Some ETFs Are Hot, Some Are Not

 |  Includes: EWI, IAT, ITB, IYH, SLV
by: Wall Street Sector Selector

By John Nyaradi

Some ETFs are hot and some are not as we enter 2012. A famous stock market axiom says that “a rising tide lifts all boats,” however, in markets like today’s bifurcated environment, vast differences of performance and risk can exist among various sectors and ETFs.

Hot ETFs

iShares Dow Jones Regional Bank Fund (NYSEARCA:IAT) has gained 7.9% over the last four weeks. Major holdings include US Bancorp (NYSE:USB) PNC Financial Services (NYSE:PNC) and SunTrust (NYSE:STI) The banking sector has been bolstered in recent weeks by improving economic reports from the United States and growing sentiment that the European debt crisis might be successfully brought under control. Also, Federal Reserve support for the endangered housing industry has added strength to the financial sector. After coming off lows set in December, the index (NYSEARCA:IAT) has vaulted through both its 50-day and 200-day moving averages.

iShares Dow Jones U.S. Home Construction (NYSEARCA:ITB) up 4.6% over the last four weeks. Major holdings include DR Horton, (NYSE:DHI) Lennar (NYSE:LEN) and Toll Brothers (NYSE:TOL) and the ETF seeks to track the Dow Jones U.S. Select Home Construction Index. The sector has experienced recent strength on the hopes for more help for the housing industry and recent improvements in sales, home construction and building permit numbers. Lennar reports earnings on January 11, and analysts estimate 6% earnings improvement over this time last year. On a technical basis, the home construction ETF (NYSEARCA:ITB) is above both its 50- and 200-day moving averages and so is in bull market territory.

iShares Dow Jones U.S. Health Care (NYSEARCA: IYH) has gained 4.8% over the last four weeks. Designed to track the U.S. Healthcare Index, (NYSEARCA:IYH) has major holdings in Merck (NYSE:MRK), Pfizer (NYSE:PFE) and Johnson & Johnson (NYSE:JNJ). Merck recently reached new highs in its stock and the healthcare sector is generally seen as a defensive play during difficult times when investors are looking for dividends and stable holdings. The technical picture is also very strong here as the sector comes off its early December lows.

Not Hot ETFs

On the other end of the spectrum, investors are having less fun with positions in ETFs and sectors that have been suffering as of late.

iShares Silver Trust (NYSEARCA:SLV) has tumbled 12.6% in the last 30 days and is in a bear market configuration from a technical standpoint. Both silver and gold have been undergoing significant corrections but just in the last few days appear to have put in an interim bottom and so better days could be ahead. Silver prices are expected to rise on improving manufacturing conditions and demand in China and also as the electronics industry recovers from the recent floods in Thailand.

IShares MSCI Italy Index (NYSEARCA:EWI) has dropped 12.4% in the last four weeks. Of course, Italy and Europe are in the news almost every day, mostly not in a good way, and ETFs in the region have been pummeled by the ongoing fears over the European debt crisis. Technical indicators offer little hope as (NYSEARCA:EWI) is below its 50- and 200-day moving averages and is on a point and figure sell signal.

Bottom line: It’s easy to see that rising tides don’t lift all boats, and in environment like ours today, investors must use technical and fundamental indicators to find sectors that offer potential opportunities. As the old saying goes, “there’s always a bull market somewhere.”