The Dow Cracks Critical Support Level

Doug Fabian
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Posted: Feb 07, 2014 12:01 AM
The Dow Cracks Critical Support Level

If you still harbor doubt that the correction in the equity markets now is underway, then all you have to do is check out a price chart of the Dow Jones Industrial Average. Monday’s steep 300-plus point drop in the Dow sent the most widely watched measure of the equity market plunging below its long-term support at the 200-day moving average.

The decline in the Dow marks the first time in more than a year that the Industrials have broken their long-term uptrend, and that situation is a very bearish sign for stocks going forward. The only saving grace here for the markets is that the Dow so far is the only major market metric that has fallen beneath its 200-day average.

The S&P 500 Index continues to trade above its 200-day average, while the NASDAQ Composite also continues trading above its long-term support levels. I think that if we were to fall below the 200-day average, particularly in the broad-based S&P 500, that drop would be the biggest negative signal from the markets for a very long time.

Meanwhile, the correction already has gone into hyper-drive in other regions around the world, particularly in China and the emerging markets. Fear of a continued slowing in China’s growth rate, as well as instability in emerging market currencies, has put heavy selling pressure on stocks in these respective areas.

The iShares MSCI Emerging Markets (EEM) already has plunged below its 50- and 200-day moving averages on its way down to the lowest levels since August 2013.

So, what happens next? Are stocks ready to rebound soon, or will the sell-off continue for a while?

It is my opinion that we will see the S&P 500, as well as other broad domestic equity indices, trade lower in the weeks ahead. Given how far the market became overextended at the end of 2013, it just makes sense that we’ll have to see a little more of a shakeout, and a little more of the pain trade evolve before the selling ceases and before we can call a short-term bottom.

The Dividend Fund Solution

The current decline in the markets isn’t going to last forever, and at some point buyers will step back in to stocks. The next big data point that will help determine the fate of the markets comes on Friday in the form of the January employment report, so we’ll have to wait until then for a better read on what’s in store for the rest of the month.

In the meantime, I think it behooves us to look at funds that offer significant yield to investors. An attractive yield is what makes dividend-oriented funds a good fit in a market climate such as this one. Although many dividend funds have faltered of late along with the broad market; there are several that I want you to put on your watch list as they will begin to look very appealing once the market turns.

The following table shows some of the best international dividend-paying funds available to investors right now. These funds hold large, well-established companies that continue to pay strong dividends. I want you to think of this list of international dividend funds as a cheat sheet of attractive investments once this market settles down.

TICKER

Name

Price

1WK%

1MO%

3MO%

Yield

SDIV

GLOBAL X SUPERDIVIDEND ETF

22.41

(1.43)

(3.35)

(4.86)

7.10%

DWX

SPDR S&P INTER DVD ETF

44.86

(0.64)

(4.30)

(6.51)

7.25%

LVL

GUGGENHEIM S&P GLOBAL DIV

12.50

(0.40)

(4.73)

(5.92)

6.92%

RWX

SPDR DJ INTERN REAL ESTATE

39.28

(0.85)

(3.34)

(8.22)

4.76%

IDV

ISHARES INTERNATIONAL SELECT

35.98

(0.95)

(3.66)

(4.65)

4.72%

ETF Talk: iShares Offers 600-Plus Dividend and Non-Dividend Funds

This week we continue our theme of discussing key providers of exchange-traded funds (ETFs). Among the broad spectrum of ETF providers, a company that stands out for the breadth of its offerings is iShares, the ETF investment arm of the world’s largest asset manager, Blackrock (BLK).

iShares has more than 600 funds globally that give investors exposure to equities, fixed income and commodities. iShares also has funds that trade on 20 exchanges worldwide, featuring ETFs that focus on specific geographic areas, such as individual countries and regions.

In addition, iShares offers basic index ETFs, but it also features ETFs employing niche investment strategies, such as actively managed funds designed for specific allocations and funds devoted to dividends.

An example of the company’s niche funds is the targeted High Dividend Equity Fund (HDV), which features U.S. blue chips that pay high dividends. Last year, this fund had a 23.59% return, reflected in the chart below. However, it has suffered a correction this January along with the rest of the market.

The fund’s 2013 yield was an enticing 3.17%. iShares also offers four other ETFs with a dividend-based approach: Asia / Pacific Dividend 30 Index Fund (DVYA), Dow Jones Select Dividend Index Fund (DVY), Dow Jones International Select Dividend Index Fund (IDV) and Emerging Markets Dividend Index Fund (DVYE).

iShares also creates funds based on multiple indexes in the same area of investment. For example, the market capitalization ETFs of iShares are built on indexes from Standard & Poor’s, Morningstar and Russell, rather than dedicating its funds to just one company’s indices.

Because of its wide inventory of ETF products, iShares can address the needs of a variety of investors. The company’s multiple products exploit the flexibility and value of the ETFs, providing specific levels of risk and exposure to particular industries with a high degree of transparency and ease of acquisition. I have recommended a number of iShares funds.

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an e-mail. You just may see your question answered in a future ETF Talk.

Get Fiscally Fit in 2014: Living Trusts, Wills and Guardianships

I want you to get fiscally fit in 2014. This week, I will focus on the important value of living trusts, wills and guardianships.

When it comes to preparing for the inevitable in life, many of us fail to act responsibly. I know it can be hard to think of ourselves as not being around any longer, but that’s no excuse to neglect this extremely important part of your financial life.

If you have any kind of significant net worth, you need a living trust. When you have a living trust, your desire for what happens to your money, your property, your insurance policies, etc., after you’re gone is in your hands. By setting up a living trust, you control the disposition of your assets by appointing a trustee to carry out your wishes.

If you don’t have a living trust, then everything you held dear in your life could literally be at the mercy of the courts. That means someone who doesn’t know you, has never met you, and has no personal interest in you or your family, will decide where your assets go after you’re no longer here. I don’t know about you, but I can’t think of anything more infuriating than having the courts determine where the products of my life’s toil will go.

Yet without a living trust -- and/or without a will -- this may be precisely what happens.

Guardianships also are extremely important to those with children. Who’s going to take care of your progeny if you are no longer there to do so? Where will your assets go, and who will look after those assets for your children? Without a guardianship, the courts are in charge. Don’t let that happen.

A little proper planning is all it takes to make sure you are in control of your assets after you’re no longer here to do so. If you already have a living trust, will or guardianship, make sure you periodically review the trust to make account for all of the changing circumstances in your life. A divorce, a significant change in your financial situation, or the death of a spouse, are all prime reasons for you to alter your financial plans, so make sure you have those plans in place and up to date for 2014.

Next week, I’ll address the potential uses of insurance and annuities.

In case you missed it, I encourage you to read my e-letter column posted last week on Eagle Daily Investor about where stocks will go as we head into 2014. I also invite you to comment in the space provided below myEagle Daily Investorcommentary.