Greedy In A Fearful Environment

by on June 1, 2011 | ETFs Mentioned:

There is an old Warren Buffett mantra that advises investors to be greedy when others are fearful (and vice versa). In the current environment, there is certainly no shortage of fear–or of opportunities. Despite a holiday-shortened week U.S. equity markets have been extremely volatile, surging in Tuesday trading only to crater on Wednesday thanks to a deluge of bad economic data. Both employment figures and manufacturing data came in very weak, suggesting to many that Friday’s crucial jobs report could bring bad news as well. While the sell-offs have taken some of the air our of our all-ETF portfolio, they have also created some opportunities.

Week To Date

Investors came back on Tuesday and were in a buying mood after the long holiday weekend. However, optimistic buying was a little overdone in our eyes as equity markets failed to discount the awful S&P Case-Schiller housing data, which showed U.S. home prices falling bellow their April 2009 trough. Crude oil futures rose past $103 a barrel on Tuesday, while gold on the other hand was relatively flat as investors poured back into equities. U.S. treasuries posted modest gains on Tuesday as well, alluding to a possible sell-off in the days to come since Treasurys typically have a negative correlation with equity performance.

Today, equities headed downhill as investors digested a plate of concerning economic data. The ISM Manufacturing Index fell to 53.5 from its previous reading of 60.4 in April, suggesting a significant slowdown in manufacturing activity. The ADP employment report was also extremely disappointing as only 38,000 jobs in the private sector were added versus the anticipated 175,000 which was widely expected by analysts. Moody’s Investors Services downgraded Greece’s credit rating to Caa1 from B1, citing the growing risk that the government will likely fail to stabilize its worrisome deficit and likely require debt restructuring in order to overcome its financial situation. Gold edged a little higher towards $1,540 an ounce as investors flocked to safe-havens, while oil futures took a dive lower and dipped below $100 a barrel once again. Silver also sold off and July futures sank to $36.80 an ounce during Wall Street trading hours.

Checking In: Technical Trading Ideas

This week, our technical trading ideas focused on highlighting opportunities to establish long positions in a new spread ETF, emerging market currencies, and gold. All of these picks opened higher on Tuesday as predicted, however, if volatility continues to plague nearly every asset class, then investors may find themselves scrambling for safe-havens again if not stepping to the sidelines entirely:

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