Don Dion's  Instablog

Momentum Gainers

Financials

PowerShares FTSE RAFI Financials (PRFF)

SPDR KBW Bank (KBE)

iShares Dow Jones U.S. Financial Services (IYG)

SPDR Financial (XLF)

The government released the parameters of its stress tests and they were the numbers already cited by economists. According to a Bloomberg report, banks will have three options to fix their balance sheets if they fail a stress test—raise capital, get bailout money, or convert the government’s preferred shares into common equity. Raising capital will be difficult, though shares are trading much higher today than two months ago. There probably will not be any bailout money given the public opposition. The last option, however, is not really a solution. Preferred equity is already equity. Switching debt to equity can make a bank more solvent, but switching preferred equity to common equity is more of an accounting gimmick than a solution to the banks’ financial problems.

Financials mostly traded lower last week, after suffering large losses on Monday. PRFF fell 7.89 percent, KBE lost 7.53 percent, IYG slid 2.08 percent and XLF dipped 1.53 percent.

Coal

Market Vectors Coal (KOL)

KOL gained 2.99 percent last week. Economic weakness and concerns about green policies from Washington have weighed on the sector, but shares are down less than 2 percent over the past six months, and they are up 27.16 percent in the last three months as shares bounced off recent lows. KOL bottomed in November and has not made a new low since then.

Oil Services

PowerShares Dynamic Oil & Gas Services (PXJ)

Unlike KOL, PXJ set a 52-week low in early March. It fell to $8.77 per share intraday on March 6 and then rallied 52 percent. Higher oil prices helped for a while; crude rose more than 25 percent from early March to April, but since then crude has fallen back into the $40s. With low oil prices, a retreat in the overall stock market could leave shares exposed to the sell-off.

PXJ trails a similar fund, iShares Dow Jones U.S. Oil Services (IEZ), over the past three months (20.11 percent to 18.17 percent), but PXJ has outperformed in the past month, 18.17 percent to IEZ’s 14.11 percent.

Momentum Losers

Biotech

SPDR S&P Biotechnology (XBI)

iShares Nasdaq Biotechnology (IBB)

Biotechnology performed terribly over the past three months. XBI and IBB lost 13.76 percent and 5.45 percent, respectively, compared to a 4.12 percent rise in the S&P 500 Index. The biotech ETFs, including PowerShares Biotech &Genome (PBE), have negative returns for every single period measured.

Biotech outperformed during most of the market’s decline last fall and into early 2009, but the sector was left out of the ensuing rally, and this led to overall underperformance.

Silver

iShares Silver Trust (SLV)

PowerShares DB Silver (DBS)

In 2009, silver topped out in late February, followed by the bottoming of the S&P 500 Index in early March. Over the two-month period since silver’s recent top, SLV has lost more than 10 percent, while the S&P 500 Index went on to gain more than 15 percent. Financial stress declined greatly over this period, and investors are relatively calm compared to earlier this year. Physical gold, silver, platinum, palladium and other bullion products are easier to find and have lower markups than just a few weeks ago. The trend could remain intact, but recent experience says a reversal could be swift.

Natural Gas

US Natural Gas (UNG)

iPath Natural Gas (GAZ)

Bottom feeders and bottom fishers swarmed natural gas in recent weeks, but they’ve come up empty handed. Natural gas fell below $4 per MBtu and UNG slid 13.82 percent for the week; GAZ lost 12.76 percent. Both ETFs are off more than 26 percent in the past month, compared to a 5.25 percent drop in PowerShares DB Oil (DBO). Investors with a long-term investment horizon may find bargains here, but low demand and increased supply in the form of liquefied natural gas from Russia will help depress prices in the near future.