Spain outpaced global markets Friday as the government pushed
to have European rescue funds go directly to its battered banks
instead of through the government so that they wouldn't be added
to the country's mounting debt.
Under current rules of the proposed 100 billion euro bailout
($125 billion), the public would be on the hook if the banks
don't repay their loans and thereby burden the country with new
debt.
IShares MSCI Spain Index (
EWP
) rallied 4.14%. EWP has been rising for three weeks straight,
surging 14% from its nine-year low. That's not enough to meet the
20% jump off a bottom that to some technical analysts signals a
fresh bull market. The rise, thus far, is viewed as a
countertrend rally in a long downtrend.
The proposed bailout increases the risk of investing in Spain
rather than reducing it because it would add to the public's debt
burden, says Komal S. Sri-Kumar, chief global strategist at TCW.
Spain's public debt-to-gross domestic product ratio was 67% at
the end of 2011. The bailout, when completed, would push the
ratio up as much as 15 percentage points to more than 80%.
Spain's banking crisis has morphed into a vicious cycle in
which weakness in its financial system entices depositors to pull
their savings out and store their money in German or U.K. banks,
compounding the weakness in Spanish banks.
"The pressure on Spanish and Italian banking systems will
increase. In turn, that would likely prompt additional capital
flight," Sri-Kumar wrote.
Market Overview
In afternoon trade theSPDR S&P 500 (
SPY
) rose 0.63% to 133.26.
SPDR Dow Jones Industrial Average (
DIA
) climbed 0.55%.
PowerShares QQQ (
QQQ
), a basket of the 100 largest nonfinancial stocks on the Nasdaq,
increased 0.73%.
IShares MSCI EAFE Index (
EFA
), tracking developed foreign markets, advanced 0.80%.
IShares MSCI Emerging Markets Index (EEM) added 0.40%. Both
EFA and EEM plummeted nearly 5% the prior session.
Technical Overview
SPY, QQQ and DIA all dropped below key-price support at their
50-day moving averages the prior session with more than 90%
trading volume to the downside. The sell-off prompted Simon
Maierhofer, co-founder of ETFGuide.com, to close his long
positions and go short, to profit from falling prices.
"This may be the shakeout decline -- leading to higher prices
-- but the odds suggest this may be the real deal next leg down,"
Maierhofer wrote in this daily technical forecast.
The S&P 500 is trapped in a trading range between 1200 and
1400, or $120 to $140 for the SPY, potentially for the rest of
the year, says Mark D. Arbeter, chief technical strategist at
S&P Capital IQ. Crude oil and copper may have found a bottom
and their rebound could push stocks higher, he wrote in his
weekly technical report.
Traders' sentiment in crude is the most bearish it's been in
three years. The Commitment of Traders report shows that
producers or the so-called "smart money" are net long oil while
the speculators or so-called "dumb money" have cut their
exposures, suggesting that oil prices are due for a bounce, he
says.
Fund Flows
ETF and mutual fund flows show that investors expect a new
round of quantitative easing and are opting for risk assets in
the face of all the troubling news globally, including slowing
growth in China and Germany, Spain's banking crisis, U.S.
corporate profit warnings and weak economic data in the U.S.,
EPFR Global said.
It reported in its weekly fund flow release for the week
ending June 20:
1. Stock funds overall posted back-to-back weekly inflow for
the first time since mid-March.
2. Redemptions from U.S. investment grade bonds hit a 13-week
high.
3. Mortgage-backed-bonds took in fresh money for the 67th
straight week.
4. Emerging-markets stock funds saw outflow for the sixth time
in seven weeks as concerns about Asia offset optimism that
European and U.S. policymakers will take more steps to stimulate
their economies in the second half of 2012.
5. Canada, U.S., Japan and Germany stock funds all recorded
inflow in excess of $650 million.
6. Europe stock funds saw their fifth straight week of
outflow. But the total was offset by $869 million going into
Germany stock funds.
7. Global stock funds had their biggest inflow year to date as
they extended their current winning streak to four straight
weeks.
8. Gold and precious metals fund inflow hit a 20-week high and
accounted for all the inflow recorded by commodities-sector
funds.
9. Europe bond funds saw ouflow of $886 million.
10. Emerging market local currency funds posted their biggest
inflow since the fourth week of March.
Biggest ETF Gainers And Percentage Change
VS Inverse VIX Shrt Term (XIV) 7.2%
Global X China Materials (CHIM) 4.5%
IShares MSCI Spain (
EWP
) 4.4%
Market Vect Solar Energy (KWT) 2.6%
Global X Uranium (URA) 2.5%
First Tr Ndq Cl Grn Enrg (QCLN)2.4%
IShares MSCI Poland (EPOL) 2.4%
First Tr ISE Rev Nat Gas (FCG) 2.4%
PowerShrs Dyn Bio & Genm (PBE) 2.4%
SPDR S&P O&G Expl (XOP) 2.4%
Biggest ETF Losers And Percentage Change
IPath Pure Beta Aluminum (FOIL) -9.9%
C-Tracs Citi VIX Etn (CVOL) -9.7%
IPath VIX S ETN (VXX) -7.3%
ProShrs VIX Shrt Term Futures (VIXY) -7.2%
VS VIX Short Term ETN (VII)X -7.1%
IPath N Gas ETN (GAZ) -6.1%
Global X S&P/TSX Venture 30 (TSXV) -5.4%
IPath VIX Mid Term ETN (VXZ) -5.1%
IPath Pure Beta Sugar (SGAR) -5.0%
ProShrs VIX Mid Term Futures (VIXM) -4.5%
Follow Trang Ho on Twitter
@TrangHoETFs
.