ETF Update: The Agricultural Opportunity
As investors survey the landscape of beaten-down ETF's, different methods come into play. Some are looking for value. Some seek sectors with rebound potential. Others look for news-driven potential.
When we examine ETF charts and our model output, we see the results of this analysis. We see factors like Trends and Cycles and try to Anticipate the best opportunities. It is an interpretation of how the market is reacting to fundamental considerations. Each week we choose a sector for a more detailed focus. (For new readers, there is a more complete description of our methods at the end of the article.)
Spotlight on Agriculture
We follow the Ag sector via the Market Vectors Agribusiness ETF (MOO). The security is based upon the DAXglobal® Agribusiness Index. MOO is down about 36% YTD. The current P/E ratio is about 17 with a price-to-book ratio of about 2. The top five holdings constitute over 40% of the fund. It is a mixture of agriculture and fertilizer companies with about 40% in chemicals, 30% in operations, and 20% in chemicals. About half of the group is US based.
Tom Lydon picked up this connection right after the election. Citing Aaron Task who interviewed James Altucher, Lydon points out the Obama support for ethanol and infrastructure spending.
Jordan Kahn, a colleague at TheStreet.com's Real Money site, noted the post-election bounce in MOO, and is adding to positions.
We expect to see other analysts picking up this theme.
Rising in the Ratings
We note with interest the rapid rise in our ratings of the Market Vectors Gold Index, GDX. This sector moved from #53 to #7 in the rankings.
Weekly TCA-ETF Rankings
Performance in the S&P 500 last week was very poor, down over 6%. Our portfolio was a little worse, more in line with the Q's, down almost 8%.
It remains a time of great opportunity, but the market activity also shows great risk. We missed much of the downside by getting out of the market in September, and we are sticking with our signal to act in sectors where prices are much lower.
We are looking for a better way to tabulate and report results. This includes an updated report on the weekly trading program focusing on the top six ETF's in our rankings. Accredited investors are eligible for our daily trading model, which also includes some discretionary choices. We are reporting the exact days of trading signals in our weekly updates. Those interested can see how this would have played out in a weekly trading program covering the entire period where we have revealed the ratings, as well as earlier extensive testing.
Based upon the current ratings, we have continued our recent bullish vote in the Ticker Sense Blogger Sentiment poll. Last week was the first time that we have had a bullish stance since August 18th.
We are very happy with the model signals, and especially the long
period of safety during a slow-moving market crash. 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.
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.