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Sector Rotation: Bull Trap For Social Media ETF

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Gabe Varga's Blog
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Long/Short Equity, ETF investing, Gold

Seeking Alpha Analyst Since 2013

Gabe Varga, CMT, is the founder and president of Axiomix, Inc., an investment research firm that provides technical analysis and algorithmic asset allocation models for mutual fund and ETF investors. ETFnext.com is a market research tool that was developed by Gabe for tracking the sector rotation of the stock market. Gabe also serves as the editor of the FidelitySignal.com investment newsletter. The large selection of investment strategies, daily updates and best-in-class pattern recognition technology makes FidelitySignal.com unique amongst online investment newsletters for Fidelity funds.

Following the highly publicized Twitter IPO on November 7 last year the Global X Social Media Index Fund (SOCL) became one of the hottest ETFs. SOCL is an attractive way to play the social media space for investors looking to diversify in Facebook, Tencent, LinkedIn, SINA and Twitter.

In my previous blogs I highlighted that SOCL broke out to new 52-week highs in late December on decreasing volume, which is always a cautionary sign:

The momentum stalled in the second week on January and, as the broader stock market sold-off starting last week, SOCL was not able to hold its long-term trendline. Furthermore, SOCL sold-off on increasing volume in the last few days, which will make me very suspicious of a potential snap-back rally.

While social media stocks can become attractive investments again in the future, I would look for investment opportunities elsewhere in this quarter, unless I can see again the volume supporting the price movement for SOCL.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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