ETF Update: A Time Of Uncertainty

Investors and traders alike can profit by paying attention to equity sectors.  We monitor sectors via our ETF universe.  Every day we generate ratings for each ETF  using a combination of Trend, Cycle, and a bit of  Anticipation.  Our model has a time horizon of about thirty days, drawing upon a sophisticated interpretation of market indicators.

A Negative Picture

The main theme of our sector survey is negative.  Only five ETF’s earn a buy rating, which requires that the ETF meet two tests.  A sector must have a positive strength rating on either a trend or cyclical basis.  Second, it must not be in the “penalty box,” where we put sectors that violate various technical criteria.  You can think of it as a stop loss, but more sophisticated.

Three of the five sectors are inverse ETF’s, so this is actually a negative signal.  One of the two genuine long positions is the Market Vectors Gold Miners (GDX), which is a defensive play.  The only true long is the iShares Dow Jones U.S. Medical Devices Index Fund (IHI), which has a modest positive rating, perhaps spurred by Obama speculation.

What Could Change?

The most important consideration for the market is whether the Obama Administration can deal with the question of troubled assets on the balance sheets of financial institutions.  We have been covering this issue for many months, most recently outlining the alternatives with the three key choices.

The week’s trading shifted on every report from CNBC’s Charlie Gasparino, who repeatedly cited inside Wall Street sources about the progress of the new plan.

This could change at any moment, so both traders and investors should be paying attention.

Weekly TCA-ETF Rankings

The ratings reflect prices and signals as of Thursday night, January 29th. In our daily trading program (for accredited and institutional investors) we buy the top eight sectors. In our weekly program for individual investors (free report available upon request) we stick with the top six sectors. The market was down a bit, and our position had a small gain.

Because of the current ratings, we are continuing our bearish stance in the Ticker Sense Blogger Sentiment poll. Only five of our fifty-seven sectors are in the “buy” range, and three of these are inverse ETF’s.  This is a very fluid situation, which may change rapidly.

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