quinta-feira, 18 de fevereiro de 2010

ALERT 02/17/10: A Tale of Two Markets

Doug Fabian's
Making Money Alert
MakingMoneyAlert.com | Fabian.comWednesday, February 17, 2010
In This Issue:
» NEW! Video Alert
» A Tale of Two Markets
» Consulting My CPA
» ETF Talk: Europe's Worrisome Debt
» Don't Be a Mutual Fund Dinosaur
» A Little Tax Humor 
By: Doug Fabian | Editor, Successful Investing | President, Fabian Wealth Strategies
A Tale of Two Markets 
Last week, we witnessed the U.S. equity markets make a solid push higher, and we now are trading well above the February lows. In fact, we now are trading right below the key, 50-day moving average (blue line) on the S&P 500 Index (see chart below). I suspect that this market, indeed, may blow past this short-term technical indicator and, if it does, it likely will signal at least the temporary retreat of those bears that came out so forcefully in January.

If we do break above the 50-day moving average, it will not mean you should add money to stocks immediately. In fact, I would love to see more selling back toward the longer-term, 200-day moving average (red line) before I commit any significant long-term investment capital to equities.

The current “trade location,” as I often call the entry point, is just not that favorable in U.S. stocks, especially considering the volatility we’ve seen during the past four-plus weeks. I think if you are waiting to get back into U.S. stocks here, you might want to just continue being patient and wait things out to see if we do, in fact, break well above the 50-day average. If we see some strong-conviction buying here, then it might signal the all-clear sign. But until we see that conviction, I recommend that you stay patient and wait for a better entry point.

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So much for U.S. stocks, but what about the fortunes of one of the leading foreign markets in the world, China? As you likely know, that country’s equity markets have had a very rough go of it lately, as can be seen by the chart below of the iShares FTSE/Xinhua 25 (FXI).

This measure of the top 25 stocks listed on the Hong Kong exchange now trades below both its 50- and 200-day moving averages. And, while you could say that this is better trade location, i.e., a better entry point for capital vs. U.S. equities, I think you have to put the China pullback into its wider context.

That country has sold off lately on two big increases in bank reserve requirements during the last month or so, and fears of a bursting China bubble still haunt the equities market. While I do not yet know whether China is through turning down the spigot on its monetary stimulus, I do know that the worry over slower economic growth in that country, indeed, has contributed to the very sharp sell-off in its equity markets.

All year, I’ve been telling you to watch China, as it could be the proverbial canary in the coal mine that gives us the heads up on a wider global sell-off. So far in 2010, we have received strong signals that things are going to be tough for the bulls.

Will this China selling continue, and/or will the U.S. markets manage to come out of their funk before long? We’ll continue watching this tale of two markets for complete details -- and for the green light to put money to work in both domestic and international equities.

Consulting My CPA 

It’s now February, and that means tax season is in full swing. During the past week, I’ve been working particularly hard on my own tax situation, and I’ve been meeting regularly with my CPA, Lee Haight. Now, you may remember the excellent article that Lee wrote about taxes last December.

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In that article, Lee showed you how to make the most of your year-end tax planning by getting out in front of some of the rule changes slated for 2010. Those rules are numerous, and much more voluminous than one can cover in a short article.

So, to help you plan even further for this year’s taxes, I’ve invited Lee to be my guest this Saturday on my radio show, Making Money with Doug Fabian.

In what promises to be a most insightful hour, Lee will tell you how best to prepare for this year’s taxes -- taxes that are due in less than two months!

If you want to find out how a real professional approaches things this time of year, then you must listen to the show on Saturday.

To prepare for the show, or if you just want to hear my discussion with Lee right now, then I have a special treat for you. Last week, I conducted an interview with Lee, recorded it, and I now have made that interview available at DougFabian.com.

If you want to find out what you need to be doing right now to get yourself prepared for April 15, then I highly recommend that you listen to this interview now.

ETF Talk: Europe’s Worrisome Debt 

Greece’s fiscal woes have dominated the news in recent weeks but what you may not know is how to profit from the news. Although the European Union has promised to address the situation, Greece is not the only European country currently struggling with its debt load. The fiscally faltering countries to watch are Europe’s so-called PIIGS -- Portugal, Ireland, Italy, Greece and Spain.

Investors worried about potential fiscal meltdowns in these countries may want to take a well-diversified, international position to avoid fallout from potential financial bloodletting among the PIIGS. One way to do so is by investing in iShares MSCI EAFE Index (EFA). This exchange-traded fund (ETF) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of publicly traded securities in the European, Australasian, and Far Eastern markets that are tracked by the MSCI EAFE Index. EFA currently is not one of my recommendations but it is a fund that offers limited exposure to the troubled PIIGS. The fund focuses on the developed markets that generally are protected from dire debt woes.

The biggest holdings in EFA, as of the end of January, were in Japan, 22.11%; the United Kingdom, 21.37%; France, 10.06%; Australia, 8.16%; Switzerland, 7.82%; and Germany, 7.66%. Two of the PIIGS, Spain, 4.3%, and Italy, 3.29%, follow. With only limited exposure to the PIIGS, the fund offers a chance to benefit from international exposure without taking excessive risk.

Key sectors held by the fund at the end of January were financials, 25.09%; industrials, 11.58%; consumer staples, 10.28%; materials, 9.86%; consumer discretionary, 9.82%; and health care, 8.42%. That degree of sector diversification helps insulate the fund from an overdependence on the performance of a given industry.

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The stocks that composed the biggest shares of the portfolio’s positions, at the end of January, were HSBC Holdings PLC, 1.91%; BP PLC, 1.8%; Nestle SA-REG, 1.7%; Total SA, 1.26%; Roche Holding AG-Genusschein, 1.22%; and BHP Billiton Ltd., 1.2%. Clearly, an individual company does not account for an inordinate part of the fund’s performance. The lack of concentration in any particular position should reassure investors who do not want the fund to be dependent on one geographic region, industry or specific company.

If you think the market’s rebound during the past few days is the start of a trend, EFA offers a way to tap future gains. Its diversification also limits the fund’s risk. With market conditions remaining volatile, protecting your assets should be one of your top considerations.

Do you want advice about which ETFs to buy and to sell? If so, please sign up for myETF Trader service by clicking here. As always, I am pleased to answer your questions about ETFs, so do not hesitate to email me if you have one. To send an ETF question to me, simply click here. You may see your question answered in a future ETF Talk.

Don’t Be a Mutual Fund Dinosaur 

Does your investment strategy still consist of buying and holding mutual funds? If so, then you might be considered a “mutual fund dinosaur.”

You see, with the volatility we’ve seen in the markets over the past couple of years, and with innovative products such as exchange-traded funds now heavily populating the investment landscape, a failure to evolve from investing in primitive mutual funds could have your assets going the way of the dinosaurs.

In my latest radio show, broadcast Feb. 13, my sons David and Michael stood in for me and devoted nearly the entire hour to a discussion of mutual funds. They explained that in many cases, mutual funds just aren’t serving investors the way they should. They also explained that for many investors, exchange-traded funds are the much better investment option.

If you’re primarily a mutual fund investor, or if you own any mutual funds right now, you need to listen to this most informative -- and most entertaining -- broadcast hour. To listen to this episode, click here.

A Little Tax Humor 

“I’m proud to pay taxes in the United States; the only thing is, I could be just as proud for half the money.”

--Arthur Godfrey

The late, great humorist pretty much hit the nail on the head with his comedic insights into our tax system. I’d venture to say that most of us don’t mind paying our fair share for the country’s expenditures, but what we really don’t want to be is overtaxed.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Alert readers, send it to me, along with any comments, questions and suggestions you have about my radio show, newsletters, seminars or anything else. Click here to Ask Doug.


Doug Fabian

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