Index ETFs Finish Flat Despite Hype

Index ETFs finished mixed and flat Friday, despite a couple of big moves. The SPDR S&P 500 Index ETF (SPY) lost .01%, despite the S&P 500 Index being within 100 points of its all time high. The SPDR Dow Jones Industrial Average ETF (DIA) gained .13%, the PowerShares QQQ Trust Series 1 ETF (QQQ) gained .13%, and the iShares Russell 2000 Index ETF (IWM) lost .13%, despite the Russell 2000 Index reaching its all time high of 881 earlier Friday.

Friday was the day of “despites,” as Index ETFs finished mixed and flat despite Wall Street seeing the largest weekly inflow of cash into equity funds since 2008. Index ETFs finished mixed and flat despite the Russell 2000 Index reaching an all time high of 881. And Index ETFs finished mixed and flat despite S&P 500 being within 100 points of its all time high.

Perhaps Friday’s sluggish trading was due to the sluggish Wells Fargo (WFC) earnings report, which indicated greater profits for Q4 2012 compared to Q4 2011. But Wells Fargo (WFC) also reported a sinking net interest margin number, which means that Wells Fargo (WFC) is taking less profit from interest on loans due to lower rates and greater deposits, which is never a good thing.

But perhaps Friday’s sluggish trading was due to an increase in the US Trade Deficit, despite the Federal debt being reduced by $26 billion for the month of December.

But really, what is holding up the start of a new bull market despite all of the hype? From a fundamental perspective, the upcoming debt debate and sequestration battle are likely two reasons. From a technical level, the S&P 500 has again reached multi-year resistance levels (hence why it did not break through Friday).

Moreover, bonds are not confirming all of the hype either, as the iShares Barclays 20+ Year Treasury Bond Fund (TLT) gained .91%. So if equities are currently so popular, why are bonds going up too? And, the tell-all Apple (AAPL) stock (the NASDAQ bellwether) also declined .61% Friday, so clearly there are some cross market negative divergences, despite the massive inflows.

In short, the rally has not been able to sustain itself, as bonds went up, Apple went down, and the Russell 2000 and S&P 500 could not break through, despite record inflows.

Bottom Line: Friday was the day of “despites,” as markets could not seem to start a new bull market despite a major push from the Russell 2000 and S&P 500. With several key divergences in Apple and US Treasury Bonds, time will tell if the bulls can mount a serious enough offensive to break through the ceiling.

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