Middle East Ain't the Only Thing Getting Hit Hard

by: Michael A. Gayed, CFA

There are two main bets one can make when it comes to investing. The first is a bet on trend continuation, where past prices are auto-correlated to future price direction, i.e. trend following. The second kind of bet is on mean reversion, where extreme movements have a high probability of reversing. Mean reversion is one of the main reasons I like to look at extreme price movement because it might help identify potential areas to take a contrarian bet in.

Having said that, readers of my articles here on SeekingAlpha know that I occassionally run screens on my list of over 800 ETFs/ETNs to see which areas of the investable landscape are showing extreme price movement. Given recent turmoil and volatility, I decided to look for those ETFs/ETNs which are furthest below from their respective 20 day moving averages. To be honest, I was a bit surprised by the results – the Middle East ain't the only thing getting hit hard.

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It turns out that while proxies for the Middle East and the airline industry have fallen quite a bit relative to their own respective 20 day moving averages, there are quite a few unrelated areas which have performed particularly poorly. Vietnam tops the list, as interest rates rise there to combat inflation north of 10%. China's real estate has also performed poorly given rising rates in China and efforts to clamp down on inflation.

Interestingly, uranium and natural gas have performed quite poorly as well despite oil disruption concerns and the recent spike in Oil prices. This is worth noting because it means there may well be diverging opinions about the future price of oil. If investors in uranium stocks and natural gas believed oil prices would continue to rise, one might expect those two to perform well. The opposite has occurred.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: Pension Partners, LLC, and/or its clients may hold positions in securities mentioned in this article at time of writing.