ETF Periscope: Fed Up and Fed Down
Mon, Aug 16, 6:16 PM ET, by Daniel Sckolnik, Sabrient.com
Fed Up and Fed Downby Daniel Sckolnik of ETF Periscope "If you do not change direction, you may end up where you are heading." ~Lao Tzu  Ben and the boys were back on the airwaves to share their solemn pronouncements with the masses on Main Street and the minions on Wall Street. Judging by how the message was received by the markets, Bernanke's shared insights might have slipped well outside the bull's-eye.
Tuesday was yet another Fed day, meaning the Federal Reserve gave one of their eight annual FOMC reports. As is usually the case, the markets held their collective breath, waiting to be told which way the wind would blow, economically speaking. What the Fed-Head said was that all was not well with the recovery, and a bit of tweaking might be in order. “The pace of recovery in output and employment has slowed in recent months," was Ben's bottom line, and one that was definitely in the red. In spite of the Fed's previous actions, including lowering interest rates next to zero, buying huge volumes of mortgage-backed bonds sufficient to push rates to record lows, and all but goosing the biggest banks to lend out capital, high unemployment and a weak housing market continue to permeate the landscape.
Bernanke, however, brandished his bow and vowed that more than enough arrows remained in his quiver to ward off the barbarians. His solution? Take the proceeds of the Fed's earlier investments in mortgage-backed securities as they mature and reinvest them into Treasuries. All the markets heard was what everyone else already seemed to know: The recovery has stalled. The rest of the week unfolded with a sigh of resignation towards the downside, and the Bears came out to party in recognition of the fact. All the major indexes put up serious negative numbers for the week. The Dow Jones Industrial Average was down 3.3% as of Friday, ending at 10,303. Year-to-date, the Dow is now down 1.2%. The benchmark S&P 500 index was off 4.36% for the week, giving it a loss of 3.2% for the year. Of particular note is the fact that the S&P 500 now finds itself at 1,079, below its 50-day moving average, having failed to hold above the crucial 1,100 support level. Oil also got spanked, breaking below both its 50-day and 200-day moving averages on the same day. It is now below $77, well off its recent resurgence at $82. Gold, however, had another solid week, posting gains of just under 1%. It was the second week in a row of gains for the precious metal, hitting a six-week high on Thursday. The December contract ended the week at $1,216 an ounce. The $1,200 support level seems to be holding up, at least for the time being. It has been frequently noted that Bernanke is regarded as an expert on the Great Depression, having studied the subject at great length during his career in academia. It remains to be seen if his scholarly understanding can successfully be translated to the real world's current economic muddle. So where does all this leave us now, as the last of summer's dog days play out? Should the wise investor sit on the sidelines, waiting to see if September brings a clearer direction? Or is it a good time to do some selective shopping? There are always deals to be found in the market, and now could be an opportune moment to adjust one's portfolio. Timing is, as always, a key to success in the markets. Paying heed to the chiming of Big Ben may be of value, or maybe not. Watching the markets reactions to the bearded-one's pronouncements, however, is certainly worthy of scrutiny. What the Periscope Sees ETF Periscope scans Sabrient's SectorCast-ETF Rankings each week to spot a few good plays. The Rankings are forward-looking in general, going out about 4 – 6 weeks. As such, sometimes I'll reemphasize the most recent selections with an eye towards allowing them to unfold. That's what's happening this week, with both the Bull and Bear picks highlighted for a second week. Chart references have been updated below, so you can follow along with what the Periscope is scoping out. On the bullish side of the fence, remaining within the top 10% of the Rankings is IYG (iShares Dow Jones U.S. Financial Services Index Fund), a non-diversified exchange-traded fund that seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of U.S. financial services stocks as represented by the Dow Jones U.S. Financial Services Index. The Fund's major holdings include Bank of America, JP Morgan Chase, Wells Fargo, Citigroup, Goldman Sachs, U.S. Bancorp, American Express, Bank of New York Mellon Corp, VISA, and PNC Financial Services Group. IYG's chart shows that it dived below its 50-day moving average on Wednesday, where it has remained for the rest of the week. It is now toying with the $50 price point as a potential new level of support, one that has served in that role several times over the past year. If this gets breached, a reassessment would most certainly be in order. A bit deeper down in the Rankings, FXH (First Trust Health Care AlphaDEX Fund) is an exchange-traded fund that replicates the StrataQuant Health Care Index by investing in the securities that comprise the Index, and seeks investment results that correspond generally to the price and yield, before fees and expenses, of that Index. The StrataQuant Health Care Index is an “enhanced” index developed, maintained and sponsored by the NYSE Euronext or its affiliates which employs the AlphaDEX stock selection methodology to select stocks from the Russell 1000 Index. FXH spent the last part of the week on the underside of a convergence of its 50-day and 200-day moving averages. A new support level could possibly emerge just above $21, which has proven to be the low point on multiple occasions over the course of the year-to-date. For the short side of the equation, here are two selections that warrant consideration, both buried way down the list, mired deep in the bottom 10%. GDX (Market Vectors Gold Miners ETF) is an exchange-traded fund that invests at least 95% of its total assets in stocks that comprise the NYSE Arca Gold Miners Index. The Fund provides exposure to publicly traded companies worldwide involved primarily in the mining for gold, representing a diversified blend of small, mid and large capitalization stocks. Only companies with market capitalization greater than $100 million that have traded an average daily volume of at least 50,000 shares over the past six months are eligible for inclusion in the Index. The Fund seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the NYSE Arca Gold Miners Index. Chart-wise, GDX is wrestling with its 50-day moving average, having flipped over and under throughout the past week. Generally, it has been trending sideways the last few months, and may continue that trend with a trip back to the downside on its way to meeting the 200-day MA a few points to the underside. Going yet further down the list, we come across XHB (The SPDR S&P Homebuilders ETF), an exchange-traded fund that invests in stocks of companies operating in the homebuilding sector. The Fund, before expenses, seeks to replicate as closely as possible the performance of the S&P Homebuilders Select Industry Index, an equal-weighted market cap index which represents the homebuilding sub-industry portion of the S&P Total Market Index. XHB remains on a strong downtrend, well below both its 50-day and 200-day MA. It may be looking to test support at its year-to-date low point, which is well within site. I am using both XHB and GDX to accommodate the short side of the market equation. You may choose to acquire slightly out-of-the-money put options a few months out, or you might decide to short the ETFs themselves. Exactly how much downside "insurance" you choose to secure is a question for you to decide, reflecting your overall market bias as well as your risk-management strategies. ETF Periscope Click here to see “The Process” behind ETF Periscope. Full disclosure: The author does not personally hold any of the ETFs mentioned in this week's "What the Periscope Sees."
Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results. ETF Periscope: Fed Up and Fed Down "If you do not change direction, you may end up where you are heading." ~Lao Tzu Ben and the boys were back on the airwaves to share their solemn pronouncements with the masses on Main Street and the minions on Wall Street. Judging by how the message was received by the markets, Bernanke's shared insights might have slipped well outside the bull's-eye. Tuesday was yet another Fed day, meaning the Federal Reserve gave one of their eight annual FOMC reports. As is usually the case, the markets held their collective breath, waiting to be told which way the wind would blow, economically speaking. What the Fed-Head said was that all was not well with the recovery, and a bit of tweaking might be in order. “The pace of recovery in output and employment has slowed in recent months," was Ben's bottom line, and one that was definitely in the red. In spite of the Fed's previous actions, including lowering interest rates next to zero, buying huge volumes of mortgage-backed bonds sufficient to push rates to record lows, and all but goosing the biggest banks to lend out capital, high unemployment and a weak housing market continue to permeate the landscape. Bernanke, however, brandished his bow and vowed that more than enough arrows remained in his quiver to ward off the barbarians. His solution? Take the proceeds of the Fed's earlier investments in mortgage-backed securities as they mature and reinvest them into Treasuries. All the markets heard was what everyone else already seemed to know: The recovery has stalled. The rest of the week unfolded with a sigh of resignation towards the downside, and the Bears came out to party in recognition of the fact. All the major indexes put up serious negative numbers for the week. The Dow Jones Industrial Average was down 3.3% as of Friday, ending at 10,303. Year-to-date, the Dow is now down 1.2%. The benchmark S&P 500 index was off 4.36% for the week, giving it a loss of 3.2% for the year. Of particular note is the fact that the S&P 500 now finds itself at 1,079, below its 50-day moving average, having failed to hold above the crucial 1,100 support level. Oil also got spanked, breaking below both its 50-day and 200-day moving averages on the same day. It is now below $77, well off its recent resurgence at $82. Gold, however, had another solid week, posting gains of just under 1%. It was the second week in a row of gains for the precious metal, hitting a six-week high on Thursday. The December contract ended the week at $1,216 an ounce. The $1,200 support level seems to be holding up, at least for the time being. It has been frequently noted that Bernanke is regarded as an expert on the Great Depression, having studied the subject at great length during his career in academia. It remains to be seen if his scholarly understanding can successfully be translated to the real world's current economic muddle. So where does all this leave us now, as the last of summer's dog days play out? Should the wise investor sit on the sidelines, waiting to see if September brings a clearer direction? Or is it a good time to do some selective shopping? There are always deals to be found in the market, and now could be an opportune moment to adjust one's portfolio. Timing is, as always, a key to success in the markets. Paying heed to the chiming of Big Ben may be of value, or maybe not. Watching the markets reactions to the bearded-one's pronouncements, however, is certainly worthy of scrutiny. What the Periscope Sees ETF Periscope scans Sabrient's SectorCast-ETF Rankings each week to spot a few good plays. The Rankings are forward-looking in general, going out about 4 – 6 weeks. As such, sometimes I'll reemphasize the most recent selections with an eye towards allowing them to unfold. That's what's happening this week, with both the Bull and Bear picks highlighted for a second week. Chart references have been updated below, so you can follow along with what the Periscope is scoping out. On the bullish side of the fence, remaining within the top 10% of the Rankings is IYG (iShares Dow Jones U.S. Financial Services Index Fund), a non-diversified exchange-traded fund that seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of U.S. financial services stocks as represented by the Dow Jones U.S. Financial Services Index. The Fund's major holdings include Bank of America, JP Morgan Chase, Wells Fargo, Citigroup, Goldman Sachs, U.S. Bancorp, American Express, Bank of New York Mellon Corp, VISA, and PNC Financial Services Group. IYG's chart shows that it dived below its 50-day moving average on Wednesday, where it has remained for the rest of the week. It is now toying with the $50 price point as a potential new level of support, one that has served in that role several times over the past year. If this gets breached, a reassessment would most certainly be in order. A bit deeper down in the Rankings, FXH (First Trust Health Care AlphaDEX Fund) is an exchange-traded fund that replicates the StrataQuant Health Care Index by investing in the securities that comprise the Index, and seeks investment results that correspond generally to the price and yield, before fees and expenses, of that Index. The StrataQuant Health Care Index is an “enhanced” index developed, maintained and sponsored by the NYSE Euronext or its affiliates which employs the AlphaDEX stock selection methodology to select stocks from the Russell 1000 Index. FXH spent the last part of the week on the underside of a convergence of its 50-day and 200-day moving averages. A new support level could possibly emerge just above $21, which has proven to be the low point on multiple occasions over the course of the year-to-date. For the short side of the equation, here are two selections that warrant consideration, both buried way down the list, mired deep in the bottom 10%. GDX (Market Vectors Gold Miners ETF) is an exchange-traded fund that invests at least 95% of its total assets in stocks that comprise the NYSE Arca Gold Miners Index. The Fund provides exposure to publicly traded companies worldwide involved primarily in the mining for gold, representing a diversified blend of small, mid and large capitalization stocks. Only companies with market capitalization greater than $100 million that have traded an average daily volume of at least 50,000 shares over the past six months are eligible for inclusion in the Index. The Fund seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the NYSE Arca Gold Miners Index. Chart-wise, GDX is wrestling with its 50-day moving average, having flipped over and under throughout the past week. Generally, it has been trending sideways the last few months, and may continue that trend with a trip back to the downside on its way to meeting the 200-day MA a few points to the underside. Going yet further down the list, we come across XHB (The SPDR S&P Homebuilders ETF), an exchange-traded fund that invests in stocks of companies operating in the homebuilding sector. The Fund, before expenses, seeks to replicate as closely as possible the performance of the S&P Homebuilders Select Industry Index, an equal-weighted market cap index which represents the homebuilding sub-industry portion of the S&P Total Market Index. XHB remains on a strong downtrend, well below both its 50-day and 200-day MA. It may be looking to test support at its year-to-date low point, which is well within site. I am using both XHB and GDX to accommodate the short side of the market equation. You may choose to acquire slightly out-of-the-money put options a few months out, or you might decide to short the ETFs themselves. Exactly how much downside "insurance" you choose to secure is a question for you to decide, reflecting your overall market bias as well as your risk-management strategies. ETF Periscope Full disclosure: The author does not personally hold any of the ETFs mentioned in this week's "What the Periscope Sees." Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.
SDI Glossary: "Alpha" Definition
SDI Glossary: "price" Definition
SDI Glossary: "ETFs" Definition
SDI Glossary: "the Fed" Definition
SDI Glossary: "Industry" Definition
SDI Glossary: "iShares" Definition
SDI Glossary: "NYSE" Definition
SDI Glossary: "Sector" Definition
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