I have made no secret out of the fact that I remain somewhat skeptical about the current market run-up; however, some of the positive trends as of late have necessitated looking at some sector ETFs.
I’m still sticking to a general strategy of bond ETFs/cash, but if trends continue to point higher, and more trend lines are crossed to the upside, there might be some equity additions to our overall portfolio.
Although there is still a lack of clear direction of where the global economy is heading, and how that will impact markets, I want to highlight some possible ETF opportunities if the overall picture brightens up.
Focusing on sector ETFs, it’s a bit of a mixed bag. It’s best to steer clear of the battered financial sector, especially in the wake of dismal earnings from Wall Street, as seen by the performance of the Financial Sector SPDR ETF (XLF), which is now down 21.0% for the year.
Not to mention, the basic materials and energy sectors have been hit hard as of late given reduced Chinese demand among other factors. In essence, there’s a lot of volatility here. While our momentum numbers support that view, there are some possible gems.
For instance, the tech space is looking relatively attractive at the moment. The easy way to find out which areas are showing upside momentum is to analyze the latest Master ETF Cutline list, which you can review here:
http://www.successful-investment.com/SSTables/ETFMasterCutline10142011.pdf
To be clear, this list is identical to the one shown in last Thursday’s StatSheet with the difference being the sorting order and updated pricing. You can clearly identify those ETFs that are hovering above their respective long-term trend lines (%M/A column), of which there are currently 55, as opposed to 340 that are still stuck on the bearish side.
Those that have crossed above are the ones you want to hone in on as a prospective addition to your portfolio. If you do, be sure to use my recommended trailing sell stop discipline in order to limit downside risk, should the markets suddenly shift into reverse.
Although times remain highly uncertain and bad news from Europe can have a heavily adverse reaction on global markets, the last couple weeks have made me take notice of some of these sector trends.
If we follow the current market trajectory, I’ll be looking to capture some of this upside, albeit cautiously. I can’t stress enough the need to be careful in introducing equity exposure, as we are treading choppy waters that can easily turn into a violent market tide.
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