ETF Update: No Sectors Worth Buying

Investors and traders alike can improve their understanding of the market by looking at specific sectors.  It is a great way of maintaining perspective, avoiding over-emphasis on the Dow or on individual stocks.

It can be a mistake to miss the forest while watching trees -- or vice versa!  A sector focus is a good solution.

Looking at charts of the various sector ETFs is one approach.  While this is not a substitute for fundamental analysis, it provides powerful visual evidence of the market's verdict.  Our own rating system (TCA-ETF) combines Trends and Cycles with a touch of Anticipation in finding the most attractive ETF's.  (For new readers, there is a more complete description of our methods at the end of the article.)

Nothing to Buy

As has been the case for several weeks, our ETF landscape lacks any tempting choices.  This has been the message since our Cash is King update from a month ago.  While some sector investors may be eager to get back into the market, the admonition to be patient has been basically correct.

Those whom we frequently cite for ETF analysis have reached similar conclusions.  It is interesting that Gary Gordon at ETF Expert is mentioning the SPDR Select Utilities Fund, (XLU).  While he avoids a market opinion, Gary notes that the utility ETF has less volatility than the overall market.

Our own ratings also show the iShares Utility ETF (IDU) as the best of a bad lot.  It is still not close to a rating indicating the expectation of a positive return.

Weekly TCA-ETF Rankings

We have been out of the market for many weeks in our sector rotation fund, since the charter is basically long only.  For readers interested in our program, we have a long-only method and one that embraces more market timing.  Current reports are available to any interested reader -- both the TCA-ETF method and the Gong Model.  Just use the "Contact Jeff" link on the left of the page.

We have never seen readings so negative.  Despite this, we have switched to neutral in the weekly Ticker Sense blogger sentiment poll, because of the signal from our Gong model.

As we stated in our last ETF report, we use the Gong signal to gain some exposure even though there are no sectors to buy.  On Friday, we bought a 40% position in SPY and QQQQ (20% each).  As the model generates specific sector signals, we will replace these holdings.

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Note for New Readers

Our weekly ETF Update is designed to assist both investors and traders interested in ETFs and Sector Rotation.  Before turning to the current rankings, let us undertake a review for readers new to this series.

Our Method.  In this past article, we described our basic methodology and why we believe the rankings are useful for fundamental traders and technical traders alike.  While we urge readers to check out the entire article, the key point is that ETFs pose challenges and opportunities different from investment in individual stocks.  The fundamentals may be more difficult to assess.  Even with a good grasp on fundamental trends, there is a lot of technically-based trading in ETFs.  This means that those trading with a fundamental approach (and we do this as well) want to monitor the "hot money" moves.  Here is an article on that point.

The system synopsis. We look at Trending sectors, Cyclical Sectors, and build in an element of Anticipation for both entry and exit -- thus the name of the model, TCA-ETF.  While we do not reveal the exact methodology for spotting trends and cycles, the system is not a "black box."  The basic elements are used by many, and widely reported.  We even discuss the need for human analysis as opposed to black box trading.

We report the rankings each week, now on the weekend with a one-day delay, using the Thursday output from the model.  We monitor and trade this daily, and offer a free report (request via the contact button on the left of the page) for those interested in our weekly trading program.

Disclosure: Author has positions in SPY and QQQQ

Comments

[NOWHEREMAN:]

IEZ, IXO, IXC, anything oil related but only in the middle of the Month. Obama's election will guarantee a drop so wait for the opportunity to pick them up on the cheap.

2008 Nov 03 10:04 AM

[Polizeros:]

Renewable energy and cleantech ETFs should get an Obama pop. Some already are, I think.

2008 Nov 03 04:23 PM

[NOWHEREMAN:]

I would hazard that you are right. So does it become a Sell on the News situation?

2008 Nov 03 05:40 PM