We continue to see concerns in the media regarding recent market action in the SPDR S&P 500 ETF (SPY) and U.S.  indexes. Economic news has been worse than many expected.  Here at The FRED Report ( www.theFREDreport.com), market action has been in line with our expectations. One reason for the recent decline in the SPY has been China fears, so we look at the iShares FTSE/Xinhau (FXI) to evaluate the Chinese markets. FXI is outperforming the SPY, at least for now, suggesting these fears may be overdone.

The decline in U.S. equities was originally sparked by debt fears that impacted the Euro Shares (FXE). We note that the daily chart of the FXE may have made a head and shoulders bottom, which would be confirmed above 126. We think it can go above this level because the Swiss Franc Shares (FXF) has already broken out to the upside, and often leads the FXE.

 

A look at iShares MSCI Germany (EWG) and iShares MSCI French (EWQ) country ETFs suggests that, on this decline, these markets are outperforming the U.S. as well. Of the two, Germany looks better, but neither has penetrated the June lows as the U.S. indices have done. For now, the crisis in Europe seems to have abated.

 

 

Our last point is on interest rates. Much has been made of the iShares Barclays 20+ Treasury Bond ETF (TLT) rise, and pundits are suggesting this means another credit crunch is coming. We do not believe this is happening as the iShares iBoxx High Yield Corporate Bond (HYG) is comfortably above the TLT and has not corrected in sync with the last two-week decline in SPY.

 

Our favorite international bond ETF, the SPDR Barclays International Trust (BWX), also suggests that the rise in the TLT is overdone. We prefer high-grade corporate bonds like the iShares iBoxx Investment Grade Corporate Bond ETF (LQD) to U.S. treasuries at this time.

 

 

Disclaimer: This article does not constitute a solicitation or offer to buy or sell securities. Interested parties are advised to contact the entity with which they deal if they desire further information. No representation is being made that the information herein is accurate or complete. Any opinions or estimates contained in this communication represent the judgment of Fredco Holdings, Inc. at this time and are subject to change without notice. Fredco Holdings, Inc, its employees, officers, directors, principals, agents, affiliates or advisers may from time to time provide recommendations with respect to, acquire, short sell, hold or sell a position in, the securities or instruments named or described in any report or information being provided herein, provided however that no buying or selling activity will be taken with respect to a security referenced in a report by such parties within three days of such report's publication. The information contained herein was prepared by The FRED Report, which is solely responsible for the contents of this report. Although Fred Meissner, Jr. is a registered representative of Lamon & Stern, Inc., neither Lamon & Stern nor any of its principals, officers, affiliates, agents or employees is in any way responsible for the contents of this message.

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Fred Meissner is founder and publisher of The Fred Report. Fred is a CMT and past President of the Market Technicians Association (MTA). He recently left Merrill Lynch's Market Analysis Department and Sector Strategy Department to form The Fred Report.  A detailed bio is here: Fred Meissner.