Profit-Takers Slam Financial, Real Estate , Commodity ETFs

The major U.S. benchmarks all gave up 2% on September 1, 2009. Moreover, losers on the NYSE outnumbered winners by a margin of 5 to 1.

None of the activity should have come as a surprise. In fact, volatility on the CBOE Volatility Index (VIX) was on the cusp of surging above a 50-day trendline for weeks, suggesting increased selling pressure was imminent. In addition, riskier small caps, emerging markets and tech stocks had underachieved in August.

Nevertheless, it’s always helpful to see where the profit-taking hit the hardest. And, true to expectation, profit-takers victimized some of the very best ETF performers over the last 6 months.

Curiosity seekers might note that financial stocks, real estate-related companies and a handful of select commodities ricocheted higher off the March 2009 lows than most investment choices. Their 6-month gains were audacious and awe-inspiring.

Stellar 6-Month Performers Are Slammed On September 1, 2009
				6-Month %			September Mourn (9/1)
SPDR KBW Bank Fund (KBE)				109%			-5.9%
SPDR KBW Insurance Fund (KIE)				106%			-5.7%
Claymore Global Timber Fund (CUT)				101%			-3.9%
iShares DJ Home Construction (ITB)				85%			-3.5%
First Trust Materials AlphaDex Fund (FXZ)				82%			-3.3%

Stimulus from homebuyer credits boosted the demand for new homes, while artificially low interest rates have created demand for financial services. What’s more, it takes wood, iron ore, steel and a host of materials to build stuff… including cars for the one-time “cash-for-clunkers.”

Once investors began to question the sustainability of the stimulus, however, the largest beneficiaries got whacked the hardest. Indeed, a 2-year “bear” chart of these 6-month success stories shows just how far they still need to go to “get in line” with the broader S&P 500.

Comments

[Mad Hedge F...:]

yuio. Never have I seen such a disconnect between the markets and the real economy. All of a sudden the world has gotten expensive. Stock prices have been levitated by vapor. The bulk of the trading volume is now accounted for by worthless zombie stocks like Citibank (C), (AIG), Fannie Mae (FNM), and Freddie Mac (FRE). Cost cutting, not sales growth, has artificially boosted earnings above subterranean forecasts. Commodity prices have soared because of stockpiling and not consumption. Puzzled CEO’s of every stripe are seeing no recovery in their businesses whatsoever. But bears who have sold into the summer rally have gotten a severe spanking. We are left with momentum players and chartists to grind out ever diminishing returns. I have used the big up days to sell short dated out of the money calls in small size which, mercifully, expired worthless, sometimes just by pennies. That’s because I keep my favorite quote from John Maynard Keynes pasted to my monitor; “Markets can remain irrational longer than you can remain liquid.” Better to wait for a more convincing break on the charts before piling on those shorts again.

Sep 02 10:34 AM