ETF Update: Is There Any Place Left to Invest?

by: Jeff Miller

Looking at market sectors is a great way to get overall perspective.  When sector breadth shrinks, as it has over the last few weeks, it is a warning.  Our weekly ETF update takes a time frame of about one month.  We are especially interested in being on the right side of big moves.  So should you!

Those with different time frames may reach wildly different conclusions. Those investing in bank stocks, for example, include both those who are looking a  year ahead and those thinking one week ahead.

Successful investing means knowing your time frame and your mission.

Our rankings resemble the TV reality show, Survivor.  The story is mostly about what is wrong.  Secondarily one may ask, "Is there anything left to buy?"

This week's featured sector reflects the circumstances.

The Featured Sector:  Environmental Services

Market Vectors Environmental Services ETF (NYSEARCA:EVX) is mostly about waste disposal.  The top holding out of the 21 constituent companies is a little over 10% and the top four make up about 40% of the Amex Environmental Services Index.  There is some diversification, since the group includes both industrial and consumer waste disposal, as well as companies with other environmental services.

There has not been much commentary on EVX.  In our review of favorite sources we see only this comment from Gary Gordon.

 The chart shows the performance over the last year or so, along with the buy and sell calls from our TCA model.  While we have had a "buy" rating since mid-April, there have been some recent losses.

The sector  performance is not at the outstanding level that we hope to buy.  It is more like a survivor.

It raises an interesting question for active traders.  If you owned this ETF, would you have stopped out on the recent decline?  What criterion would you use for re-entering?

Our own answers come from our TCA-ETF system.

Weekly TCA-ETF Rankings

It was a brutal week in the market, particularly if you measure (as we do) from Thursday to Thursday.  That includes last week's down 400 day and excludes last Friday's rally.

Only six ETFs still qualify for a "buy."  The rest are in what we call the penalty box.  If we were to include both the long and short ETFs for the Dow, the S&P 500, and the NASDAQ, two of the three shorts would be in our rankings  We are considering including these ETFs in future articles.  Meanwhile, here are the survivors -- the top six in the rankings.


Note for New Readers

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 our weekly trading program.