Nuclear ETF Showing Strength

The Market Vectors Nuclear ETF (NLR) has taken the top position in our weekly sector rankings. The top four holdings in this ETF constitute about 10% each, and the list drops rapidly to holdings of 5% or less.

Reviewing Our Mission

Our weekly ETF Update is designed to assist both investors and traders interested in ETFs and Sector Rotation. Before turning to the current rankings, let us undertake a review for readers new to this series.

Our Method. In this past article, we described our basic methodology and why we believe the rankings are useful for fundamental traders and technical traders alike. While we urge readers to check out the entire article, the key point is that ETFs pose challenges and opportunities different from investment in individual stocks. The fundamentals may be more difficult to assess. Even with a good grasp on fundamental trends, there is a lot of technically-based trading in ETFs. This means that those trading with a fundamental approach (and we do this as well) want to monitor the "hot money" moves. Here is an article on that point.

The system synopsis. We look at Trending sectors, Cyclical Sectors, and build in an element of Anticipation for both entry and exit -- thus the name of the model, TCA-ETF. While we do not reveal the exact methodology for spotting trends and cycles, the system is not a "black box." The basic elements are used by many, and widely reported. We even discuss the need for human analysis as opposed to black box trading.

We report the rankings each week, now on the weekend with a one-day delay, using the Thursday output from the model. We monitor and trade this daily, and offer a free report (request via the email address on the top left of the site) for those interested in weekly trading.

We shall use this week's report to illustrate how fundamental investors can make use of the information.

The Fundamentals: Why Nuclear?

Tom Lydon, an excellent ETF resource, says that the Nuclear Energy field is "poised for a rebound." He points to last week's $1 billion deal where China contracted with Russia.

Gary Gordon, cited by Tom, picks up on three main themes supporting nuclear -- suppliers and consumers, momentum, and what he calls the 'Rule of 72.' Check out his analysis for more detail.

Roger Nusbaum points to Japanese nuclear developments as part of a broader infrastructure theme. It is an excellent article!

Using Our Rankings

When there are strong fundamentals, one can expect the trading to reflect buying interest. This week's rankings show a strength for NLR at the 88.75 level. The strength score can be readily interpreted as follows:

A score of zero means that the sector has an expected return equal to the market over a time frame of about one month. A score of 50 is one standard deviation above the norm, putting the expected return in the range of the top 1/3 of all historic sector returns over a one-month period. Scores of 100 or above put the sector in the top 2.5% of all expected returns.

A second good way to use the rankings is to interpret the overall breadth of the market. When a sector "fails" according to our technically-based analysis, it is in the "penalty box." That sector does not have a "buy" rating, regardless of the strength measure.

At the moment, only 17 of the 51 ETFs are in the "buy" range. This is significantly lower than ratings of the last few weeks, and is worth noting. We use this information in our trading, and have moved our intermediate market outlook, reported on the TickerSense blogger sentiment poll, to neutral.

We summarized many of the issues in building a system and analyzing results in this article, What You Need to Know about ETFs, which has links to more specific discussions.

We shall revisit these topics as we analyze changes in future weeks. Meanwhile, readers may find the rankings a useful method to consider the timeliness of their investments in the various sectors. Here is this week's report, including our actual trades. It covers a difficult time for the market. Periodically we will update the overall results for a cycle of trading.

Comments

[bluesmoke]

I've held NLR for about 8 months. It's an excellent way to diversify across the uranium spectrum. The ultimate question is, although the demand is global and I have no intention of selling, can the US get real about an energy policy?

[yourfilled]

Gee, I must be a little "nuts." I bought this 'ETF before it became the rage and have decided to take one-half off. One for the money, two for the show. You folks may be getting in a little late. But what do I know I only trade the stuff.

[ido138]

"and offer a free report (request via the email address on the top left of the site) for those interested in weekly trading"

This site or your site? Subscription or weekly request? More info?

jon

[Jeff]

Bluesmoke and yourfilled: Congratulations on your wise and successful investment in NLR. Some of the biggest gains come from very early calls -- when they work. For part of the time that NLR has been a "buy", there have been at least 8 ETF's with higher rankings, and we stick to the top eight. It is certainly true that knowing when to exit may be even more important than knowing when to buy. Those with big gains re-balance portfolios, selling to new buyers while still hoping for further upside.

Thanks for your comments.

Jeff

[Jeff]

Jon - you can email me via jmiller at newarc dot com.

Thanks,

Jeff

[TheStockaccumulator]

No need to buy oil ETF's and all that weird nuclear speculation... just buy PBR (Petrobrazil) ... it performs better than any oil ETF... and it will have an amazing earnings announcement this coming quarter, at the novel APRIL and MAY record crude price levels... I am buying another 20,000 shares tommorrow... it always drops about 10% before earnings, then goes up about 30% right into earnings... as the prior quarter price of crude reflects novel amazing earnings for such a large company... this quarter will be astonishing for such a huge company... PBR is bigger than any Oil ETF, and though USO (ETF) has doubled in value in one year, PBR had quadrupled in value... and it pays a dividend to boot... so no need to even speculate with evil ETF's just buy PBR ... read about it... I have done well ... see also NE (sells oil platforms to PBR) also check out STR for a clear US based company success... read about STR (QUESTAR) and NXY (Nexen canadian oil exploration, drill, service, etc)... and check SWN to be added to the S&P today, which should give it a big pop...you will be glad you did... warmest regards ... The STOCK ACCUMULATOR

[nearos]

Thank you very much for your expert advice.
If I may ask, why have you ommitted from your list DBE, DBC, MOO and EWZ. Is there a reason for it?
Thanks again