div xmlns=”http://www.w3.org/1999/xhtml”pWhen there are several ETF choices related to the same sector, which one is best?#0160; There are plenty of considerations, many of which relate to the expected holding period.#0160; In our ETF trading we make choices with a three-week time horizon, but trade more frequently if necessary.#0160; Liquidity and the bid-ask spread are important./ppThe right choice may also depend on the method of weighting employed.#0160; a href=”http://www.etftrends.com/2009/09/why-it-matters-how-your-etf-indexes-are-weighted.html” target=”_blank”Tom Lydon asks/a, quot;…did you know that different indexing strategies can either make or break your success?quot;#0160; Read his a href=”http://www.etftrends.com/2009/09/why-it-matters-how-your-etf-indexes-are-weighted.html” target=”_blank”entire ETF Trends article/a for some great examples.#0160; Tom also points to a a href=”http://www.moneyandmarkets.com/get-creative-with-alternative-weighting-etfs-2-35472″ target=”_blank”more comprehensive piece/a by Ron Rowland at Money and Markets./ppThis week we illustrate this topic by looking at the semiconductor sector, one of the top current choices from our sector rotation model./pp/pp/pp/ppstrongBackground/strong/ppBefore turning to the specific analysis of chip stocks, let us briefly describe how we determine sector ratings, as well as the current market implications.#0160; /ppWe
study sectors continually, looking at the charts and ratings for
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 99% of our ETF#39;s in positive territory (96% last
week).#0160; The average strength rating for the overall list is 32, up slightly
from 31 last week.#0160; (A score of quot;0quot; implies the average long-term ETF
expectancy.)/li
li86% (up from 70%) 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 slightly 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
pstrongSpotlight on the Chip Stocks/strong/ppPart of the market rally has come from strength in semiconductor stocks.#0160; At Investors#39; Business Daily, a href=”http://www.investors.com/NewsAndAnalysis/Article.aspx?id=507308″ target=”_blank”Chip Stocks Lead Rebound On Nasdaq/a, Trang Ho provides a look at the fundamentals of the sector (hat tip ETF Expert):/pblockquotepNeedham amp; Co. issued a buy rating on shares in March. In the
near term, demand for chips is being driven by better-than-expected
back-to-school sales of laptops, said Edwin Mok, an analyst with
Needham./ppMok says that in the longer term, chip demand will come from
companies upgrading their computer systems after putting off IT
spending during the recession. quot;We believe there#39;s pent-up demand for
PCs, which should drive growth in the coming year,quot; Mok said./p/blockquotepOppenheimer also upgraded Intel (INTC) this week,upping earnings estimates and setting a 12-18 month price target of $28/pp Tom Lydon a href=”http://seekingalpha.com/article/163314-why-semiconductor-etfs-are-rallying?” target=”_blank”cited the fundamental demand/a from both smart phones and computers./ppstrongWhich ETF to Buy?/strong/ppConsider three different semiconductor ETF#39;s with dramatically different weightings for the underlying stocks.#0160; The ETF#39;s hold many of the same stocks, but in widely different proportions./ppThe emMerrill Lynch Semiconductor Holders/em is a a href=”http://finance.yahoo.com/q/hl?s=SMH” target=”_blank”capitalization-weighted fund/a.#0160; The top holding, Intel (INTC) constitutes nearly 25% of the fund.#0160; The top three holdings make up nearly 60%, and the top ten constitute over 90%.#0160; The P/E is about 29.#0160; Here is the chart./ppa href=”http://oldprof.typepad.com/.a/6a00d83451ddb269e20120a5bcf1de970b-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=”Smh” class=”asset asset-image at-xid-6a00d83451ddb269e20120a5bcf1de970b ” src=”http://oldprof.typepad.com/.a/6a00d83451ddb269e20120a5bcf1de970b-450wi” style=”width: 450px;” //a /pp /pp/pp/p
span style=”font-size: 9px;”span style=”font-size: 18px;”/span/spanpThe emiShares Samp;P North Amer Tech-Semicondcutors (IGW) /emis only a href=”http://finance.yahoo.com/q/hl?s=IGW” target=”_blank”partially based upon market cap/a, so the top three holdings make up about 27% of the fund.#0160; The top ten constitute 57%.#0160; Here is the chart./ppa href=”http://oldprof.typepad.com/.a/6a00d83451ddb269e20120a5bcf79c970b-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=”Igw” class=”asset asset-image at-xid-6a00d83451ddb269e20120a5bcf79c970b ” src=”http://oldprof.typepad.com/.a/6a00d83451ddb269e20120a5bcf79c970b-450wi” style=”width: 450px;” //a#0160;/pp/ppThestrongem /em/strongemSPDR Samp;P Semiconductor (XSD)/emstrong /strongfundstrong /stronghas an a href=”http://finance.yahoo.com/q/hl?s=XSD” target=”_blank”equal weighting for all holdings/a — a bit over four percent each.strong#0160; /strongHere is that chart./ppstronga href=”http://oldprof.typepad.com/.a/6a00d83451ddb269e20120a5bcfa5f970b-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=”Xsd” class=”asset asset-image at-xid-6a00d83451ddb269e20120a5bcfa5f970b ” src=”http://oldprof.typepad.com/.a/6a00d83451ddb269e20120a5bcfa5f970b-450wi” style=”width: 450px;” //a br //strong/ppstrongComparing the Choices/strong/ppThere is not much to choosestrong /strongamong the funds based upon P/E and the charts seem very similar.#0160; The TCA-ETF model identified a difference, seeing a poor risk reward on XSD.#0160; (Note the penalty box rating in the chart below.)/ppWhile the exact calculation of risk and reward is complex, it is a guide for our choices.#0160; We hold no more than two positions (25-35%) in any specific sector./ppYour own choice may depend upon many factors, especially including the time frame for your investment.#0160; We share our choice as a matter of public information, based upon our own trading horizon.#0160; The model has chosen to emphasize the large cap stocks./ppWhatever you choose, you should keep the issue of weighting in mind.strongbr //strong/ppbr / /pp/p
p/pp/p
p/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 2.7% last week, trailing the Samp;P 500 by almost one percent.#0160; Our current
holdings are not near the top in strength rank, but they still have good strength ratings.#0160; Our testing has shown what Vince calls quot;robustquot; results for anything with a positive strength rating.#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/pp[We also note that last week
implemented 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.#0160; Those tracking our entire data series should keep this in mind.]/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 most are in the penalty box.#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 (by a whisker) 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;;”a href=”http://oldprof.typepad.com/.a/6a00d83451ddb269e20120a613290f970c-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=”100209″ class=”asset asset-image at-xid-6a00d83451ddb269e20120a613290f970c ” src=”http://oldprof.typepad.com/.a/6a00d83451ddb269e20120a613290f970c-450wi” style=”width: 450px;” //a br //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[We also hold Intel in individual and client accounts.]/ppspan style=”font-size: 12pt; font-family: #39;Times New Roman#39;,#39;serif#39;;” /span/p/div

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Last 5 posts by Jeffrey Miller

• A Tough Nut to Crack - October 29th, 2009
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