Trend: The recent bounce in XLF may be due its oversold condition and pessimism.
Vinny Catalano at InvestorsInsight Publishing applies his Mega Trend analysis to the XLF ETF. He uses 50 and 200 day moving averages to determine the long-term trend.
Bottom fishers, short term traders, and market timers aside, some investors might be tempted to conclude that the sell oil/buy bank stocks trade is a sustainable trend. If, however, an investor takes a step back and utilizes one of the most consistent longer term technical analysis tools a decidedly different conclusion would be reached.
To illustrate, take a look at the accompanying chart for Financials (XLF).
The technical analysis tool I am referring to is called the Mega Trend. The Mega Trend (as I define it) is a multi-year stock price trend analysis where price and two moving averages (50 day and 200 day) are measured. In well-established Mega Trends, price is above (or below) its moving averages, the shorter term (50 day) Moving Average is above (or below) the longer term 200 day, and both moving averages are pointing in the same direction, either up or down.
Trend: Most of the major indexes are trending down.
In an excellent overview of investing in trends, Chris Ciovacco at Seeking Alpha looks at current market trends from an investor (vs. trader) perspective. The introduction and conclusion of his article are included below, but the whole article should be reviewed. Click on the link below.
Most of us would prefer to be investors instead of traders. Investors, with an intermediate to long-term time horizon, must be aligned with a positive trend in order to make money. This is true even for value investors who focus on a company’s valuation rather than a trend that can be seen on a chart. For the value investor to make money, eventually the position must turn up.
A Tough Environment: Inflation Is Rising, Equity Markets Are Falling, and Commodities Correcting
As a portfolio manager, options in the current environment are somewhat limited. We have no particular fascination with commodities, they just happen to be the only source of strength. We would much prefer never to use inverse funds, but a 100% commodity portfolio is not prudent. Global inflation is on the verge of getting away from central bankers, which means investors who wish to protect their long-term purchasing power cannot afford to park funds exclusively in CDs and money markets. Our approach will continue to use a mix of multiple asset classes in an effort to grow and protect principal within the context of volatile and increasingly interfered with markets. While in an environment where the source of strength is basically limited to commodities and inverse or bear market vehicles, we have to tread with extra care. We are willing to give investments a reasonable amount of rope on the downside based on recent volatility characteristics. However, a continued pullback in commodities could quickly morph into rapidly falling prices. In that event, principal protection must become the primary focus in order to preserve capital to fight another day.
Trend: NETS ISEQ 20 Index (IQE) led the one week performance (+11%, -9% for 4 weeks, n/a for 13 weeks). Broadband HOLDRs (BDH) and UltraShort Semiconductor ProShares (SSG) were the second and third best performers, respectively.
The 20 ETFs with the best 1 week performance through 7/25/2008 tracked by Morningstar are highlighted below.
1. Paulson appears on Face The Nation and says "Our banking system is a safe and a sound one." If the banking system was safe and sound, everyone would know it (or at least think it). There would be no need to say it.
2. Paulson says the list of troubled banks "is a very manageable situation". The reality is there are 90 banks on the list of problem banks. Indymac was not one of them until a month before it collapsed. How many other banks will magically appear on the list a month before they collapse?
3. In a Northern Rock moment, depositors at Indymac pull out their cash. Police had to be called in to ensure order.
4. Washington Mutual (WM), another troubled bank, refused to honor Indymac cashier's checks. The irony is it makes no sense for customers to pull insured deposits out of Indymac after it went into receivership. The second irony is the last place one would want to put those funds would be Washington Mutual. Eventually Washington Mutual decided it would take those checks but with an 8 week hold. Will Washington Mutual even be around 8 weeks from now?
5. Paulson asked for "Congressional authority to buy unlimited stakes in and lend to Fannie Mae (FNM) and Freddie Mac (FRE)" just days after he said "Financial Institutions Must Be Allowed To Fail". Obviously Paulson is reporting from the 5th dimension. In some alternate universe, his statements just might make sense.
6. Former Fed Governor William Poole says "Fannie Mae, Freddie Losses Makes Them Insolvent".
Trend: PowerShares DB Crude Oil Dble Short ETN (DTO) led the one week performance (+25%, +10% for 4 weeks, n/a for 13 weeks). Rydex 2x S&P Select Sector Financial (RFL) and DB Commodity Double Short ETN (DEE) were the second and third best performers, respectively.
The 20 ETFs with the best 1 week performance through 7/18/2008 tracked by Morningstar are highlighted below.
1. First Trust ISE Global Wind Energy ETF (FAN). Many of the companies are truly global, which does intrigue me. There are some 52 companies with a reasonably attractive price-to-sales ratio of 2.3. The median market cap of 1.5 billion makes FAN a mid-cap growth investment. With volume in the 350,000 range, this investment is more than "hot air." (The P/E ratio may be on the high side at roughly 25.)
2. Powershares Global Wind Energy Portfolio (PWND). The volume is a bit lighter here, which may make for a less desirable entry and/or exit point. There are 32 companies across the growth spectrum -- large, medium and small. And the expense ratio of 0.75% seems rather steep. Yet a long=-term believer in global companies that manufacture, develop, distribute, install and use energy derived from wind sources would certainly succeed with PWND if wind energy became a mainstay.
3. First Trust ISE-Revere Natural Gas ETF (FCG). This fund tracks an equal-weighted index consisting of companies that derive a substantial portion of their revenue from the exploration and production of natural gas. it's up roughly 28% in 2008 thus far. The P/E has steadily risen from 13 a few months ago to 17 today. Nevertheless, for those who see natural gas in a Pickens-like manner, that would hardly stop you. The 30 companies in the index being track include names like Chesapeake (CHK), Comstock (CRK) and Petroquest (PQ).
Trend: iPath DJ AIG Lead TR Sub-Idx ETN (LD) led the one week performance (+26%, n/a for 4 weeks, n/a for 13 weeks). Rydex Inverse 2x S&P Select Sector Fincl (RFN) and DB Agriculture Double Short ETN (AGA) were the second and third best performers, respectively.
The 20 ETFs with the best 1 week performance through 7/11/2008 tracked by Morningstar are highlighted below.
"There have been five phases to this current down-cycle – the first four are still in full swing, but it is the fifth that will very likely emerge as the most difficult stage of this economic downturn and bear market:
• The first wave was the end of the housing cycle when starts peaked and began to roll over in the first quarter of 2006.
• The second wave was the end of the home price bubble when the Case-Shiller index began to deflate in the first quarter of 2007.
• The third wave was the end of the credit cycle when the interbank market froze in August 2007.
• The fourth wave was the employment cycle, which peaked when payrolls did in December 2007, prompting the Fed to reluctantly embark on an aggressive policy easing course.
• The fifth wave will be the end of the consumer cycle and the beginning of what may well prove to be the most significant recession since the mid-1970s, and while delayed by the tax rebates, this phase seems to have commenced in June when U of M consumer sentiment collapsed to its lowest level in 28 years."
Trend: UltraShort Basic Materials ProShares (SMN) led the one week performance (+14%, +17% for 4 weeks, -5% for 13 weeks). UltraShort Semiconductor ProShares (SSG) and UltraShort Russell2000 Value (SJH) were the second and third best performers, respectively.
The 20 ETFs with the best 1 week performance through 7/4/2008 tracked by Morningstar are highlighted below.
Use the right energy for the right use. That concept lies at the core of a U.S. domestic energy plan unveiled Tuesday by legendary oilman T. Boone Pickens.
The United States uses close to $700 billion in foreign energy supplies, primarily oil, Pickens pointed out on CNBC's "Squawk Box." It will be impossible for one energy source to totally replace that supply, he noted.
But developing wind and solar power could lower the use of natural gas in some instances, he said. The some of that natural gas could be redirected to uses normally reserved for oil, like transportation. That, in turn, could lead to a 38 percent reduction in the use of foreign energy supplies, he concluded.
Bottom fishers, short term traders, and market timers aside, some investors might be tempted to conclude that the sell oil/buy bank stocks trade is a sustainable trend. If, however, an investor takes a step back and utilizes one of the most consistent longer term technical analysis tools a decidedly different conclusion would be reached.
