ETF Update: Nuclear - An Explosive Move Ahead?

Each week we use our ETF rankings to gain insight into current market trends and potential turning points.  While we look at model output at least twice a day, trading as necessary, the weekly assessment is a good time interval to consider sector moves.

The approach combines trends and turning points derived from cycle analysis.  (The complete current rankings are at the end of the article, along with an explanation of our methodology).

This week there are three interesting themes.

1. Financial sectors, after more than a month in the limelight, have dropped out of our top eight sectors.  While the ratings are still in the “buy” zone, we hold only the top eight for the daily program and the top six for weekly programs.
2. Commercial REIT’s (ICF and IYR) and homebuilders (ITB) remain at the top.  There are many stories about REIT refinancing difficulties.  We covered this carefully two weeks ago.  The strong players, heavily represented in the ETF, are buying cheap assets.  It is a complex story.
3. Nuclear Energy’s strong move from #27 to # 6 in our rankings.  We have not featured this sector for almost a year, so it will be today’s focus.

Nuclear Energy

We trade nuclear energy based upon the Van Eck Market Vectors Nuclear Energy ETF (NLR).  As they note, “The Nuclear Energy ETF seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the DAXglobal® Nuclear Energy Index.”  Restricting holdings to companies with a market cap over $150 M, the index covers seven different nuclear subsectors.

The top five holdings make up 40% of the fund and the top ten are 65%.  84% of the fund is related to mining, nuclear generation, or infastructure.  US holdings make up only 25%.  The beta is 1.18, but the correlation with the overall market is only .64.  Finally, the P/E ratio is about 17, pretty reasonable for this type of sector.

Here is what the model sees:

There has been a long period of basing and a break past the recent high.  To consider possible targets, let us look to some other voices.

Sector Commentary

Brett Steenbarger also does a valuable weekly sector update.  His themes are a bit broader than ours, but always worth reading.  Like us, he notes the weakness of financials and some relative strength in energy.

Tom Lydon cites the key problem for the nuclear industry:  cost. The lead time is long.  If we only get interested in nuclear when fossil fuel prices are high, nothing will get done.  Read the entire article to see his charts and alternative nuclear plays.

Trends I’m Watching reports the move in NLR.  Readers wanting another list of recent movers for comparison may find this interesting.

Paul Ausick notes that Obama Administration policy is crucial, along with energy prices, if nuclear is to make a move.

Weekly TCA-ETF Rankings

37 of our 57 sectors are in the “buy” range.  Several sectors still have extremely strong ratings.  The overall picture is slightly weaker than it has been for the last several weeks, but we remain fully invested.

It was a bad week for the system, breaking a nice winning streak.  We lost a little over 1% while the market gained over 1%, for a net loss of 2.5% against our benchmark.

Based upon the model signals, we continue our official bullish position in the Ticker Sense Blogger Sentiment poll.

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