ETF Update: What a Difference a Week Makes!

It was only a week ago that we found No Sectors to Buy in the ETF universe.  The picture has changed swiftly and dramatically.  There are now many choices in our "buy" range.  The signal strengths are solid and getting better.

It is a surprising result in a week when the S&P 500 declined by almost 4%.  We have a lot of respect for signals in many sectors from our TCA-ETF model.  These are discovered through examination of Trends, Cycles, while using a touch of Anticipation.  (For new readers, there is a more complete description of our methods at the end of the article.)

Looking for the best sectors to buy, we were a bit surprised at the results.  That is what a model should do — alert you to opportunities that you might not see on your own.

Featured Sector:  Back to Russia

Our top-rated ETF is the Market Vectors Russia ETF (RSX).  This is a very pure play on Russia, so it has a lot of volatility, with a relatively low (.5) correlation to the S&P 500.

When this ETF last reached the top of our ratings in May, we noted that it was a closet energy play.

We also cited Tom Lydon, writing about the link between Germany and Russian development.

The current status for RSX includes a massive decline this year, noted by Jordan Kahn, and the rebound in emerging markets cited by Charles Kirk.  Tom Lydon analyzes some of the political fundamentals, writing about President Dmitry Medvedev's recent speech as follows:

Most of the speech was spent talking about politics in Russia instead of the economy, which is what happens to be on the minds of most Russians. What this stance is going to mean for the country down the line is open to debate. Russia faces a number of challenges if they ignore their own economy, especially in light of its dependence on oil, as Obama is pledging a commitment to the alternative energy industry.

Can Russia keep up with the rest of the world?

This is obviously a high-volatility play — big potential reward, but significant risk.

The model does not do "bottom fishing" so the ratings reflect an improved outlook based upon technical criteria, including consideration of both trend and cyclical behavior.

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.  Last week we bought a 40% position in general index funds because of the signal from our Gong Model.  We started getting actual sector signals at mid-week, so we replaced the SPY and QQQQ positions with ETF's.

The prices listed below are based upon Thursday's close, so they miss the nice rebound on Friday.  (The buy in IEO on 11/10 is a typo, a rare error from our excellent staff.  We'll fix that next week, and thanks to reader RK, who subscribes to our email list.)  When the market is making 5%+ moves in a single day, timing is difficult!

Based upon the current ratings, we have moved to a bullish vote in the Ticker Sense Blogger Sentiment poll to "bullish."  This is 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.

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One comment

  • pinotcanoz November 16, 2008  

    RSX was a very bad call. Back testing doesn’t work when you are dealing with market discontinuities and moving into a new market regime. This market is going lower and the gong will have to ring again.