ETF Ideas for a Time of Uncertainty

Investors and traders alike can profit by paying attention to equity sectors. We monitor sectors via our ETF universe. Every day we generate ratings for each ETF using a combination of Trend, Cycle, and a bit of Anticipation. Our model has a time horizon of about thirty days, drawing upon a sophisticated interpretation of market indicators. (For new readers, there is a more complete description of our methods and ratings at the end of the article.)

A Negative Picture

The main theme of our sector survey is negative. Only five ETFs earn a buy rating, which requires that the ETF meet two tests. A sector must have a positive strength rating on either a trend or cyclical basis. Second, it must not be in the "penalty box," where we put sectors that violate various technical criteria. You can think of it as a stop loss, but more sophisticated.

Three of the five sectors are inverse ETFs, so this is actually a negative signal. One of the two genuine long positions is the Market Vectors Gold Miners (GDX), which is a defensive play. The only true long is the iShares Dow Jones U.S. Medical Devices Index Fund (IHI), which has a modest positive rating, perhaps spurred by Obama speculation.

What Could Change?

The most important consideration for the market is whether the Obama Administration can deal with the question of troubled assets on the balance sheets of financial institutions. We have been covering this issue for many months, most recently outlining the alternatives with the three key choices.

The week's trading shifted on every report from CNBC's Charlie Gasparino, who repeatedly cited inside Wall Street sources about the progress of the new plan.

This could change at any moment, so both traders and investors should be paying attention.

Weekly TCA-ETF Rankings

The ratings reflect prices and signals as of Thursday night, January 29th.In our daily trading program (for accredited and institutional investors) we buy the top eight sectors. In our weekly program for individual investors (free report available upon request) we stick with the top six sectors.The market was down a bit, and our position had a small gain.

Because of the current ratings, we are continuing ourbearish stance in the Ticker Sense Blogger Sentiment poll. Only five of our fifty-seven sectors are in the "buy" range, and three of these are inverse ETFs. This is a very fluid situation, which may change rapidly.

Note for New Readers

Our weekly ETF Update is designed to assist both investors and traders interested in ETF's 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 ETF's 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 ETF's. 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 analysisas opposed to black box trading.

We report the ranking seach 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 email address on the top left of the site) for those interested in our weekly trading program.

Comments

[jcianci]

IHI is illiquid and probably on the ETF death row.

Hedge 20% of your GDX purchase with GLL (ultrashort gold)

2009 Feb 04 10:13 AM