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Sunday, July 27, 2008

ProShares ETF Report - strongest BUY and SELL signals, 7-25-08

About one month ago I provided a list of the ProShares ETFs that were generating the strongest BUY signals and the strongest SELL signals (use this link to read that post). At that time, the BUY list was dominated by the UltraShort ETFs and it was a picture of a market in trouble. Most sectors and market-caps were represented.

We ran the scan again this week and the results were quite different. Below we have the list of those ProShares ETFs with the strongest technical underpinnings as well as a list of those ETFs that are the weakest.

Strongest BUY Signals --

The following chart lists only those ProShares ETFs where both DMI and Aroon evaluation indicates they are in reasonably strong up-trends. This is confirmed by the fact that these ETFs are trading with their 20-day moving average above their 50-day moving average.

Symbol Name Category 20-day MA above 50-day MA DMI Aroon
DUG UltraShort Oil & Gas Short Sector Yes DMI: strong trend Up (ADX: 30 +DI: 32 -DI: 10) Strong Up trend - Up: 96 Down: 36 Osc: 60
EFU UltraShort MSCI EAFE Short International Yes DMI: strong trend Up (ADX: 27 +DI: 32 -DI: 23) Strong Up trend - Up: 72 Down: 16 Osc: 56
SMN UltraShort Basic Materials Short Sector Yes DMI: strong trend Up (ADX: 27 +DI: 24 -DI: 12) Strong Up trend - Up: 100 Down: 8 Osc: 92

Demand destruction seems to be the theme of the BUY list. All three of the ETFs are of the UltraShort variety. The Oil & Gas and Basic Materials sectors after displaying recent strength are showing major weakness now as investors perceive a worldwide economic slowdown will reduce demand for raw materials. As many of the countries represented in the EAFE ETF are big consumers of raw materials, it is reasonable to see this ETF weaken in the same manner as the underlying economies and along with the energy and basic materials sectors.

Another theme of this list is that it seems to reflect a market that is in the midst of change. Only a few ETFs have emerged as leaders. The remaining ETFs have seen their trends weaken to the point where they no longer make it to this list.

Strongest SELL Signals --

The following chart lists only those ProShares ETFs where both DMI and Aroon evaluation indicates they are in reasonably strong down-trends. For all but two, it is confirmed by the fact that these ETFs are trading with their 20-day moving average below their 50-day moving average.

Symbol Name Category 20-day MA below 50-day MA DMI Aroon
DIG Ultra Oil & Gas Ultra Sector Yes DMI: strong trend Down (ADX: 28 +DI: 11 -DI: 31) Strong Down trend - Up: 36 Down: 96 Osc: -60
RXD UltraShort Health Care Short Sector Yes DMI: strong trend Down (ADX: 24 +DI: 21 -DI: 31) Strong Down trend - Up: 8 Down: 80 Osc: -72
SJH UltraShort Russell2000 Value Short Style No DMI: strong trend Down (ADX: 28 +DI: 16 -DI: 29) Strong Down trend - Up: 68 Down: 92 Osc: -24
TWM UltraShort Russell2000 Short Market Cap No DMI: strong trend Down (ADX: 23 +DI: 19 -DI: 21) Strong Down trend - Up: 68 Down: 92 Osc: -24
UPW Ultra Utilities Ultra Sector Yes DMI: strong trend Down (ADX: 37 +DI: 11 -DI: 39) Strong Down trend - Up: 12 Down: 96 Osc: -84
UYM Ultra Basic Materials Ultra Sector Yes DMI: strong trend Down (ADX: 26 +DI: 14 -DI: 27) Strong Down trend - Up: 8 Down: 100 Osc: -92

This list of strong SELL signals has at least more candidates than the list of strong BUY signals. In this list we see a confirmation of the demand destruction theme discussed above.

We also see that small cap stocks may not be strong BUYs but, according to our analysis, they are not strong SELLs either. This is indicated by the presence of the two UltraShort Russell ETFs on this SELL list. Indeed, we saw the Russell 2000 gain 2.5% this past week. Still we see a lack of confirmation from the moving averages. For these two ETFs, the 20-day MA is not yet below the 50-day MA.

Conclusion --

This week's list couldn't be more different than the list we presented a month ago. There are far fewer ETFs represented on this week's list and they indicate that completely different sectors are attracting the most interest. This confirms the change in market sentiment we have seen in the last two weeks. Last month's list reflected almost indiscriminate selling. This week's list is much more focused.

On the other hand, the fact that we don't see any Ultra long ETFs on the BUY list is an indication of a market where the rally has not yet had enough time to make an impact on the trends of these kinds of ETFs. Without that kind of confirmation, it is appropriate to take a "wait and see" attitude before subscribing to the concept that the rally of the last two weeks is the real thing.

By the way, a month ago the UltraShort Financial ETF (SKF) was the strongest on the list. This time, it is no where to be seen.

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