Dynamic Growth ETF Portfolio
NEW BUYS:
None
NEW SELLS:
DND: Wisdom Tree Pacific Ex-Japan Total Dividend- N/A
SWITCHES:
None
Here are our Top 10 ETF's for the week of October 22nd:
1) FXI- iShares FTSE/Xinhua China 25- .747
2) PGJ: PS Golden Dragon China Fund- .698
3) EEB: Claymore ETF BNY BRIC- .583
4) ITA- iShares DJ Aerospace & Defense-.575
5) EWS: iShares MSCI Singapore (Free) Index Fund-.574
6) IXP: Telecommunications Sector Index Fund- .553
7) IAH- Internet Architecture HOLDRs Trust-.551
8) PPA- PS Aerospace & Defense- .531
9) IHI- DJ Medical Devices- .498
10) OIH: Oil Services HOLDRS- .487
Honorable Mentions:
EWM: MSCI Malaysia (Free) Index- .469
The Week in Review:
The worries are everywhere! After hitting new all-time highs a few weeks ago, investors once again began to worry about the "goldilocks" economy, the "not to worry" sub prime situation, the "resilient" consumer, and corporate profits.
Now the spin misters are coming up with a new slogan for investors to mimic; "foreign profits will carry corporate earnings due to the weak dollar".
I don't think so! The Dollar is due for a major rally, and the emerging markets are due for a nasty correction.
Oil prices hit new high's this week on growing geopolitical tensions, but oil stocks sold off. This tells me that the global economy is weakening. As investors run from US assets like the Dollar, and Emerging Market Stocks, they will be doing so at exactly the wrong time. Their timing will be awful, as the Emerging Markets are on the brink of a nasty correction.
Soon, the infamous "can lose" markets such as Brazil, India, and China will be hit with a 25-40% sell-off. Of course, while the financial media begins screaming "get out while you can", wise investors will look at the upcoming carnage as a wonderful buying opportunity.
Here is the US; the Federal Reserve is coming to the rescue of the major lenders, and also the consumer.
Last week, the Treasury Department met with the 10 largest U.S. banks in an attempt to help them set up a fund to get rid of their bad debt. The fund, would be worth $100 billion, and would remove some of the bad credit from the markets by buying corporate bonds and sub prime mortgage debt.
This is a very smart move by the Treasury Department since much of this summer's credit crisis was due to fears over the commercial paper market.
The news among the major banks could not be worse. Citigroup reported a 57% decline in net income, and Bank of America reported a 32% drop in third-quarter net income. Much of the declines were due to write-downs related to mortgages and trading losses.
Much of the bad news seems to be on the table, and many of these major lenders are biting the bullet now, instead of surprising investors latter.
In my opinion, I think we are in the midst of one of the best buying opportunities in years in the banking sector. Unless every major bank goes bankrupt, and the US sinks into a depression, I have got to believe that many of the bank stocks yielding 5%++ are incredible bargains.
The Markets
After Friday's 366 point sell-off, the Dow ended the week with a loss of about 570 points.
Disappointing profits from Honeywell, Caterpillar and 3-M combined to subtract over 115 points from the Dow. Friday also marked the 20th anniversary of Black Monday on Wall Street, when the Dow lost 23%.
By now it is obvious that investors and TV market gurus underestimated the impact from the sub-prime and CDO impact on the economy. In addition, oil hitting $90/bbl isn't helping investor psychology.
For the week;
The Market Volatility Fear Index (VIX) jumped to 22.96 from 17.73 last week and 16.91 two weeks ago.
The CRB- Commodity Index closed at 450.56 up from 446.44 last week, and up from 442.73 two weeks ago.
Gold closed higher reaching $768.6/oz after closing the week before at $753.80/oz.
NYMEX crude oil closes the week at $86.95/bbl up from $82.74 last week.
As of October 19, 2007, the federal funds futures are signaling a 60% chance that the FOMC will drop the fed funds rates .25 basis points to 4.50%.
In my October 1st, 2007 Briefing, I said:
"I wouldn't be surprised to see the major market averages give back half of their recent gains. This pullback will set the stage for a more meaningful rally through December."
This pullback has just occurred. A 5% pullback from October 8th high of 14,198 would bring the DOW down to around 13,488. Today's low was 13,407. From here we should begin to see some stabilization, and then expect a new rally to begin by November 1st.
Relative Strength Index (RSI)- Stocks Oversold/ Overbought
The RSI indicator (below 30) is a good source of finding stocks that are over-sold and due for a rally, as well as stocks that are over-bought (over 70) and due for a decline.
Here are a couple of oversold stocks to consider- RSI Stock Blog
Our current asset allocation is as follows;
70% Equities: (Normally 95%) Aggressive
60% Equities: (Normally 80%) Moderately Aggressive
50% Equities: (Normally 60%) Moderate
30% Equities: (Normally 40%) Moderately Conservative
15% Equities: (Normally 20%) Conservative
At Dow 14,500, S&P 1575, we will reduce our allocation models by 5% to;
65% Equities: (Normally 95%) Aggressive
55% Equities: (Normally 80%) Moderately Aggressive
45% Equities: (Normally 60%) Moderate
25% Equities: (Normally 40%) Moderately Conservative
10% Equities: (Normally 20%) Conservative
