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S&P 500 Source: www.dailygraphs.com

The market correction which began in late April continues.  Last week the major indexes pulled back slightly creating a short term inverse head and shoulders pattern.    This is a bullish technical chart pattern but until the correction has run its course and moves above the upper red line (see chart) the market will likely continue its consolidation.    This rest period is normal after a strong move off of the March 2009 low and giving long term investors a good buying opportunity.  I suspect the trading volume to drop off as professional investors take their last minute vacations.

Yes, the mainstream news on the surface is pessimistic as the media is focused on all that can go wrong but I continue to see strong stocks building bases, earnings reports beating expectations and emerging stocks / indexes near new highs.    Stay the course and invest in the pessimism because blue skies will appear once the black clouds disappear.   You will likely be reward in the next 12-24 months for doing so.

The market sits in the middle of its three month trading range.  Last week the trading volume was light as the market pulled slightly back after the three week rally.  This is normal market behavior especially during the summer months.  Earnings reports last week continue to come in strong.  This market correction will eventually sort itself out but until it does we remain range bound on light volume.  Under the surface, I continue to observe healthy action in stocks and emerging market sectors.  For instance, the Malaysian, Thailand, and Indonesian ETFs hit new highs last week.   A sign of strength. As long as earning reports continue to come in better than expected I suspect by year end the upper range of the consolidation will be exceeded.  Let’s see what August brings.

Expatriates who invest in offshore mutual funds are likely paying high 12b-1 fees.  These fees are very confusing and erode investor returns.  Exchange Traded Funds DO NOT have 12b-1 fees, another reason I prefer ETFs to traditional mutual funds.   For expatriates, ETFs bought in an offshore brokerage account would eliminate these unnecessary fees.

USA Today article:  The Securities and Exchange Commission on Wednesday voted to revamp fees that most mutual funds charge to cover sales and distribution costs, and that have become a source of confusion for investors and industry insiders alike.

Revenue from so-called “12b-1″ fees can be used for a wide range of fund services beyond upfront sales costs, and an investor can pay the fees for years after they’ve gotten into a fund, eroding returns. Even industry pros find 12b-1s confusing, because funds can use the fee revenue in so many different ways.

Read more at: http://www.usatoday.com/money/perfi/funds/2010-07-21-mutual-fund-fees_N.htm