The Durable Goods report for July was released yesterday. Should tech sector investors be happy?

Okay, the answer was revealed in the title of this post. Yes, it's looking like tech has truly established a bottom and has begun to carve out a new trend to the upside.

The month of May brought the largest monthly decline ever in the number of US-listed ETFs and ETNs. Active listings changed by -14 after averaging more than +17 new products per month during the past three calendar years. Additionally, the six-month moving average of net new listings turned negative for the first time in history.

There were five new ETFs introduced during the month and 19 closures. The total number of listed products at the end of May stands at 830 (745 ETFs and 85 ETNs), the lowest level since last October. The quantity is down 15 from the start of the year and down 29 from the peak level of 859 established in early February prior to the closure of the Northern Trust NETS family of ETFs.

In the exciting world of ETFs, every day seems to bring an announcement of a new fund launch. So PowerShares' announcement earlier this month that it will shut down nearly 15% of its ETFs may have come as a shock to many investors.

But don't be alarmed. ETFs are still gaining rapidly in popularity, with some experts suggesting the industry will top the $1 trillion in assets mark before the end of the year. The ETF industry right now is in a "10 steps forward, 1 step back" mode, and the closure of these funds is nothing more than a small speed bump on an otherwise promising path.

On May 1, 2009, Invesco (IVZ) PowerShares Capital Management LLC announced that it would be closing 19 ETFs on May 18. Shareholders of record on May 18 will receive cash equal to the amount of the net asset value of their shares as of May 22. That cash value should include any capital gains and dividends left in the cash portion of investors’ brokerage accounts, according to PowerShares. While the shuttering of these 19 ETFs may not come as a surprise to some investors, especially in light of earlier ETF closings in 2008, they nonetheless change the landscape of the ETF world. Liquidity is an excellent indicator of viability in the ETF industry, but there is not a particular formula that dictates if, or how long, a fund will last if investor interest is lacking or waning. The closing of the 19 PowerShares funds this month provides an opportunity to sort through some of the ETF clutter and examine what can go wrong and why.

The incredible popularity of ETFs from 2007 to mid-2008 brought with it an onslaught of new, and often similarly themed, products to market. The unique way in which ETFs are launched has provided sponsors such as PowerShares and Claymore with the opportunity to launch multiple products at a time. This flood, however, has proved to be unsustainable, leading to multiple ETF closings across the industry. Despite the recent hit, PowerShares still remains a significant player in the ETF business, with a product line of 135 ETFs with assets of $25.8 billion as of March 31.

Invesco PowerShares announced on Friday that it plans to close 19 of its ETFs. The affected funds represent less than 1% of Invesco PowerShares’ total assets.

This type of action isn’t new to the ETF world as Claymore closed 11 ETFs last year representing less than 4% of their collective assets. Every ETF that comes to market, although well thought out, doesn’t always get traction. At one point the economics of keeping smaller funds open no longer makes sense.

Invesco PowerShares Friday (5/1/09) announced plans to close and liquidate 19 ETFs. The last day of trading for the affected products (listed below) will be May 18, with liquidation and distribution amounts determined by the May 22 value.

The FAQ (.pdf) has some additional information about the closing. PowerShares warns that starting in early May, the closure process “will cause each fund’s holdings to deviate from the securities included in its underlying index and each fund to increase its cash holdings, which may lead to increased tracking error.” Therefore, I advise all shareholders to sell their holdings as soon as possible, and use a limit order when doing so.

With demand for PCs declining in the face of the recession, computer manufacturer Dell (DELL) on Thursday reported a 48% drop in profits and 16% drop in sales in its Q409 results. It missed revenue estimates but beat profit estimates, helped by a 16% reduction in operational expenses and strong cash flow. Let’s take a closer look.

Q4 revenue was down 16% to $13.4 billion, missing analyst estimates of $14.1 billion. Net income was down 48% to $351 million or $0.18 per share. Excluding charges, EPS was $0.29 per share, beating analyst estimates of $0.28 per share.

Dell, Inc. (DELL) closed Monday’s trading near a 12 year low at about $8 per share, adjusted for splits. Shares are roughly a third of where they were last summer, and since then the company has been on a downward spiral. The company reports fourth quarter and full year fiscal 2008 results on Thursday afternoon, and already many sources including the Wall Street Journal and Barron’s have begun to dampen expectations.

Dell is dealing with quite a few difficulties right now, chief among them is the fact that PC sales have dropped off quite a bit recently. Dell gets more than 60% of its revenue from the PC segment of their business. In addition, with one of Dell’s main competitors Hewlett-Packard (HPQ) reporting disappointing earnings last week, Dell could be dealing with many of the same troubles. (Click to enlarge)

The company offers a more nuanced assessment of the BRIC countries on its Q408 conference call: (XRX)

The number of ETFs on Deathwatch continues to grow as we enter 2009. My current list contains 139 names: 97 ETFs and 42 ETNs. The list includes any ETF/ETN that is at least six months old and had an Average Daily Value Traded of less than $100,000 in December.

Exchange Trade Notes are suffering from concerns of default risk. The Lehman Brothers (LEHMQ.PK) bankruptcy, which resulted in the demise of three ETNs, is causing investors to hesitate before throwing money into these products. Unless ETN sponsors to take steps to calm investor fears, their representation on the list is likely to grow in the coming months.

A "cointegrated" security pair is one for which the return series are correlated in a mean-reverting manner. Thus, a strongly cointegrated pair can make a terrific long-short trade after a period of performance divergence.

As described earlier in the year, the way the intuition behind cointegration was first related to me, was to imagine a man walking his dog. The man and dog may seemingly move independently and in different directions for a while, but the leash ensures that they will eventually cross paths.

In looking at the recent Durable Goods report it was striking to see that shipments for semiconductors were up over 25% from March to April.

Given that electronics manufacturers need to acquire semiconductors before they can assemble and ship their products, it is reasonable to assume that semiconductor shipments are a leading indicator of electronics manufacturing. To be more precise, semiconductor shipments would be a leading indicator of electronics manufacturing sales expectations.

By Murray Coleman

With 136 exchange-traded funds still on the market with less than $10 million in assets, the closing of five unpopular bond exchange-traded funds by Ameristock this week isn't likely to be the last, say industry observers.

New orders for long-lasting U.S.-made manufactured goods fell by 5.3 percent in January, the biggest drop in five months and more than analysts expected, and a key gauge of business spending also declined, a Commerce Department report showed on Wednesday.

But the news wasn’t all bad. Some industries look like a recovery may be beginning.

The pullback that started last week continued this week, with 90% of the funds on my list showing a loss:

Last week, we saw a downside bias where financials and housing were the weakest area. This week shows no reprieve from the selling (click to enlarge):

When Intel (INTC) and IBM (IBM) beat analysts’ sales expectations earlier this month, many took it as a sign that the usually volatile technology industry — with its stocks on the rise for the better part of three years — remains insulated from the issues that have hurt financial stocks and the economy.

The NASDAQ Composite Index stood near seven-year highs, and PowerShares Dynamic Hardware & Consumer Electronics (PHW) continued its run. The fund’s NAV is up 36.5% since its December 2005 inception, about 16 percentage points better than the S&P 500 over that span.

Below we highlight our list of US Industry Group ETFs.

After rallying from the August lows to very overbought levels, the ETFs have pulled back and are now trading within their normal trading ranges. Most of them remain in uptrends and above their 50-day moving averages. Some of the Oil and Gas ETFs have pulled back the most in the last 5 days, specifically XES and OIH.

Last week we saw a slight upside bias led by energy and commodities. This week we find a distinct downside bias (click to enlarge):

Global Technology ETFs
iShares S&P Global Technology Sector Index Fund (IXN)