Below we highlight a list of the ETFs that are trading the furthest above and below their 50-day moving averages.

As shown, the Internet group ETF (HHH) is the most overbought at +10.49%, followed by Brazil (EWZ), Emerging Market Latin America (GML), Oil (DBO), all of Latin America (ILF), and Gold (IAU) and (GLD). Other notables on the list of most overbought ETFs include China (GXC) and (FXI), Steel (SLX), Russia (RSX), and Silver (SLV).

To help visualize key aspects of the commentaries posted on this blog recently, the accompanying 2 charts illustrate important patterns that investors should keep a close watch on.

For that reason, I do not usually recommend using options as the primary vehicle to make directional bets. It is difficult enough to find short-term conviction in the price direction of a certain asset so why add the extra layer of complexity to your decision by creating time decay and vega exposure. Simple stop/loss risk management decisions can effectively protect the trader in nearly the same way as the protected nature of loss caps on long positions in puts in calls.

Below is the model ETF portfolios from Fundadvice.com with updates for the 200 day moving average for the close of August. One could either buy and hold this portfolio or only hold the positions currently above a moving average. Suggested allocations from Fundadvice are next to each ETF for aggressive, moderate, and conservative investors. Moving averages will be updated monthly on my blog, Scott's Investments.

Portfolio availble at Fundadvice.com

I featured a custom portfolio at the beginning of July, titled 'Scott's Alternative'. Below is the update for September if you were to base buy/sell decisions on the 200 day moving average at the end of August. The portfolio is updated once per month. For some additional analysis on projections for Gold prices, which directly impact a holding GDX, there is an excellent video here. The portfolio is below:

I featured a custom portfolio at the beginning of July. Below is the update for August if you were to base buy/sell decisions on the 200 day moving average at the end of July:

Disclosures: None.

Below is the model ETF portfolios from Fundadvice.com with updates for the 50 and 200 day moving average for the close of July. Positions in green are trading above the 200 day simple moving average at the end of July and ones in red are below the 200 day (only IEF for this month). One could either buy and hold this portfolio or only hold the positions currently above a moving average. Suggested allocations from Fundadvice are next to each ETF for aggressive, moderate, and conservative investors. Moving averages will be updated monthly on my blog, Scott's Investments.

Small cap stocks and companies can get overlooked by investors, as their large-cap counterparts may block the view. But good things come in small packages and ETFs are a great tool to help get good small-cap exposure.

Despite the some of the criticisms lobbed at small caps, such as that they’re high-risk or lack quality, they have many good points. By definition, a small cap company has a market capitalization of $250 million to $2 billion. Those with a market cap below $250 million are referred to as micro-caps.

With the exception of a bit of back-tracking from Dr. Doom (Roubini), there seems to be near unanimity on the notion that the worst is behind us. Indeed, the price surge in foreign small cap stocks relative to foreign large cap-counterparts supports the notion that the worst may be in the rear-view mirror for China, Brazil, Canada, Australia... heck, most of Europe and Asia.

Yet, more than a year ago, I developed a simple method for determining the point at which investors might feel that a recession's impact on the market has concluded; specifically, from the bear market's inception, the smallest companies in the U.S. via the iShares Russell Microcap (IWC) would need to collectively climb above the S&P 500 SPDR Trust (SPY).

I've written on several occasions beginning here regarding the merits of market timing systems and I have also suggested a few portfolios. I've decided to start updating ETF portfolios on a monthly basis on the first of the month . I may add portfolios with time, but we will start with three portfolios: A starter 5 position portfolio inspired in part by Mebane Faber, Paul Merriman's ETF portfolio, and a custom portfolio which includes some alternative assets.

I will be posting the 200 and 120 day moving averages, which approximately represent a 10 and 6 month average. The ETFs trading above the 200 day moving average will be highlighted in bold (two of the ETFs in my custom portfolio have not been trading for 200 days). For background on the rational behind using a moving average system, please read my previous work.

According to Russell, the stocks below will be added to the Russell Microcap Index when it is reconstituted at the end of the month. This list is preliminary and may be changed when the final list is released on June 29, 2009.

Remember, approximately half of the names in the Russell Microcap Index are also in the Russell 2000, so these names may also appear on the Russell 2000 preliminary addition list.

“Words from the Wise” this week comes to you in a shortened format as “day-job” responsibilities precludes me from doing a comprehensive commentary. However, a full dose of excerpts from interesting news items and quotes from market commentators is provided.

Signs of stability characterized trading on financial markets during the past week. As investors placed their bets on a global economic recovery, equities, base metals and crude oil made further headway, with long-term government bond yields remaining at elevated levels, but declining somewhat after a successful U.S. 30-year bond auction and pro-U.S. Treasury comments from Japan’s minister of finance.

The adage that good things come in small packages isn’t just for Christmases and birthdays - at the right time, it can apply to your ETFs, too.

The next best crop of companies set to grow over the next decade will not be the biggest of the big companies. The large-caps are already giant, and if these solid businesses as we know them grew tenfold in value, they would become trillion dollar companies. While this is not impossible, it is highly unlikely.

Pundits have been pounding the airwaves on the virtues of value investing. Get companies at low price-to-earnings ratios, clean balance sheets, higher-than-average dividend yields and lots of free cash flow. These folks believe that you need corporations with predictable income streams and steady profits to ride out the recessionary storm.

On the flip side, far fewer analysts have been telling you to buy growth stocks; typically, these are the companies with double-digit earnings growth prospects and may have lofty goals for new products and new services. Growth stocks are not supposed to fare as well in a recession, let alone the doom-n-gloom forecasts for a worldwide depression.

In part I, I took an article by Matt Hougan of Index Universe to task.

Before I move on to more important topics, I'd like to briefly revisit my thoughts on what Matt Hougan had to say. Matt stated on February 5th, 2009 that the time for holding the market is now. He made no distinction between active 'traders' who supposedly have such high turnover they can never hope to succeed, and those who buy, close their eyes, and hope, er, hold for the long term. The common investor is becoming more sophisticated than Matt is giving them credit for and we realize there are myriad alternatives to either a) being a daytrader, or b) feeling like a sucker for buying and holding stocks on either their broker's advice or the advice of an online financial columnist who sees investing only in terms of diversification and expenses.

As US equities market have rallied since the beginning of 2009 -- the S&P is up 3.03% at the time of this writing since the start of the year -- many traders and investors have begun to ask a key question: is this rally a sign of the January Effect?

What is the January Effect?

I thought I would summarize a few ideas I've mentioned on World Beta over the past few months as potential trading ideas based on some simple quant research:

1. Follow a simple tactical asset allocation model. With returns near flat, the model performed admirably in 2008 - look for an update to the white paper with out-of-sample numbers sometime in late January. The model is currently 100% in cash/bonds.

Small & Micro-Cap ETFs
The simplest would be to buy small cap stocks or ETFs before the year end and hold until they have a pop. Since the definition of “small-cap” has been continuously revised up over the past few years, it might be a good idea to look at “micro-cap” stocks. Here are a few ETFs: