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Friday, March 29, 2024

ETF Periscope: Catching the Wave with a Sieve

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Catching the Wave with a Sieve

by Daniel Sckolnik of ETF Periscope

Your net worth to the world is usually determined by what remains after your bad habits are subtracted from your good ones.” ~ Benjamin Franklin

September’s uptrend seems to be sequencing into October without missing a beat. And it’s a rhythm that retail investors finally may find themselves unable to resist. But is the tune they’re hearing already at the middle or maybe closer to the end?

Retail traders, many whom have been on the sidelines for months still licking their wounds from hard hits over the last two years, may not be able to stay on the bench for a whole lot longer. Missed opportunities can drive an investor wild, causing him to forget why he has sworn off, at least temporarily, the markets in the first place. With gold soaring, who can remember all the angst suffered as many investors watched their IRAs shrink by large fractions during the financial crisis of ’08 and ’09? With oil establishing a solid base at the $80 level, it could be convenient to forget the gasps of horror as stop loss orders caused many small investors large losses in May’s flash crash. With equities appearing to be trending towards highs for the year, and even retailers flaunting small but solid gains, aren’t the waters looking pretty enticing?

This week saw gains in the markets in just about every area you could hope for (assuming you’re not one of the Bears growling and pawing at the dirt in frustration) and in some cases, in significant ways. The Dow Jones Industrial Average (DJIA) ended the week at 11,006, the highest it’s been in over five months. It has tested the level of 11,000 intraday a few times throughout the week, finally pulling itself above this psychologically important level on Friday. It is well above both its 50-day and 200-day moving averages at this point, and has also established itself well above trend-lines drawn from 2010’s highs established back in April at the 11,200 level. There should be little resistance between the current level and those highs.

What happens at that point, of course, remains to be seen. But the current trend certainly points to that being the next level up. Could a decent retail season be the catalyst to push the equity markets up to new highs? Current sentiment seems to be in concordance with this trend, as evidenced by the shrug-off of what might easily have been regarded as negative news, in the form of a slightly worse–than-expected jobs report on Friday. However, beauty, or in this case market data, is indeed in the eye of the beholder, as the markets seem to be falling in love with the premise that the Federal Reserve will likely be jacking up another round of monetary stimulus.

Why should this boost the markets? Two words: weaker dollar. This has usually been translated into stronger equities. So essentially, market data seems to be supporting the notion of the idea that equities are not a bad place to be right now.

More evidence? How about a gander at the tech arena? The Nasdaq Composite (COMP) ended Friday at 2,401.91, good for a 1.3% gain on the week. The broad-based benchmark S&P 500 Index (SPX) performed even more strongly, ending up 1.7% for the week.

And as repetitive as it sounds, gold once more hit all-time highs this week, though it eased a bit off those highs on Friday.

Time to throw caution to the wind and catch the wave?

Maybe. Maybe not.

Though there seem to be a number of strong fundamental reasons that gold can continue to climb, it might be wise to recall Newton and the apple, and that things do come down from on high. Also, if you look at the current levels of the DJIA, and realize that they have risen a sweet 10% in just over 5 weeks, it wouldn’t seem amiss to assume that a correction could be in order right now, just one piece of bad news away.

The wave is fun to ride if you’re on top of it, but a bummer if you happen to catch yourself as it crashes over you. Figuring out if this is the right time to enter shouldn’t be a coin-toss. Find something that supports your joining in on the dance, or just sit out another round until you’re sure the music is a tune you can dance to.

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.

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