Investors and traders alike can improve their understanding of the market by looking at specific sectors. It is a great way of maintaining perspective, avoiding over-emphasis on the Dow or on individual stocks.
It can be a mistake to miss the forest while watching trees ---- or vice versa! A sector focus is a good solution.
Looking at charts of the various sector ETF's is one approach. While this is not a substitute for fundamental analysis, it provides powerful visual evidence of the market's verdict. Our own rating system (TCA-ETF) combines Trends and Cycles with a touch of Anticipation in finding the most attractive ETF's. (For new readers, there is a more complete description of our methods at the end of the article.)
Nothing to Buy
As has been the case for several weeks, our ETF landscape lacks any tempting choices. This has been the message since our Cash is King update from a month ago. While some sector investors may be eager to get back into the market, the admonition to be patient has been basically correct.
Those whom we frequently cite for ETF analysis have reached similar conclusions. It is interesting that Gary Gordon at ETF Expert is mentioning the SPDR Select Utilities Fund, (XLU). While he avoids a market opinion, Gary notes that the utility ETF has less volatility than the overall market.
Our own ratings also show the iShares utility ETF (IDU) as the best of a bad lot. It is still not close to a rating indicating the expectation of a positive return.
Weekly TCA-ETF Rankings
We have been out of the market for many weeks in our sector rotation fund, since the charter is basically long only. For readers interested in our program, we have a long-only method and one that embraces more market timing. Current reports are available to any interested reader -- both the TCA-ETF method and the Gong Model. Just use the "email me" link at the top left of the page.
We have never seen readings so negative. Despite this, we have switched to neutral in the weekly Ticker Sense blogger sentiment poll, because of the signal from our Gong model.
As we stated in our last ETF report, we use the Gong signal to gain some exposure even though there are no sectors to buy. On Friday, we bought a 40% position in SPY and QQQQ (20% each). As the model generates specific sector signals, we will replace these holdings.
Note for New Readers
Our weekly ETF Update is designed to assist both investors and
traders interested in ETF's and Sector Rotation. Before turning to the
current rankings, let us undertake a review for readers new to this
series.
Our Method. In this past article,
we described our basic methodology and why we believe the rankings are
useful for fundamental traders and technical traders alike. While we
urge readers to check out the entire article, the key point is that
ETF's pose challenges and opportunities different from investment in
individual stocks. The fundamentals may be more difficult to assess.
Even with a good grasp on fundamental trends, there is a lot of
technically-based trading in ETF's. This means that those trading with a fundamental approach (and we do this as well) want to monitor the "hot money" moves. Here is an article on that point.
The system synopsis.
We look at Trending sectors, Cyclical Sectors, and build in an element
of Anticipation for both entry and exit -- thus the name of the model,
TCA-ETF. While we do not reveal the exact methodology for spotting
trends and cycles, the system is not a "black box." The basic elements
are used by many, and widely reported. We even discuss the need for human analysis as opposed to black box trading.
We report the rankings
each week, now on the weekend with a one-day delay, using the Thursday
output from the model. We monitor and trade this daily, and offer a
free report (request via the email address on the top left of the site)
for those interested in our weekly trading program.
