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Saturday, December 11, 2010

ETF Trending Report -- one sector to avoid, one sector to consider

One of the first things I like to check every weekend is the ETF Trend Performance week-over-week report. It gives a great summary of what happened to more than 300 ETFs with respect to change in trend. (It is currently available at the free preview of Alert HQ Premium.)

Some weeks, ETFs in certain sectors dominate the top spots or the bottom spots and in other weeks it's a mix. This week it's pretty clear who the biggest winners and losers were.

The winners --

Financial ETFs held the top four spots this week. The following chart is from the report:

Change in Trend Score Symbol Name Current Trend Score Change in Price Percent Change in Price
3 UYG ProShares Ultra Financials ETF 5.5 4.05 6.71
2.25 IYG iShares Dow Jones U.S. Financial Services Index Fund 4.25 2.55 4.67
2 RKH Merrill Lynch Regional Bank HOLDRS 4 4.02 5.05
1.5 XLF Select Sector SPDR Fund - Financial 4.75 0.58 3.82

Given the highest possible trend score is only 6 (denoting a very strong bullish trend), an improvement of between 2 and 3 is pretty significant.

The following chart shows IYG. Trend lines are drawn in blue. You can see that the down-trend seems to have ended and an up-trend seems to be solidly underway.

For these ETFs, even after a big gain in trend score, there is still room for further improvement.

The losers --

Bonds are clearly in trouble. The following 8 ETFs all registered a noticeable decline in trend score even while the overall stock market showed a weekly gain. The following chart list them all:

Change in Trend Score Symbol Name Current Trend Score Change in Price Percent Change in Price
-1 TIP iShares Lehman TIPS Bond Fund 3.25 -2.35 -2.16
-1 TLT iShares Lehman 20 Year Treasury Bond Fund 1.5 -1.74 -1.83
-1 VCIT Vanguard Intermediate-Term Corporate Bond ETF 3.25 -1.36 -1.7
-1 VCLT Vanguard Long-Term Corporate Bond ETF 2.25 -0.44 -0.56
-1.25 VGLT Vanguard Long-Term Government Bond ETF 1.75 -1.39 -2.26
-1.5 IEF iShares Lehman 7-10 Year Treasury Bond Fund 2.25 -2.41 -2.51
-1.5 VGIT Vanguard Intermediate -Term Government Bond ETF 2.75 -1 -1.6
-2 AGG iShares Lehman Aggregate Bond Fund 2.25 -0.96 -0.9

Whereas the problems in the bond market started with municipals and 30-year Treasuries, you can now see that corporate bonds are getting hit, too.

Conclusion --

As much as I dislike the financial sector, perhaps a recovery is actually on the way and this isn't a head fake. After all, these results are based on weekly data so perhaps the move has some real strength. We shall have to see.

As for the bond ETFs, in mid-October I wrote a post titled "Has the bond bubble burst? ETF trending provides a clue". At that time I used daily data and the post met with some skepticism. Today's trend score results provide confirmation that bonds aren't getting any better.

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