Well, Maybe the Rally Isn't Over Yet

Jan 12, 2007 by

Well, I guess the rally isn’t really over yet. The emerging markets appear to have recovered, at least for now. Nonetheless, on Wednesday, emerging markets investors were presented a (possibly) brief window to purchase equities at bargain-basement prices. Several of the readers posted comments about when they speculated the rally would end. I have republished them here to bring them to your attention:

Jamie Says:
January 11th, 2007 at 12:38 am e

The market has been on a steady and predictable uptrend for many months. They have reached prior highs which are technical reference points for traders. The Nasdaq Put in a big nasty pullback on the weekly charts but retraced 100%. We are stalled in a Base formation for a moment. The uptrend is over!!! Buy strength and sell weakness. Don’t buy a falling knife. Wait for signs of strength.

G.H. Says:
January 11th, 2007 at 11:33 am e
I believe the domestic ETFs will bottom during the first week of Febuary. Domestic ETFs will sell off after the Fed raises interest rates at the end of January. The interest rate hike will signal that the economy is still growing at a fast pace and this view will be supported by good quarterly earnings reports during the earnings season. After the rate hike is priced in slowly domestic ETFs will begin to creep up based on the notion that the consumer is doing great. As far as foreign ETFs are concerned, I am expecting them to bottom during the 1st week of March. They will continue to sell off until then due to falling commodities prices and worries about US consumer health. As we get closer to the summer driving and home building season the commodities prices will rise and the foreign ETFs will follow. In addition, we will know that the US consumer is in good shape by then and this will help to support foreign ETFs.

adampowell Says:
January 11th, 2007 at 4:23 pm e
From an unknown mturker (who forgot to post):

When will domestic ETFs be at there lowest? I believe a lot has to do with the current issues over there in the middle east (Iraq and Isreal) and when you see the US commit more troops over there in Iraq. I would guess somewhere around the first week of May 2007. The other question, ” When will emerging markets ETFs be at there lowest?” Look out for three areas China, South America and the ECU. Sometime around the second week in December 2007.

Steve Duvall Says:
January 11th, 2007 at 6:16 pm e
I think the domestic ETF’s will be at their lowest during the first week of April 2007. There are currently enough new ETF’s to double the current amount available. The market is currently getting saturated with these new funds that dilute money going into the current ETF’s. Once the creation of new funds subsides the prices of the ETF’s will be able to rise.

As for Emerging Market ETF’s I think they will see their lowest point around the last week of August. Some of the countries found in Emerging market funds rely on tourist money. The dollar may strengthen a bit by the end of the summer and people might be more willing to travel to these countries for vacations which will boost the economies.


  1. I definitely don’t think the rally is over. In fact, I think the party’s still going strong! Corporate US earnings continue to post double digit year over year gains. Domestic ETF’s should have a nice 07, although maybe not as great as 06.

    From a historical perspective, the major indexes are trading at reasonable P/E’s. Commodities have seen a downturn, but this bodes well for the rest of the economy. Oil is trading near 18 month lows. Here’s my logic: cheap oil = cheaper transportation/production costs = cheaper products = lower inflation = possible rate cut.

    As for emerging markets / foreign economies, I’m less certain I’m more concerned that the BRIC’s (Brazil/Russia/India/China) are somewhat overbought, and I wouldn’t be surprised to see some selloffs there.

  2. Ann M.

    Honestly I know very little about ETF’s and so therefore, I would take my money – all $2,000 worth (which I don’t actually have accumulated yet) and “invest” in a savings account. Sure you don’t really earn much that way, but you don’t lose any money, either!

    With the current unstable situation in Iraq and natural disasters such as tsunamis occuring regularly and being broadcast all over the news, I think that what will be going on with emerging markets and foreign economies is extremely unpredictable at this time. While I can count on a certain predictable amount of money in my savings account, I can not count on any money that I put into an investment of that type.

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