All three major indexes – the Dow Jones Industrial Average, the S&P 500 and the Nasdaq – have hit new intraday highs for 2009. The move was sparked by growth in Japan, a rally in energy and a positive report from the retail sector. Federal Reserve Chairman Ben Bernanke also spoke this morning to say that the central bank would monitor the value of the dollar as they keep rates at record lows. (Is it time to stick a fork in the dollar?). The SPDRs (NYSEArca: SPY) are trading up about 1.5% this morning.

October retail sales made a surprise 1.4% gain on the strength of auto sales, reports Martin Crutsinger for the Associated Press. While the report is just what the markets needed after dismal September figures, analysts are still concerned about consumer spending in general. After all, unemployment is still sky-high, incomes are stagnating and credit remains constricted. Consumer Staples Select Sector SPDR (NYSEArca: XLP) is up about 1% this morning.

UPS (NYSE: UPS) is projecting that it will move about 22 million packages this year on its busiest day, Dec. 21. The volume is slightly higher than what it was in 2008. The number will match the previous record forecast, which was set in 2007, reports Mary Jane Credeur for Bloomberg. iShares Dow Jones Transportation Average (NYSEArca: IYT) is up about 2.5% this morning. (For more stories on transportation, visit our category).

]]> http://www.etftrends.com/2009/11/midday-market-update-indexes-hit-intraday-highs.html/feed/ 0 http://www.etftrends.com/2009/11/all-about-dow-how-play-it-with-etfs.html http://www.etftrends.com/2009/11/all-about-dow-how-play-it-with-etfs.html#comments Wed, 11 Nov 2009 21:00:37 +0000 Tom Lydon http://www.etftrends.com/?p=20501 The Dow Jones Industrial Average, or simply the “Dow,” does not indicate the state of the economy and it does not indicate the state of the stock market. So, why do we care about it?

The Dow is the average of the value of one share each of 30 of the largest companies in the United States, writes Trent for The Simple Dollar.

The Dow Jones & Company uses a scaled average, in which they keep track of past splits and multiply the values of each share. In this way, the Dow average is maintained despite any changes to market value of company shares – the most common change being share splits. Trent summarizes the Dow as a “quick summary of the current value of shares of 30 large companies.”

The value of shares depends on supply and demand. However, information about the economy or a specific company also play a key role in causing shifts to supply and demand.

Investors tend to buy/sell depending on future expectations. Therefore, the value of the Dow often decreases before poor economic news, such as the unemployment rate. The value of the Dow often increases before auspicious economic news. If there are any signs that the economy is slowing or accelerating even a bit, the Dow will fall or rise, respectively. (Grim unemployment numbers).

Trent urges investors to only “look at the the Dow as a predictor,” in that the Dow may predict the general direction an economy is leaning toward. (Dow hits yearly high).

For more information on the Dow, visit our Dow Jones Industrial Average category.

• DIAMONDS Trust, Series 1 (NYSEArca: DIA): software 2.0%, industrial materials 22.6%, energy 11.1%, hardware 16.3%, media 2.1%, telecommunications 4.5%, healthcare 8.7%, consumer services 16.7%, financial services 11.6%, consumer goods 10.4%

• iShares Dow Jones U.S. Index (NYSEArca: IYY): software 4.6%, industrial materials 11.1%, energy 11.3%, utilities 3.8%, hardware 9.8%, media 2.6%, telecommunications 5.8%, healthcare 12.2%, consumer services 8.6%, business services 4.3%, financial services 15.6%, consumer goods 10.1%

Max Chen contributed to this article.

In the third quarter, median home prices declined across the nation. One out of every 10 cities saw declines, and sales of distressed properties accounted for 30% of all sales, reports J.W. Elphinstone for the Associated Press. On the plus side, home sales continued to climb. Third-quarter sales were an improvement over both the second quarter and last year’s.

• MacroShares Housing Up (NYSEArca: UMM): down 8.6% in the last month

Sen. Chris Dodd introduced a financial overhaul bill this morning, which seeks greater changes than any envisioned by the White House or the House of Representatives. The 1,100-page draft would create an agency charged with identifying and removing systemic risks to the economy and consolidate bank regulation under a single regulator, report Michael R. Crittenden and Jessica Holzer for The Wall Street Journal.

• Financial Select Sector SPDR (NYSEArca: XLF): up 20.5% year-to-date

Treasuries are rising ahead of a $25 billion auction this week of 10-year notes. Analysts say the auction could be challenging. One analyst noted that recent economic indicators, including the jobs report last week, should support bond prices, says Ben Rooney for CNNMoney.

• iShares Barclays 7-10 Year Treasury (NYSEArca: IEF): down 4.6% year-to-date

The Dow Jones Industrial Average finally crossed a milestone 10,000 points this month. Though the mark was greeted with cheers on the trading floor, it didn’t stay there for long, and ultimately closed the month below 10,000 and ended the month flat. The S&P 500 lost 2% and the Nasdaq fell 3.6%.

October was largely a month that saw a weakening dollar. This was to the benefit of commodity ETFs, including SPDR Gold Shares (NYSE: GLD), which gained 3.7% for the month. United States Oil (NYSEArca: USO) gained 8.6%.

Earnings season was a largely encouraging one. The number of better-than-expected reports outnumbered the worse-than-expected ones by a ratio of about 6:1. But there are still big concerns about consumers: spending dropped 0.5% in September. As long as consumers aren’t spending, the recovery could be long and difficult.

To view our full performance report, click here.

For full disclosure, Tom Lydon’s clients own shares of GLD.

No, the economy is not completely out of the woods. Jobs are still being lost and consumers need to be coaxed with deep discounts to part with their money. That said, there are compelling reasons to be optimistic about the direction in which we’re headed.

Jeff Westmont for The Street has some points about why substantial gains could still be made from this current rally:

• Third- and fourth-quarter earnings could largely beat expectations. Companies are proving they can operate at lower revenue levels despite cost-cutting.
• So far in the third quarter, 80% of companies that have already reported have met or exceeded expectations.
• Retail sales over the last few months have demonstrated a slow, steady improvement. So has the performance of many industrial and technology companies.
• Consumer debt levels are down off their 2007 highs and consumer net worth is 30% higher than it was in 2002.
• Lower interest rates, food prices and commodity prices have all supported disposable income. Housing affordability is up and inventories are below 2006 levels.
• Nearly 50% of the revenue of the S&P 500 companies is international. Since the rest of the world will probably grow faster than the United States, the companies should benefit even if our own economy stays sluggish.
• Historically, unemployment peaks 12-14 months after the stock market bottoms.

Despite the positive signs, there’s a lot of pessimism out there. But those who have stayed out of the rally while fearing a correction have not only been left disappointed, but they’ve missed out on gains. ETFs that track major benchmarks are 10%-14% above their 200-day moving averages, while global benchmarks are nearly 25% above. (How emotions can hurt you).

To have the confidence to buy this rally, consider entering the markets with a strategy in which you’re protected on the downside.

By having an exit strategy and an entry position, you can wade into the markets with a cool-headed logic. By implementing a stop loss, you’ll give yourself a clear-cut signal on which to act when the uptrend reverses itself and either protect any gains you may have made or put a cap on your losses. Having an escape hatch ready can give you the confidence you need to move forward.

For more insight into trend following and how to implement a strategy, check out The ETF Trend Following Playbook.

No rally is guaranteed, but there are lots of reasons to be positive right now. Want 10 more reasons? We’ve got a long way to go and it’s important for investors to be ready to act, either way.

For more stories about trend following, visit our trend following category.

The Chicago Purchasing Managers Index, considered a precursor to the national Institute for Supply Chain Management Index, fell to 46.1 in September rather than rising to the 52 mark expected by economists.

Additionally, the Commerce Department said GDP, the broadest measure of the economy, sank at a pace of just 0.7% in the spring, beating analysts’ expectations of an annualized drop of 1.1%.  Although GDP numbers are promising, the Chicago PMI data is fresher, and reminded investors that the economy still has major obstacles to overcome before a solid recovery can occur, state Ieva M. Augstums and Tim Paradis of the Associated Press.

In the real estate arena, U.S. mortgage applications fell despite attractive loan rates.  The Mortgage Bankers Association said applications fell to a seasonally adjusted 2.8% in the week of Sept. 25, driven down by a 6.2% drop in demand for purchase loans and a 0.8% decline in refinancing requests.  The data further suggest that a rebound in the housing sector will be a slow one.  The iShares Dow Jones U.S. Real Estate (NYSEArca: IYR) was down 1.5% in morning trading.

In other news, a bit of hope loomed the air as the International Monetary Fund announced that likely losses from the global financial crisis through 2010 are going to be reduced by $600 billion to $3.4 trillion.  The IMF’s reassessment of the potential losses stemming from the financial crisis comes ahead of Thursday’s World Economic Outlook, when the fund will publish its latest estimates for the global economy, reports Carter Dougherty for The New York Times.

Overall, all three major U.S. indexes were down in morning trading with the Dow Jones Industrial Average giving up 0.9%, the S&P 500 dropping 0.9% and the Nasdaq down 0.8%.

For more stories on real estate, visit our real estate category.

Kevin Grewal contributed to this article.

The Conference Board said that its index of consumer confidence fell to 53.1 in September, down from a 54.5 in August and a far cry from the 57 expected by economists.  The decline was attributed to concerns about the labor markets. Consumer confidence is truly the catalyst behind an economic recovery, reports the Associated Press.

The housing sector continues to show signs of life as the Standard & Poor’s Case-Shiller Index, a home price index of 20 major cities, showed home prices rising 1.2% in July from June, marking the third straight month of increases.  To add to this, the index has risen at an 8% annualized rate in the three months to July, the best performance since early 2006, states the Associated Press.  Despite the upbeat news, the iShares Dow Jones U.S. Real Estate (NYSEArca: IYR) was down 1.7% in morning trading.

Crude oil continued to decline as the U.S. dollar gained ground.  Anticipation of the release of an unfriendly government report indicating large crude supplies hovers over the volatile commodity.  Crude fell to $66.51/barrel on the New York Mercantile Exchange.  The United States Oil Fund (NYSEArca: USO) was down 1.1% in morning trading.

Overall, the Dow Jones Industrial Average was down 0.4%, the S&P 500 gave up 0.4% and the Nasdaq was down 0.6% in morning trading.

For more stories on oil, visit our oil category.

Kevin Grewal contributed to this article.

A busy week of economic data is expected on Wall Street this morning, and it could soon sharpen the picture for investors. One of the major reports expected is the monthly reading on the job market, which will be out on Friday. Unemployment is considered one of the biggest hurdles the economy has yet to overcome, reports Sara Lepro for the Associated Press.

Also upcoming this week include home prices, manufacturing, consumer confidence, construction spending and factory orders. There are also going to be some updated outlooks from companies before the third-quarter earnings season kicks off.

Xerox (NYSE: XRX) recently announced that it will purchase Affiliated Computer Services (NYSE: ACS) in a $6.4 billion cash and stock deal, which will enable Xerox to expand into technology and data management. Additionally, pharmaceutical company Abbot Laboratories (NYSE: ABT) announced that it will purchase Brussels drug company Solvay, giving Abbot full control of its Belgium development partner’s cholesterol departments and exposure to emerging markets. The news sent the SPDR S&P Pharmaceuticals (NYSEArca: XPH) up 2% in morning trading.

In other news, crude oil edged above $66/barrel on the New York Mercantile Exchange as the dollar gave up most of its earlier gain against a basket of currencies, boosting the appeal of oil and commodities to investors. The news sent the United States Oil Fund (NYSEArca: USO) up 1.3% in morning trading.

Overall, all three major U.S. indexes were in positive territory this morning, with the Dow Jones Industrial Average up 1.3%, the S&P 500 adding 1.5% and the Nasdaq jumping 1.9%.

For more news on crude oil, visit our oil category.

Short-term incentives and measures to stoke the economy are not fixing the real problem of sustained growth as businesses reduce payrolls, bank lending contracts, and consumers save more and spend less, comments Steven Pearlstein for The Washington Post.

The Federal Reserve took bold and necessary steps to prevent the collapse of the financial system. But the Fed also created so much liquidity that some fear that another financial bubble is forming.

As the money flew off the printers, the Fed was cutting interest rates in inter-bank lending to basically zero. However, banks kept interest rates unchanged for everyone else, and the result is that “spreads” between bank-to-bank lending and lending to everyone else are close to record highs.

The entities that are actually borrowing are hedge funds and other investors who use the money to purchase stocks, corporate bonds and commodities, pushing prices higher. Some ETFs to watch for activity include:

• DIAMONDS Trust, Series 1 (NYSEArca: DIA): up 14.0% year-to-date
• PowerShares QQQ (NasdaqGM: QQQQ): up 43.3% year-to-date
• SPDRs S&P 500 (NYSEArca: SPY): up 19.1% year-to-date
• iShares iBoxx $ Invest Grade Corp Bond (NYSEArca: LQD): up 8.9% year-to-date
• iShares S&P GSCI Commodity Indexed Trust (NYSEArca: GSG): up 4.9% year-to-date

The excess liquidity is also being used to finance new “carry trade,” borrowing at low U.S. rates to buy bonds in places with higher rates.

• POWERSHARES DB G10 (NYSEArca: DBV): up 17.7% year-to-date

The Central Bank is determined to stay its course, using anything that will strengthen the balance sheets. Fed officials won’t be increasing interest rates and reducing liquidity until they decide the economic recovery has a proper foothold.

For full disclosure, Tom Lydon’s clients own shares of LQD and QQQQ.

Max Chen contributed to this article.

It’s important to keep a few tidbits in mind when picking out a stock, according to InvestingFirstSteps.

Beat the market? A lot of investors are too focused on “hot tips” or phenomenal returns in certain stocks. It should be noted that even professional traders who are paid to track the stock markets rarely provide returns of 11% or more, on average. We follow a 200-day moving average to help guide us. You can read more about this strategy in The ETF Trend Following Playbook.

ETFs. ETFs are popular and easy to use. They’re transparent, meaning you know what’s in them at all times. They trade all day on an exchange, just like a stock. And, on average, they’re cheaper than mutual funds. ETFs seek to reflect returns on the underlying index such as the S&P 500, Dow Jones Industrials Average and NASDAQ Composite. The ETFs listed below are based on a major indexes in the United States – from this point, you can access commodities, currencies, specific sectors and much, much more.

• SPDRs S&P 500 (NYSEArca: SPY)
  

• Diamonds Trust (NYSEArca: DIA)
  

• PowerShares QQQ (NasdaqGM: QQQQ)
  

For more information on investing, visit our ETF 101 category.

Max Chen contributed to this article.