Basic materials and emerging market ETFs floated to the top of
the leader list Friday as investors dove into risk assets head
first Friday, following the Federal Reserve's jump into the
liquidity pool. Treasury and other fixed-income ETFs lagged the
most as investors dumped safe havens. The dollar plunged to a
Copper Miners ETF (
) had gapped up 4.07% to a four-month high. Its IBD
Accumulation-Distribution Rating has improved from a low D+ to a
strong B+, indicating institutions are buying more shares than
selling. ETFs tracking precious metals, coal, oil and industrial
metals producers also rallied.
IPath DJ-UBS Copper ETN (
) also gapped up to a four-month high, gaining 2.47%. ETFs
tracking tin and aluminum also surged to new highs.
PowerShares DB U.S.
Dollar Index Bullish (
), measuring the dollar against a basket of foreign currencies,
dropped 0.44% to its lowest price since November 2011.
The buying onslaught is purely a knee-jerk reaction to the
Fed's move, said Kimberly DuBord, director of research at
Briefing.com. The Fed pledged Thursday to buy $40 billion a month
in mortgage-backed securities indefinitely in hopes of
stimulating the economy and pushing up asset prices.
"At the end of the day, the economic conditions globally are
slowing," she said. "In some parts, they're slowing faster than
The uptrend should be sustainable through the end of the year,
says Mitch Reiner, managing partner of Wela Strategies and chief
operating officer of Capital Investment Advisors in Atlanta.
"But we worry about a global economic recession, with Europe,
Great Britain and China all showing signs of slow or no growth,"
The U.S., the European Union and China are all engaging in
economic stimulus, which tends to boost commodity prices. The Fed
wants to devalue the dollar to make U.S. exports more competitive
"I believe copper and materials investing has some merit amid
global injections of capital, but I would set tight stops and be
cautious," said Terry Sacka, chief strategist at Cornerstone
Asset Metals in Palm Beach Gardens, Fla. "They may be stimulating
the global economies, but that doesn't mean it will work."
From Worst To First
Copper and the producers severely underperformed most
commodities and the market this year before finding a floor in
late July. COPX has rallied 32% off of its 52-week low. But it's
up only 1.5% year to date and it's lost 9.27% over the past 12
months, while the MSCI World Index is ahead 14.4% and 20% over
the same periods, according to Morningstar.
JJC has jumped 17% off its 52-week low in early August. JJC is
up 7.7% year to date but is down 8.1% over the past year.
Commodities on average rose 12.7% and 2.3% over the same
"The move appears to be very early, given the massive
underperformance copper has experienced relative to broader risk
assets such as the S&P 500," said Michael Gayed, chief
investment strategist at Pension Partners. "With central banks
around the world unleashing monetary shock and awe to counter
deflation through 'any means necessary' and as expectations build
for China to act more proactively, copper could go from being
worst to first in the coming months."
The markets were oversold on fears that the European debt
crisis would evolve into the next Lehman Bros., he added. When
the eurozone didn't break up and the U.S. didn't fall into a
double-dip recession, the uptrend has taken everyone by
"As the European Central Bank reliquefies the system and
confidence in the euro increases, it means demand likely recovers
when few thought it could," he said. "This fundamentally means
earnings of companies in the U.S. improve (because of)
Emerging Market Rally
IShares MSCI Emerging Markets Index (
) jumped as high as 2.2% in morning trade, then steadily
IShares MSCI EAFE Index (
), tracking developed foreign markets, vaulted 1.8% in morning
trade, but started drifting lower in the afternoon.
Aside from increased appetite for risk, low valuations into
emerging markets, which have underperformed the U.S. and
developed markets the past year. EEM trades at a
price-to-earnings ratio of 11 vs. 12 for EFA and 14 for the
"Current valuations do not appear stretched given where
interest rates are," said Daniel Beckerman of Beckerman
Institutional. "Also, if you examine the stock market moves after
the major QE programs since early 2009, you had a better than 20%
rally each time."
Global X FTSE Argentina 20
ETF (ARGT) surged 4.41% to a four-month high. But it's still
trading below its 200-day moving average and needs more work to
confirm a viable trend change.
IShares S&P India Nifty 50
Index (INDY) pushed up 4.01% to a five-month high. It broke above
the key 200-day moving average Tuesday and has been flying high
WisdomTree India Earnings (EPI) gained 3.29%, breaking above
its 200-day moving average for the first time in six months and
confirming a new uptrend. It has a weak IBD Relative Strength
Rating but a stellar A- Accumulation-Distribution Rating.
"Emerging-market risks are primarily related to China, as
China is the driver of emerging-market growth presently, and how
the authorities manage the present slowdown is critical to
emerging market assets," said David Hinman, chief investment
officer of SW Asset Management, which specializes in emerging
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