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ETF Periscope: Could I Interest You In a Slightly Used Parthenon?

Posted on the 31 May 2011 by Phil's Stock World @philstockworld

Courtesy of Daniel Sckolnik, ETF Periscope

Could I Interest You In a Slightly Used Parthenon?

by Daniel Sckolnik of ETF Periscope

“I do not believe in a fate that falls on men however they act; but I do believe in a fate that falls on them unless they act.” – Buddha

ETF Periscope:  Could I Interest You In a Slightly Used Parthenon?
Wall Street spent the bulk of last week floundering around in the same volatile waters it has been swimming in for the last several months, yet somehow managed to end up right about where it began.

Conflicting domestic economic data, seesawing European Union reports, and unclear commodity direction combined to leave the market with a sense of confusion as to where it really wanted to leave itself before the upcoming Memorial Day holiday.

Several key indexes fell for the fourth straight week. The Dow Jones Industrial Average (DJIA) ended the week at 12,441, off 0.6%. The Nasdaq Composite Index slipped 0.2%, landing at 2,796. Finally, and perhaps most significant, the benchmark S&P 500 Index (SPX) was down 0.2% as well, finishing at 1331 as of market closing on Friday.

For the SPX, the number 1333 has been bandied about repeatedly as a significant technical price level. For the last two months, this number has served both as support and resistance for the index, most recently breached last Monday. And, in spite of last Friday’s mid-morning rally, the S&P 500 couldn’t stay above that point for more than an hour. Failure to pierce this level in a significant way in the coming weeks could signal if the equity market’s recent Bull Run has now become bullied to the downside.

One thing about the markets this past week was that a rash of conflicting news indicated anything but consensus on the economy. April’s pending home sales fell 11.6%. That’s not good. However, the Thompson Reuters/University of Michigan index, which tracks consumer sentiment, rose almost 5 points in April, a pretty robust number. Other economic data indicated that personal income rose slightly, about 0.4%, hardly seismic.

Notice a pattern here? No? Well, neither did Wall Street. 

Glancing at the bigger picture, the uncertainty resulting from the European Union’s credit woes looked like it would crank the dollar up a few notches from the low levels at which it has been residing.

Not surprisingly, noise out of the EU, including throat-clearing from both the European Central Bank (ECB) and the International Monetary Fund (IMF) seemed to have some stabilizing effect on the euro. This kept the dollar lower throughout the second half of the week. If the fear gets removed from the EU debt equation, even just for the short term, that might be all it takes to kick-start the equity markets back up the ladder. But what will it take to accomplish that?

For one thing, Greece has to get its fiscal house in order. That would certainly calm things down around the EU.

The question is, how to accomplish that?

It would require, apparently, a combination of austerity measures, including the selling of assets. One of the European Central Bank Board members, Juergen Stark, noted the obvious when he stated that “the Greek government has shares of listed companies, it owns real estate.” Apparently, shaking out $400 billion or so from the Greek government is possible, in his view. The IMF seems to be saying things of a similar nature. But is Greece’s government really on board?

You wonder if this might be a good time to toss out an offer on that little relic you’ve had your eye on for a while. You know, the Acropolis. Perhaps the Parthenon. Certainly one of the nice lesser temples of the gods might go up on the block. Doubtful it will come to that, but the way things are going, it is hard to really say.

Next week a review of the matter of Greece’s debt problem will be undertaken by the European Commission, the European Central Bank, and the IMF. Their decision could go a long way to establishing the tenor of the markets over the next few months.

What the Periscope Sees

For a balanced approach to what remains, and will continue to remain— an extremely volatile market— here are two Bullish ETF selections, as well as a couple of Bearish choices. You can combine all four of them together to achieve a hedged “pairs” approach, or you can use them individually to support your own directional bias.

Note: In my search for a clearer read on the markets, I often reference Sabrient’s ETFCast Rankings.  They consist of over 300 ETFs (exchange-traded funds) that are ranked and scored via 19 of Sabrient’s proprietary analytics, that, when taken together, offer a forward-looking take on the markets.

In choosing from the Rankings, I’ll peruse the latest list of the top 20 ETFs. I’ll generally choose no more than one per sector, as I prefer a certain level of diversification. I’ll also consider the ETF’s chart, referencing several basic technical indicators such as support and resistance levels, as well as simple moving averages.  Finally, I’ll check to see if the ETF offers options, as well as a reasonable degree of liquidity.

In this week’s top 10% of the ETFCast Rankings is IYM (iShares Dow Jones U.S. Basic Materials Sector Index), a non-diversified exchange-traded fund that seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Dow Jones U.S. Basic Materials Index. The index measures the performance of the basic materials sector of the U.S. equity market, and includes companies in the following sectors: chemicals, forestry and paper, industrial materials (such as steel, metals and coal) and mining. The fund uses a representative sampling strategy to try to track the Index.

Also in the top 10% of the Rankings is IAT (iShares Dow Jones U.S. Regional Banks Index Fund), an exchange-traded fund launched by Barclays Global Investors and managed by Barclays Global Fund Advisors. The fund seeks to invest its corpus in common stocks of companies that form the Dow Jones U.S. Select Regional Banks Index as per their weighting in the index, and seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of that index.

On the flip side, RTL has a very low ETFCast Ranking. RTL (iShares FTSE NAREIT Retail Capped Index Fund) is an exchange-traded fund launched and managed by Barclays Global Fund Advisors. The fund invests in stocks of companies that comprise the FTSE NAREIT Retail Capped Index as per their weightings in that index. The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of that index.

Also toward the bottom of the Rankings is FXU (First Trust Utilities AlphaDEX Fund), an exchange-traded fund launched and managed by First Trust Advisors L.P.  The fund seeks to replicates the StrataQuant Utilities Index by investing in the securities that comprise the index as per their weightings in the index, and seeks investment results that correspond generally to the price and yield, before fees and expenses, of that index.

The NYSE Euronext constructs the StrataQuant Utilities Index by ranking the stocks, which are members of the Russell 1000 Index, on growth factors including three, six and 12-month price appreciation, sales-to-price ratio, and one-year sales growth; and separately, on value factors, including book-value-to-price ratio, cash-flow-to-price ratio, and return on assets.

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.

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