div xmlns=”http://www.w3.org/1999/xhtml”pETF Investors hope to achieve the right level of diversification.#0160; /ppMaking sector-specific investments provides a chance to beat the market averages through focus.#0160; Buying ETF#39;s lets you avoid some of the risks that come with individual stock purchases./ppAn ETF portfolio can be very concentrated, or it can represent several diverse sectors.#0160; Sometimes there is less diversification than one might think.#0160; There can be an underlying theme, creating a correlation in the performance of apparently unrelated sectors./ppSuch is the current case with many attractive sectors which are all linked to weakness in the dollar.#0160; This week#39;s ETF update takes a closer look at currency moves and the effects on an ETF portfolio./ppstrongBackground/strong/ppWhat do we mean by an quot;attractive sector?quot;/ppWe
study sectors continually, looking at the charts and ratings of
hundreds of ETF#39;s.#0160; Each week we provide a list of our top-rated
sectors for the next three weeks, along with some of our current
observations.#0160; ETF investors can check out the list and compare our
findings with their own conclusions./ppIn our analysis, we consider Trends, Cycles, and a bit of Anticipation.#0160; Since we apply
the model to nearly 300 ETF#39;s, we call it the TCA-ETF system.#0160; (For new
readers, there is a more complete description of our methods at the end
of the article.#0160; We also have a free report with more detail on the system and results, available on request.)/ppstrongThe Macro View/strong/ppFrom an overall market
viewpoint, our indicators continue in positive territory.#0160; The key elements are as follows:/pul
liWe now find 96% of our ETF#39;s in positive territory (98% last
week).#0160; The average strength rating for the overall list is 31, down from 43 last week.#0160; (A score of quot;0quot; implies the average long-term ETF
expectancy.)/li
li70% (up from 24%) of our sectors are in the quot;penalty box.quot;#0160; This means that they
are currently disqualified from the buy list for technical reasons.#0160;
You can think of this as a sophisticated quot;stop lossquot; rule, often
applied in advance./li
liOur index package remains positive.#0160; For this rating we look at the
ETF#39;s
(both long and short)#0160; for the Samp;P 500, the Dow, and the Nasdaq.#0160;
You can see these ratings is the results table for this week./li
/ul
pstrongFocus on the Dollar/strong/ppUS equities have recently been trading in an inverse relationship with the dollar.#0160; What is the nature of this apparent correlation?/ppIn a review of the fundamentals, Currency Specialist Adam Kritzer a href=”http://wealthmanagersleague.com/Home/16396″ target=”_blank”takes a look/a at the relationship between gold and the dollar.#0160; In particular, he analyzes theories from Peter Schiff.#0160; Kritzer takes a careful and balanced view, concluding, quot;Still, perception is reality in financial markets. If investors want to
see a connection between a weak Dollar and strong gold, they will
simply contrive one.quot;/ppHere is a look at the dollar, using the (trade-weighted) dollar index./pp/pp class=”asset asset-image”a href=”http://oldprof.typepad.com/.a/6a00d83451ddb269e20120a5f92265970c-popup” onclick=”window.open( this.href, #39;_blank#39;, #39;width=640,height=480,scrollbars=no,resizable=no,toolbar=no,directories=no,location=no,menubar=no,status=no,left=0,top=0#39; ); return false” style=”display: inline;”img alt=”Dxy” class=”at-xid-6a00d83451ddb269e20120a5f92265970c ” src=”http://oldprof.typepad.com/.a/6a00d83451ddb269e20120a5f92265970c-450wi” style=”width: 450px;” //a
/p pThere has been a sharp decline from the March (multi-year) highs.#0160; What does this really mean?/ppThe currency specialists at The LFB a href=”https://www.thelfb-forex.com/fullStoryView.aspx?sid=5629″ target=”_blank”provide an analysis/a that we find confusing.#0160; They write as follows:/pblockquotepThe main reason for the stronger dollar on Thursday was the sell-off in
the equity market after the Existing Home Sales report, which declined
2.7% in August compared to the numbers from July. During the equity
sell-off, gold and oil traded significantly lower, while the dollar
index hit new daily highs./p/blockquotepand later…/pblockquotepThe caveat to that is the dollar not getting sold is a msjor [sic] swing
change in sentiment, if the swing change morphs into a near-term trend
on dollar buying, it will signal weakness in equities that will then
have followed the drop in speculative interest out of the crude oil
markets./p/blockquotepOur read is that there is inferred causation without the needed evidence.#0160; US equities are currently trading higher when the dollar is weaker, but we do not see evidence that the stock market is driving currency trades./ppWhat is the long-term relationship?#0160; CXO Advisory always does an excellent job with such questions.#0160; Using the dollar/Euro relationship (as good as any), CXO a href=”http://www.cxoadvisory.com/blog/internal/blog9-25-09/” target=”_blank”points out conflicting theories/a about whether a strong dollar or a weak dollar is good for stocks./ppThe overall conclusion?#0160; Here is the CXO Summary:/pblockquotepThe following chart tracks the dollar-euro exchange rate (dollars per euro)
and the Samp;P 500 Index over the entire sample period. During this time the
dollar generally weakens (the number of dollars per euro rises), and the stock
market exhibits fits of historically high volatility. Visual inspection suggests
that the exchange rate and stock market sometimes move oppositely and sometime
move together./p/blockquotepThe rest of the article does what we have come to expect from CXO — looking at correlations and possible leading indicators.#0160; Any serious reader should check out the a href=”http://www.cxoadvisory.com/blog/internal/blog9-25-09/” target=”_blank”entire article/a./ppemstrongOur take?/strong/em#0160; We see two markets currently moving together without real evidence of causation./ppIn a href=”http://www.marketwatch.com/story/five-ways-to-profit-from-the-weaker-dollar-2009-09-25?tool=1amp;dist=bigchartsamp;symb=DXYamp;sid=3044712″ target=”_blank”Betting on the Weaker Buck/a, MarketWatch outlines five different strategies for playing a weak dollar.#0160; Two of these are reflected in our current ratings.#0160; Whether this works has a lot to do with the time frame of the trader or investor./pp/ppbr /
/pp/pp/pp/pblockquotep/p/blockquotep/pp/pp/ppstrongspan style=”font-size: 12pt; font-family: #39;Times New Roman#39;,#39;serif#39;;”Weekly TCA-ETF Rankings/span/strongspan style=”font-size: 12pt; font-family: #39;Times New Roman#39;,#39;serif#39;;” o:p/o:p/span
/ppspan style=”font-size: 12pt; font-family: #39;Times New Roman#39;,#39;serif#39;;”We had a loss of about 4.2% last week, trailing the Samp;P 500 by about two points, mostly as a result of strength in the dollar.#0160; Our current holdings, while lower in rank, still have good strength ratings.#0160; We do not buy ETF#39;s in the penalty box or those with poor liquidity.#0160; We provide these ratings as information for readers who may not trade as frequently as we do.#0160; Those signing up for our free weekly email update can also get the entire list./span/ppWe also note that this week implements what our modeling guru, Vince Castelli, calls an improved filter.#0160; While the underlying model has not changed, the inputs used reflect our best efforts to improve the signal-to-noise ratio.#0160; We have advanced the timing (the Anticipation factor) reflecting the recent quot;hot moneyquot; tendencies in ETF#39;s.#0160; This means earlier recognition and also faster moves to the penalty box./p
pspan style=”font-size: 12pt; font-family: #39;Times New Roman#39;,#39;serif#39;;”As noted above, all of the macro market indicators remain positive, although a bit lower than last week.#0160; Based upon the current /spanspan style=”font-size: 12pt; font-family: #39;Times New Roman#39;,#39;serif#39;;”model signals, we have maintained our bullish position in the a href=”http://tickersense.typepad.com/ticker_sense/” target=”_blank”span style=”color: blue;”Ticker Sense Blogger Sentiment poll/span/a./span/p
pspan style=”font-size: 12pt; font-family: #39;Times New Roman#39;,#39;serif#39;;”Here
are
the top sectors from our expanded universe of 280 ETF#39;s.#0160; The list
also includes the values for the broad market ETF#39;s and their
inverses./span/ppspan style=”font-size: 12pt; font-family: #39;Times New Roman#39;,#39;serif#39;;”p class=”asset asset-image”a href=”http://oldprof.typepad.com/.a/6a00d83451ddb269e20120a5f914d1970c-popup” onclick=”window.open( this.href, #39;_blank#39;, #39;width=640,height=480,scrollbars=no,resizable=no,toolbar=no,directories=no,location=no,menubar=no,status=no,left=0,top=0#39; ); return false” style=”display: inline;”img alt=”092409″ class=”at-xid-6a00d83451ddb269e20120a5f914d1970c ” src=”http://oldprof.typepad.com/.a/6a00d83451ddb269e20120a5f914d1970c-450wi” style=”width: 450px;” //a
/p /span/ppstrongNote for New Readers/strong/p
pOur weekly ETF Update is designed to assist both investors and
traders interested in ETF#39;s and Sector Rotation.#0160; Before turning to the
current rankings, let us undertake a review for readers new to this
series.br /br /emOur Method./em#0160; In this a href=”http://oldprof.typepad.com/a_dash_of_insight/2007/09/the-sector-upda.html” target=”_blank”past article/a,
we described our basic methodology and why we believe the rankings are
useful for fundamental traders and technical traders alike.#0160; While we
urge readers to check out the entire article, the key point is that
ETF#39;s pose challenges and opportunities different from investment in
individual stocks.#0160; The fundamentals may be more difficult to assess.#0160;
Even with a good grasp on fundamental trends, there is a lot of
technically-based trading in ETF#39;s.#0160; This means that a href=”http://oldprof.typepad.com/a_dash_of_insight/2007/09/fundamental-or-.html” target=”_blank”those trading with a fundamental approach/a (and we do this as well) want to monitor the quot;hot moneyquot; moves.#0160; Here is an a href=”http://oldprof.typepad.com/a_dash_of_insight/2007/09/fundamental-or-.html” target=”_blank”article on that point/a.br /br /emThe system synopsis/em.
We look at Trending sectors, Cyclical Sectors, and build in an element
of Anticipation for both entry and exit — thus the name of the model,
TCA-ETF.#0160; While we do not reveal the exact methodology for spotting
trends and cycles, the system is not a quot;black box.quot;#0160; The basic elements
are used by many, and widely reported.#0160; We even discuss the a href=”http://oldprof.typepad.com/a_dash_of_insight/2007/12/trading-systems.html” target=”_blank”need for human analysis/a as opposed to black box trading.br /br /emWe report the rankings/em
each week, now on the weekend with a one-day delay, using the Thursday
output from the model.#0160; We monitor and trade this daily, and offer a
free report (request via the email address on the top left of the site)
for those interested in our weekly trading program./pp/pp/p/div

pa href=”http://feedads.g.doubleclick.net/~a/LHEJR4ttMXB4686dSz8hNOckx9M/0/da”img src=”http://feedads.g.doubleclick.net/~a/LHEJR4ttMXB4686dSz8hNOckx9M/0/di” border=”0″ ismap=”true”/img/abr/
a href=”http://feedads.g.doubleclick.net/~a/LHEJR4ttMXB4686dSz8hNOckx9M/1/da”img src=”http://feedads.g.doubleclick.net/~a/LHEJR4ttMXB4686dSz8hNOckx9M/1/di” border=”0″ ismap=”true”/img/a/pimg src=”http://feeds.feedburner.com/~r/typepad/WuQQ/~4/Aq2O0AmB2mg” height=”1″ width=”1″/

Last 5 posts by Jeffrey Miller

• A Tough Nut to Crack - October 29th, 2009
• ETF Update: Looking to the Internet - October 25th, 2009
• Healthcare Reform Becoming Less Likely - October 21st, 2009
• ETF Update: Another Look at the Banks - October 18th, 2009
• Identifying Quackery (and Other Mistakes) - October 6th, 2009