ETF Update: Hope for Consumer Stocks?

Computer models and stock screens should generate fresh ideas.  We are often surprised by the rankings from our TCA-ETF model, which combines attention to Trend, recognition of Cycles, and a touch of Anticipation.  While the factors are technical, it is always interesting to compare the results with fundamental metrics and prevailing analyst viewpoints.  (For new readers, there is a further explanation of our approach at the end of the article.)

Despite the general weakness in the market, some sectors have performed well and even gained strength in the rankings.  There have also been dramatic collapses, including the dollar weakness plays like gold.  These ETF's led the rankings only a few weeks ago.

Dow Jones U.S. Consumer Services Sector Index Fund


Given the current economic weakness and skepticism about the consumer, there is a surprise near the top of the rankings:  the iShares Dow Jones U.S. Consumer Services Sector Index Fund (IYC).  The fund  includes all of the big retail names you know:  Wal-Mart  (WMT),  McDonald's Corp.  (MCD),  The Walt Disney Co.  (DIS), Home Depot (HD), and others.

The overall P/E ratio is under 18 and the beta is only .85.  Despite the inclusion of the big names, the overall diversification is good with a variety of retail offerings.  The top ten holdings represent only about 40% of the fund value.

IYC is down about 11% YTD, but has shown strength over the last month. Terry Woo at Minyanville observes that tax rebate checks helped the group, especially Wal-Mart, which reported a 17% rise in earnings and raised its forecast for the entire year.  Larry Shutts, writing at Blogging Stocks, also notes a bullish channel for Wal-Mart.  McDonald's has also moved significantly off of a low price in July.

There has been little comment from our regular ETF sources on IYC.  This may reflect the continuing negative sentiment on the consumer and a suspicion that the rebate stimulus will ebb over the rest of the year. 

Weekly TCA-ETF Rankings

This week's
report of rankings is based upon Thursday's closing prices, and our Friday trades are not included.

fraction of sectors in the "penalty box" has moved higher, reflecting deterioration in the overall picture. The Dow is in the penalty box, while the Q's are in the buy zone.

Using the model as our guide, we moved to a neutral forecast in the Ticker Sense blogger sentiment poll.

Listed below are the week's rankings and our trades:


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

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.

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  • Tim August 25, 2008  

    Jeff, what is the story on your position in ILF, cruising along at #50 of your ranking? Taking a long shot, or a little contrarian?

  • Jeff Miller August 25, 2008  

    Tim — Good question.
    It was a mistake. I am providing an accurate diary of what we actually do. We run the model on two computers, verifying results daily. In this case one of the databases was corrupted so we had the “wrong” position. Since I was traveling, the verification was delayed. Since I know something about the model, it did not “feel” right and I checked. We sold the position, and we were lucky to make a little on the trade.
    This sort of thing happens everywhere, including every place I have worked. I have some great stories about mistaken trades — mostly losers! We could have just reported the recommended trades, but I prefer to provide an honest accounting of what we did.
    Good eye!