Each week we gain perspective on the markets by reviewing nearly 300 sector ETF's. We assess the overall market by looking at the following signals:
- The percentage of our sectors showing positive ratings
- The percentage in the "penalty box" (a violation of certain technical criteria)
- The relative ratings of six ETF's representing broad market indexes and their inverses
As we note below, the picture is weakening, but still bullish.
We also identify the top-rated ETF's. In our own trading, we select from this list with some attention to diversification. The ratings are based upon technical criteria reflecting Trends and Cycles. Since our approach adds a bit of Anticipation, we call it the TCA-ETF method. (For new readers, there is a more complete description of our methods at the end of the article.)
By considering a broad range of sector alternatives, the system identifies possibilities that could easily go unnoticed. Such is the case with Austria, which has moved from 49th to 10th in our rankings during the last week.Featuring Austria
We trade Austria via the iShares MSCI Austria Investable Market Index Fund (EWO). The holdings include a variety of sectors, but financials make up over 1/3. Industrials and energy are about 15% each. There is a lot of concentration, with the top five holdings representing about half of the fund.
The P/E is 18.5. The beta versus the S&P 500 is nearly 2. This can be a volatile holding. Here is a look at the chart (click to enlarge).
Tom Lydon has the only recent commentary on this ETF, asking "Can Austria's ETF stay ahead of dire forecasts?" Lydon cites GDP and employment data showing that the Austrian economy could remain weak for several years, depending upon a rebound in exports. Despite this, Austrian stocks have shown a brisk rebound this year, and especially in recent months.
Weekly TCA-ETF Rankings
With 29% of all sectors in the penalty box, the overall picture has deteriorated significantly over the last week. Our index ETF package shows the longs with a narrow and declining lead over the inverse index funds.
We were up about 1.5% on the week, a little behind the S&P 500 which gained 2.2%. There have been some analyst downgrades in the REIT's, but they continue to show strength in our ratings.
Based upon continued, but moderating, strength in the model signals, we continued our bullish position in the Ticker Sense Blogger Sentiment poll.
Here are the top sectors from our expanded universe of 277 ETF's (click to enlarge). The list also includes the values for the broad market ETF's and their inverses.
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 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 email address on the top left of the site) for those interested in our weekly trading program.