The Rally is Over
The Readers Were Right!
On November 15th, I asked readers when the thought the Dow’s rally would end.
See When Will the Dow’s Rally End?
By and large, you predicted that the rally would end some time between Black Friday and New Year’s Day. Five out of the twenty respondents predicted that the rally would end between the first and second weeks of January!
The Dip Was Global
Yesterday and today, the market has been in free fall. Both domestic and foreign regional ETFs were effected. At the moment, in the U.S., IYY (Dow Jones Total Market Index) is down .06% and DVY (Dividend Index) down .10%. In Asia, things are looking even worse, with FXI (China Index) down 2.88% and TF (Thai Fund) down 4.90%. In Europe, FEZ (The Dow Jones Euro 50) was down 1.31%. Things were even a bit bad in Mexico, with EWW (Mexico Index) down .09%. While today was a sad day for the emerging markets investor, there is some consolation in the opportunity presented by depressed share prices. If you have cash to spare, you might wish to consider investing it at this time.
Evaluate Your Investments
Has their ability to earn supranormal returns changed? If not, you should by all means use this dip as an opportunity to acquire more shares. If you foresee them underperforming expectations in the future, then you should sell them.
Adam’s Advice
Personally, I believe that today’s dip was not due to a substantial change in the long-term going concern of any of the equities. Each of the ETFs I mentioned suffered today, and each represents a large number of companies in a different region or country. In the long-run, the world’s stocks, on average, appreciate. Today they didn’t. Dips like this are to be expected, and do not disturb me if they occur rather evenly thorough the world market. Did I lose money over the last two days. Most definitely. Am I upset? Rather than being upset, I see this as an opportunity to buy at depressed prices. I am still waiting to see if things will fall even lower. I have created “limit orders” for several ETFs, and will automatically purchase them if and when they fall below the limit prices that I set.
I read an article on Motley Fool about the dip, which may be of interest to readers.
When do you think the drop will taper-off? When will domestic ETFs be at their lowest? When will emerging market ETFs be at their lowest?
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Adam,
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.
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.
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.
Domestic EFTs will be at the lowest the first week of April (1st – 6th) due to the continued housing bubble drop, 2 possible rate hikes from the fed, an unexpected increase in unemployment with the new minimun wage increase and the war in iraq. With bad news coming in over the next few months look for the bottom of EFTs in the 1st week of April.
As for emerging markets, their lowest will be between Jan 11-12. The emerging markets of Brazil, Russia, India and China along with up and coming smaller countries is just starting to roll with technology in their countires and will continue to go up. Oil will rise and help these markets to increase also. They lowest level will be right now Jan 11-12.
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.
For domestic ETF, it would end some time in early March. The stock market is looking for signals to go either side. A weaker housing market would make people pour money into the stock market which can boost the stock prices.
For Emerging Market ETF, US dollar would remain weak as long as the trade deficit is there. I would expect it would do better than the domestic ETF and would end the slump sooner around early Feb..
Domestic ETF’s will hit their lowest at the end of the 2nd quarter – 4th week of June. On the other hand, emerging market ETF’s will hit bottom the first week of September.
Domestic ETF’s will be at their lowest the first week of February, 2007. Emerging market ETF’s will bottom out the 2nd week in Febrary 2006. Then there will be a huge upsurge in both.
Domestic ETFs will be at their lowest in the third week of February, while the emerging market ETFs will be at their lowest in the first week of June.
i believe that domestic etfs will be their lowest the first week in july and emerging etfs will be at their lowest in the third week in april