20 ETFs Whipping The Market

by: Moby Waller

With 2 months under our belt in 2012, it's been a strong general performance for stocks. As we previously analyzed, the strong start to this year bodes well for rest of the year in terms of the market holding gains for the year and possibly adding quite a bit more to it.

What sectors are leading the way? Well, we screened for ETFs in order to see where the outperformance lies. We looked at ETFs with over 500k daily average volume, optionable/shortable, and took out all Ultra/Short type securities in order to get the pure sector plays.

There are a nice round 20 ETFs that are outperforming the S&P 500 Index ETF (NYSEARCA:SPY) by over 50% this year. Take a look at the list below:

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The first thing of note is the heavy international flavor to the group of leaders. Fifteen of the 20 liquid names strongly outperforming the SPYders thus far in 2012 are either single country or regional ETFs:

WisdomTree India (NYSEARCA:EPI)

MarketVectors Russia (NYSEARCA:RSX)

PowerShares India (NYSEARCA:PIN)

iShares Brazil (NYSEARCA:EWZ)

iShares Germany (NYSEARCA:EWG)

iShares Singapore (NYSEARCA:EWS)

iShares Hong Kong (NYSEARCA:EWH)

iShares Emerging Markets (NYSEARCA:EEM)

Vanguard Emerging Markets (NYSEARCA:VWO)

iShares Asia exJapan (NASDAQ:AAXJ)

iShares Taiwan (NYSEARCA:EWT)

iShares China (NYSEARCA:FXI)

iShares South Korea (NYSEARCA:EWY)

iShares Latin America (NYSEARCA:ILF)

WisdomTree Emerging Markets (NYSEARCA:DEM)

Certainly Asia is well-represented on the list of 2012 gainers, but other regions are represented as well, including Europe (Germany). The non-international ETFs strongly outperforming the SPY in our screen are:

iShares Silver (NYSEARCA:SLV)

SPDR Homebuilders (NYSEARCA:XHB)

iShares Home Construction (BATS:ITB)

PowerShares Nasdaq 100 (NASDAQ:QQQ)

iShares Biotechnology (NASDAQ:IBB)

Again, here there is a broad mix to these outperformers, from Growth to Real Estate to Commodity. That's a positive sign in my view for stocks in general - that we see a variety of sectors outperforming. This also indicates that we may be in more of a "stock picker's" (or in fact sector picker's) market where picking the right areas to be in can provide oversized gains - a bit more divergence among sector performance as opposed to be recent years would be healthy for the markets in my view.

Note the 52 week (1 year) performance of the ETFs listed above in comparison to their 2012 gains. Here we also see a wide variety - some are longer-term gainers, while others clearly have begun a rebound in recent months after previous weakness.

Let's take a closer look at a couple of the leading 2012 winners, one of which is still down over 1 year while the other is up. India ETF is down 10% for 52 weeks despite a 30% gain in 2012 - meanwhile Homebuilders ETF has shown gains over both time frames.

Looking at the EPI chart over 1 year+ below, you can see that this is staging a rebound following a sharp downtrend from late-2010 to late-2011. It has clearly made an important bottom from this trend in my view and is now in retracement mode where it retakes some of the losses. The 50% Fibonacci Retracement level (around 22) is often a period where such a rebound pauses for consolidation or even pulls back a bit - note that we're just a bit below that 22 area now, and EPI may have already peaked out a bit. Nonetheless, with Weekly Percent R in bullish territory, I would expect EPI to show resilience this year (and likely make another run towards 22) as long as that indicator on this longer-term basis remains above the 50 mid-level.

EPI Weekly Chart

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There are many sector charts that look similar to EPI above, so it's a good example to use as a proxy for many of the rebounding groups. XHB is a different example, it's up on both the 52 week and YTD performance table. See the chart below - this one doesn't have a clear trend over 52 weeks. It's on a strong run currently that began in early-October 2011, but has really been in a choppy, grinding trend higher since 2009. Note the longer-term Percent R has rarely remained either in strongly bullish or bearish territory for very long throughout this trend. Bigger picture, XHB (and others related to real estate/construction) is in a recovery consolidation with a bullish bias from the massive decline we saw during the housing crisis. There looks to be more upside in this range, but the grinding nature of it makes pullbacks a better entry opportunity.

XHB Weekly Chart

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It's interesting to look at this group of 20 big liquid ETFs that are outperforming the broad market SPYders by 1.5x in 2012. Clearly International (emphasis on Asia) has been a theme that is working this year - and one could expect this group to continue its outperformance should the market rally continue.

Disclosure: I am long SLV, RSX. ETFTRADR subscribers are in SLV & RSX open option positions currently, these may be closed down at any time and new positions in either direction in various ETFs can be initiated at any time.