Several countries in Europe are on unsustainable paths, leading to debt burdens that they won’t be able to service. Japanese companies can’t sell products at a profit with the yen at a 15-year high. And shortly after the mid-term elections swing Republican (shortly after the “boost” is priced into the markets) too-big-to-fail states like California will obtain bailout dollars from the U.S. federal government.
Perma-bears will continue pressing these points and a half a dozen others, as they look to gain Nouriel Roubini-like fame. However, they may have to wait beyond 2010 for their “I-told-you-so” moment.
Here are 3 ETF signs that bullishness is likely to lead the super-charge in the near-term:
1. Currency ETFs. It still bothers me that the CurrencyShares Yen Trust (FXY) is hitting new 52-week highs. There’s little doubt that investors in the “run-for-cover” currency are fearful of developed world troubles; yen carry trade investors aren’t borrowing/shorting/selling the yen to invest in higher yielding currencies.
On the other hand, carry trade investors are increasingly comfortable borrowing/selling the U.S. dollar to invest in the highest yielding developed world currency (Australian dollar) and/or stock assets. How can you tell? PowerShares Dollar Bullish (UUP) fell below a 200-day long-term moving average and CurrencyShares Australian Dollar Trust (FXA) hit a 52-week high on 9/13/10.
2. Small Cap Emerging Stock ETFs. It’s one thing to track clusters of single-country emergers (e.g., Singapore, Malaysia, Peru, Chile, etc.), uncovering a thirst for capital appreciation in parts of Latin America and Asia. Yet most of these emerging stock ETFs represent large companies earning profits domestically and internationally; stable governments and above-trend GDP are exceptional tailwinds as well.
That said, you won’t get heavy inflows and super-sized gains from the smallest companies in emerging markets… unless there’s a willingness to ratchet up the risk. Hitting fresh 52-week highs on 9/13/10: (1) WisdomTree Emerging Small Cap Earnings (DGS), (2) S&P SPDR Emerging Small Cap (EWX) and (3) Market Vectors Small Cap Brazil (BRF).
3. Commodity ETFs. Skeptics will express that… when precious metals are near 52-week highs… investors are fearful. And I won’t argue that gold at $1250 per ounce isn’t a bit like seeing the yen at 52-week highs… strangely peculiar for a stock market revival.
On the other hand, when the demand for raw goods from hard assets to soft commodities is strong, materials corporations begin raking in the profits. The iShares Materials Fund (IYM) is in a technical uptrend, thanks in part to new 52-week highs from the iShares Silver Trust (SLV), PowerShares Agriculture (DBA), Soft Commodities (JJS) with exposure to coffee, sugar and cotton, as well as the broad Greenhaven Total Commodity ETF (GCC).
Broad commodity indexes hitting new 52-week highs? The highest yielding G-10 currency and focus of the carry trade (i.e., Australian dollar) doing the same? Small cap emergers from the furthest point out on the common stock risk spectrum registering peaks as well? Those are 3 pretty darn good ETF signs that market movers want this rally to have bull hooves.
Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.