What if determining stock market direction was as simple as wetting your finger in the outdoors and holding it up to the sky? A cool breeze telling you if the wind was coming out of the northwest?
Not surprisingly, it has never been quite that easy. While we have trendlines that we base on moving averages — 50-day, 100-day, 200-day — the predictive value of price change information has always been imprecise.
That said, it’s in our nature to look for changing dynamics. For instance, one popular metric to determine if an asset is likely to rise or fall is “relative strength.”
When an asset demonstrates increasing relative strength over a reasonable period of time, it may continue along a trend of outperforming the market. After all, the price probably wouldn’t be rising if the investing public hadn’t been embracing the asset.
Analyzing relative strength is hardly an exact science. Yet identifying relative strength trends can help you identify stock ETFs that may, in fact… be on the way up. Poor relative strength numbers may also be used to identify ETFs to avoid or sell.
With the help of ETFscreen.com, I’ve identified 5 stock ETFs that have experienced the largest increases in relative strength percentile rankings over the last 3 months (13 weeks). I’ve also identified 5 stock ETFs that have experienced the most significant decreases in relative strength percentile rank.
|Stock ETFs With The Largest Changes In Relative Strength Percentile Rank|
|iShares MSCI Peru (EPU)||49.7||94.7||90.5%|
|iShares Telecom (IYZ)||53.4||91.4||71.1%|
|iShares MSCI South Africa (EZA)||57.4||94.6||64.8%|
|PowerShares Emg Markets Technical (PIE)||61.6||91.5||48.5%|
|Market Vectors Small Cap Brazil (BRF)||63.9||97.0||51.8%|
|iShares DJ Home Construction (ITB)||86.1||4.8||-94.4%|
|Internet HOLDRs (HHH)||72.7||11.1||-84.7%|
|iShares Medical Devices (IHI)||83.0||20.7||-75.0%|
|KBW Regional Banking (KRE)||81.9||24.9||-69.6%|
|SPDR Select Financials (XLF)||73.8||27.8||-62.3%|
For those that believe in the notion of momentum, there’s plenty of evidence to suggest that Emerging Market ETFs are hot again. Not just any emergers, by the way… but resources-rich countries. South Africa, Brazil and Peru all fit the resources-rich description.
It may not be shocking that Financial ETFs — homebuilders, regional banks, broad financials — are ailing as of late. In fact, the market may be firing a warning shot with regard to a lack of lending activity in the global economy.
Disclosure Statement: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company and/or its clients may hold positions in the ETFs, mutual funds and/or index funds mentioned above. The company receives advertising compensation at the ETF Expert web site from Invesco PowerShares Capital Management, LLC. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities.