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Canary in the Coalmine Does the Irish Jig
by Daniel Sckolnik of ETF Periscope
“Those who have knowledge, don’t predict. Those who predict, don’t have knowledge.” ~ Lao Tzu
Well, it looks like things are about to get interesting.
The last two months have seen the equity markets trend primarily upward, with volatility tilted to the light side. On the whole, bad news was either scarce or written off as being of little consequence. Momentum was clearly in the Bulls camp, with a collection of towels scattered around the market floors, tossed there by a number of sulking Bears.
Is it possible that things are about to shift?
Taken strictly by the numbers, the past week was certainly on the negative side, yet not necessarily a cause for concern. After all, any corrections that took place could hardly be considered extreme. Even strong, trending markets have them, and are simply inevitable. The degree of the correction, of course, is the focus of concern, and it is something that can only be clearly analyzed in a post-mortem sort of fashion.
The Dow Jones Industrial Average (DJIA) ended the week off 2.2%, at 11,192, down four out of five sessions, and slightly off the highs for the year. Likewise, the benchmark S&P 500 Index (SPX) ended Friday at 1,199, also off a bit over 2%, and, like the Dow, dipping back below its high for the year. The Nasdaq (COMP) went even further into the red, off 2.4% for the week. It has been on a tear the last several months, yet it, too, found itself below its highs of the year.
So several major indices shed around 2% each. Hardly catastrophic. Why should next week not be viewed as a great buying opportunity for all those favorite stocks that have been on your watch list of late? After all, consumer confidence, as measured by the Reuters/University of Michigan survey, was at its highest level in three months. Obviously some people are becoming more optimistic about the economy. So why should investors be considering the cup half-empty rather than half-full?
One word: Ireland.
There was a lot of noise in the news last week regarding the Emerald Isle, and it has mostly to do with new fears arising that Ireland could conceivably default on its debt. As is usually the case in such moments, whether speculation is based on facts or rumors, the Irish finance ministry shook its head at news reports that suggested that a $100 billion bailout plan was being cooked up by the European Union. Calmness seemed to prevail after the EU announced that current Irish sovereign bondholders wouldn’t have to take write-downs, even in the event that a bailout occurred.
Which of course won’t happen, unless it does.
If it does, however, no matter what the assurances made by the EU or anybody else, the markets will be roiled. Look no further back to spring of this year to see what even the thought of a row of dominoes being knocked down might look like.
Investors might ask themselves what strategy to consider if they thought an Irish bailout was really in the cards. One possible play would be to sell short an ETF that tracks the peripheral market of Ireland’s stock exchange. EIRL (MSCI Ireland Capped Investable Market Index) tracks the MSCI Ireland Investable Market 25/50 Index, which follows the performance of the top equity securities listed on Ireland’s stock exchanges. It is lightly traded, however, and a better play might be to go for an ETF that tracks the bigger “European Union” picture, as it is likely that the whole region would nosedive in the course of a strong helping of bad news.
VGK (Vanguard European ETF) tracks the MSCI Europe Index, which is comprised of the common stocks of the UK, France, Switzerland and Germany, with less weight going to common stocks of Austria, Belgium, Denmark, Finland, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain and Sweden. Over the course of two weeks beginning in late April, VGK tumbled over 20% during the time of uncertainty centered on Greece and the PIIGS (Portugal, Ireland, Italy, Greece and Spain.) So this ETF would certainly be good for catching the reflection of the uncertainty of the region.
Something to consider, if you think that for some reason or another, the luck of the Irish, at least in terms of the markets, might finally have run out.
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.
“Those who have knowledge, don’t predict. Those who predict, don’t have knowledge.” ~ Lao Tzu
Well, it looks like things are about to get interesting.
The last two months have seen the equity markets trend primarily upward, with volatility tilted to the light side. On the whole, bad news was either scarce or written off as being of little consequence. Momentum was clearly in the Bulls camp, with a collection of towels scattered around the market floors, tossed there by a number of sulking Bears.
Is it possible that things are about to shift?
Taken strictly by the numbers, the past week was certainly on the negative side, yet not necessarily a cause for concern. After all, any corrections that took place could hardly be considered extreme. Even strong, trending markets have them, and are simply inevitable. The degree of the correction, of course, is the focus of concern, and it is something that can only be clearly analyzed in a post-mortem sort of fashion.
The Dow Jones Industrial Average (DJIA) ended the week off 2.2%, at 11,192, down four out of five sessions, and slightly off the highs for the year. Likewise, the benchmark S&P 500 Index (SPX) ended Friday at 1,199, also off a bit over 2%, and, like the Dow, dipping back below its high for the year. The Nasdaq (COMP) went even further into the red, off 2.4% for the week. It has been on a tear the last several months, yet it, too, found itself below its highs of the year.
So several major indices shed around 2% each. Hardly catastrophic. Why should next week not be viewed as a great buying opportunity for all those favorite stocks that have been on your watch list of late? After all, consumer confidence, as measured by the Reuters/University of Michigan survey, was at its highest level in three months. Obviously some people are becoming more optimistic about the economy. So why should investors be considering the cup half-empty rather than half-full?
One word: Ireland.
There was a lot of noise in the news last week regarding the Emerald Isle, and it has mostly to do with new fears arising that Ireland could conceivably default on its debt. As is usually the case in such moments, whether speculation is based on facts or rumors, the Irish finance ministry shook its head at news reports that suggested that a $100 billion bailout plan was being cooked up by the European Union. Calmness seemed to prevail after the EU announced that current Irish sovereign bondholders wouldn’t have to take write-downs, even in the event that a bailout occurred.
Which of course won’t happen, unless it does.
If it does, however, no matter what the assurances made by the EU or anybody else, the markets will be roiled. Look no further back to spring of this year to see what even the thought of a row of dominoes being knocked down might look like.
Investors might ask themselves what strategy to consider if they thought an Irish bailout was really in the cards. One possible play would be to sell short an ETF that tracks the peripheral market of Ireland’s stock exchange. EIRL (MSCI Ireland Capped Investable Market Index) tracks the MSCI Ireland Investable Market 25/50 Index, which follows the performance of the top equity securities listed on Ireland’s stock exchanges. It is lightly traded, however, and a better play might be to go for an ETF that tracks the bigger “European Union” picture, as it is likely that the whole region would nosedive in the course of a strong helping of bad news.
VGK (Vanguard European ETF) tracks the MSCI Europe Index, which is comprised of the common stocks of the UK, France, Switzerland and Germany, with less weight going to common stocks of Austria, Belgium, Denmark, Finland, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain and Sweden. Over the course of two weeks beginning in late April, VGK tumbled over 20% during the time of uncertainty centered on Greece and the PIIGS (Portugal, Ireland, Italy, Greece and Spain.) So this ETF would certainly be good for catching the reflection of the uncertainty of the region.
Something to consider, if you think that for some reason or another, the luck of the Irish, at least in terms of the markets, might finally have run out.
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.
