This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Are You Placing Too Much Faith in the 'Risk-On' ETF Trade?

NEW YORK (ETF Expert) -- It doesn't take much for stock markets to rev up their "risk-on" engines.

For instance, European leaders have offered little more than verbal promises in their desire to push equity prices higher. Meanwhile, market-watchers celebrated the Bureau of Labor Statistics Employment Report (163,000 net jobs gain) in the U.S., even though a variety of unemployment/underemployment measures degenerated in July.

In truth, European leaders have yet to agree on how to keep Spain from spiraling out of control, let alone whether or not to keep handing money over to Greece. What's more, roughly the same number of people left the labor force as those who earned a new paycheck last month; that is, the labor participation rate continues to lose ground.

Nevertheless, investors in the major averages -- S&P 500, Dow, Nasdaq -- are experiencing the rush of recent three-month highs. And lately, cyclical sectors from technology to materials have led the pack.

So is risk really back on the equity table?

At the start of 2012, the fastest flyers were the emerging markets, Europe and U.S. small caps. U.S. large caps performed well, but they were not the front-runners.

It follows that if we genuinely have an environment where investors are willing to wade into the most aggressive end of the stock pool, we would see Europe and the emergers and the smaller corporations outperforming the S&P 500... like they all did in the first three months of 2012.

However, the price ratio of the Vanguard MSCI Emerging Markets (VWO) to the S&P 500 shows relative weakness for emerging markets, not relative strength.





The price ratio of the Vanguard MSCI Europe (VGK) to the S&P 500 also demonstrates that European stocks -- like emergers -- are weak relative to U.S. equities.





Granted, both VWO and VGK appear to have put in respective lows in June and July. On the flip side, if these foreign ETFs do not have the relative strength to climb above a 200-day trendline, then we may not be experiencing a genuine "risk-on" move; rather, we may simply be seeing increased comfort with large U.S. company stocks at the expense of "cheaper" foreign stock assets.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,001.22 -38.27 -0.22%
S&P 500 1,988.40 -3.97 -0.20%
NASDAQ 4,538.5510 +6.4470 0.14%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs