Many Sector ETFs Back in a 'Downtrend'

Well that didn't last long.

Less than two weeks ago, each of the 10 major sector ETFs of the U.S. economy had climbed above the almighty 200-day moving average. Some folks viewed the activity as confirmation of a new, bull market uptrend.

Of course, when technical data doesn't quite work as anticipated, these analysts have an "easy out." When an upswing is short-lived, it's simply referred to as a "whipsaw." (Nobody seems to say... oooppps, the charts were wrong; rather, we experienced a little "whipsaw.")

In any event, not everything has fallen back below a 200-day trendline. Here's the breakdown:

Above 200-Day Moving Average on 6/22/2009
					% Above
Technology Select SPDR (XLK)					7.74%
Vanguard Telecom		(VOX)			6.27%
SPDR Select Consumer Discretionary (XLY)					2.38%
iShares Dow Jones US Basic Materials (IYM)					0.64%
Below 200-Day Moving Average on 6/22/2009
					% Below
iShares DJ Utilities (XLU)					-1.38%
SPDR Select Consumer Staples (XLP)					-1.99%
SPDR Select Healthcare (XLV)					-2.46%
SPDR Select Industrials (XLI)					-5.90%
iShares DJ Energy (IYE)					-6.05%
SPDR Select Financials (XLF)					-7.95%

The leadership of technology/telecom as well as materials continues; yet, the violent sell-off across all stock asset classes on Monday, 6/22/09 slammed tech and materials the hardest.

In truth, the leaders typically get pummeled the most. Throughout the "b--- rally," tech and materials surged faster and higher than the vast majority of segments.

The only segment to pile on more gains off the March lows? Financials. Yet here they are again... suffering some of thebiggest redemptions.

Let's face it... people don't trust banks/lenders/insurers. And as long as we wait for new financial regulation, short-sellers will use funds like Direxion Financial Bear 3x (FAZ). I pointed out that FAZ grew more than any other fund in May as a percentage of assets. (In other words... this was going to work later or sooner!)

If there are any surprises, I'd have to nominate the Consumer Discretionary (XLY) segment. Granted, I expect consumers in China, Brazil and in other nations to spend more of what they traditionally save. Between government incentives and increasing standards of living, it's almost preordained.

Here in the U.S.A, though? Until and unless real estate gets off the mat, it seems unlikely for Consumer Discretionary (XLY) to stay near the top of the sector leaderboard.

In contrast, energy may take a licking on days like these, but it'll keep on earning. With oil running from the mid-$30s to the mid-$70s without so much as a "wait-a-sec," it's not so surprising that investors are cashing in gains. Yet funds like SPDR Energy (XLE) and iShares DJ Energy (IYE) simply have too many postiives in their favor to be out of the batter's box for too long.

For one thing, a weaker dollar keeps pushing the price of crude higher. Further, OPEC may not admit it, but they're quire comfortable with $100 per barrel oil. And at the present moment, there's little to keep it from happening. Finally, investors are more comfortable with natural resource investing these days, whether its via the commodities themselves (e.g., oil, nat gas, etc.), or the companies that produce, explore, refine and/or transport.

Full Disclosure: Gary Gordon, MS, CFP, is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company may hold positions in the ETFs, mutual funds and/or index funds mentioned above.

Comments

[Gary Gallo:]

FAZ was under 5.00 that's reason enough to buy it. Down from over 100.00. Whenever a 3X is under 5.00 it offers excellent risk reward. As I stated on this forum when I bought FAS at 3.71 only to sell at 10.00 and 13.00. Huge upside, 5.00 downside, ill take that any day.

Jun 23 07:12 PM