA. It also currently sits at its all-time high.

Because of the current volatility in the markets, I find that the VIX (Chicago Board Options Exchange Market Volatility Index) serves as a good hedge to help protect one’s long choices. It is often referred to as the “fear index,” since, by its very nature, it is hyper-responsive to the moods of the markets. When it is low, it means that implied volatility is down. When it goes up, it means volatility levels are up.

Here, then, are two ETNs that can be used as hedging tools. They are both based upon the VIX, but are gauged to follow the futures at various contract time periods.

First, there’s VXX, (iPath S&P 500 VIX Short-Term Futures ETN), which tracks the VIX. It offers exposure to VIX futures contracts and reflects the implied volatility of the S&P 500 Index.

Next, there’s VXZ (iPath S&P 500 VIX Mid-Term Futures ETN). This tracks the S&P 500 Mid-Term Futures Index, which offers exposure to slightly longer term VIX futures contracts than the VXX.

ETF Periscope

Full disclosure:  The author does not personally hold any of the ETFs mentioned in this week’s “What the Periscope Sees.”

Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.

“This is one of those cases in which the imagination is baffled by the facts.”– Adam Smith

Timing is everything. Certainly a truism in regard to the markets, and frequently just as accurate a statement in regard to individuals on the world stage. Really, could anyone have a worse sense of timing than the current chief of the International World Bank?

True, the European sovereign debt crisis has recently begun to re-emerge onto the front pages of newspapers and financial blogs on its own, after having been relegated, primarily, to the far recesses of the business pages for majority of the last year. Showering 157 billion dollars onto a problem, in this case, Greece’s bailout by the European Union and the IMF, tends to have that effect, or at least, hopefully so.

However, even with an increasing level of protests on the streets of Greece, ongoing posturing by individual EU countries to withdraw from the common currency of the Euro, and rising levels of frustration by Germany at providing additional levels of bailout funds, it is likely a safe bet to say, outside the relatively small number of business and financial news junkies who follow such events, that the majority of Americans probably haven’t been following this particular storyline that closely.

That is likely to change, at least for the time being. And why is that?

Simple. The story has just added the crucial elements that catch just about everyone’s attention. Sex and scandal.

As mentioned, timing is everything. So, while a key European meeting of the IMF is scheduled to take place on Monday, during which time a discussion on giving an untold number of additional billions to Greece is certainly high up on the agenda, it will be held without the IMF’s managing director, as he is currently being detained by the NYPD, who arrested him Sunday in New York on suspicion of sexual assault upon a hotel employee. And, while it is obviously both too early and quite unfair to pass judgment on the man at this moment, his guilt or innocence is, unfortunately, largely irrelevant, at least in terms of the publicity the IMF and its current mission is about to receive.

How will the equity market respond to the news? Likely, it will shrug it off, though it could cause a serious dip down upon opening Monday morning, not because the IMF chief is irreplaceable, but because of the new scrutiny the problems of the EU shall receive. However, the real impact could have a more prolonged affect.

How so?

It is a matter of perception. While news of continued instability among several of the PIIGS (Portugal, Ireland, Italy, Greece, Spain) is not much of a surprise to anyone who has been paying attention, it might become another brick in the wall of the bigger picture. The potential of additional bailout dollars going to Portugal and Ireland would indicate a deep systemic problem that will not go away no matter what the level of resolve of the European Union might be.

Still, if it was a stand-alone event in the macro-economic picture, the markets would likely be swayed, but not shaken. But it’s not. Add in the ongoing chaos in the Middle East/Northern Africa political scene and you could understand how volatility in the markets might get amped up.

Oh, and what about commodities? Yes, gold, silver, and crude oil are all battling for some levels of stability, but they are seemingly not there to be found. Particularly among the precious metals, the jury of speculators remains out as to whether the bubble has popped or a new round of opportunity buying has arisen.

Taken together, all these events could arguably start to take on a certain level of negative synergy.

That’s not even taking into consideration a rather extended foray into “Recession Land” here at home. For example, last week’s Labor Department report on consumer prices showed an unadjusted 3.2% jump in prices. For some odd reason, whenever these inflationary numbers are recited, the data is often given with the caveat that the rise in prices is due to the high cost of gas at the pump, as if that is somehow reassuring. Not much has changed in the last several months in regard either to the housing markets or the unemployment issues with which the country continues to wrestle.

The point, then, is that a bright spotlight on the EU’s problems, regardless of the situation that caused the illumination, may affect the markets more in the long term than the short term.

Human nature being what it is, we like a good scandal. The markets, however, might prefer dark sunglasses to a hot glare.

What the Periscope Sees

One man’s scandal is, of course, another paparazzo’s fine payday. There are, in any market conditions, opportunity. In that spirit, here are a few ETFs presented for your consideration.

One of the tools I use in evaluating ETFs is Sabrient’s ETFCast Rankings. They consist of more than 300 ETFs (exchange-traded funds) that are ranked and scored via 19 of Sabrient’s proprietary analytics, that, when taken together, offer a forward-looking take on the markets.

To begin with, consider XLV (Health Care Select Sector SPDR), which tracks the Health Care Select Sector Index. This index includes companies from these industries: pharmaceuticals. health care providers & services, health care equipment & supplies, biotechnology, and health care technology.

Technically speaking, XLV is well above both its 50-day and 200-day moving average and is at its all-time high.

Also consider PPH (Merrill Lynch Pharmaceutical HOLDRS),which is not linked to a specific benchmark.On the technical side, PPH is also situated well above its 50-day and 200-day MA. It also currently sits at its all-time high.

Because of the current volatility in the markets, I find that the VIX (Chicago Board Options Exchange Market Volatility Index) serves as a good hedge to help protect one’s long choices. It is often referred to as the “fear index,” since, by its very nature, it is hyper-responsive to the moods of the markets. When it is low, it means that implied volatility is down. When it goes up, it means volatility levels are up.

Here, then, are two ETNs that can be used as hedging tools. They are both based upon the VIX, but are gauged to follow the futures at various contract time periods.

First, there’s VXX, (iPath S&P 500 VIX Short-Term Futures ETN), which tracks the VIX. It offers exposure to VIX futures contracts and reflects the implied volatility of the S&P 500 Index.

Next, there’s VXZ (iPath S&P 500 VIX Mid-Term Futures ETN). This tracks the S&P 500 Mid-Term Futures Index, which offers exposure to slightly longer term VIX futures contracts than the VXX.

ETF Periscope

Full disclosure:  The author does not personally hold any of the ETFs mentioned in this week’s “What the Periscope Sees.”

Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.

Post to Twitter
Tweet This Post


You Might Also Like :

Back to Featured Articles on Logo Paperblog

These articles might interest you :

Magazines