Finding the Bull Market with ETFs
Stockscores.com Perspectives for the week ending December 7, 2007
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In this week's issue:
The easiest way to make money in the market is to find a bull market. A bull market is one where the buyers are in control, the trend is up an investors are optimistic about the company that make up that market. With so many markets around the world and so many industry sectors within each market it is almost always possible to find a bull market somewhere.
Within Canada and the US, the best way to find that bull market is to look at industry groups. I like to use Exchange Traded Funds (ETF) for this purpose because they allow me to see charts of index funds that trade just like a stock. With an ETF, you can buy a basket of stocks by simply buying the ETF, but you can also use them for your analysis to find that sector of the market that is leading the way.
You can use the Stockscores Watchlist Creator to help with this process. Create a Watchlist and paste in the symbols of the ETFs that you want to track. This will allow you to go through the charts of the individual ETFs on a regular basis but also allow you to do a Market Scan on the group to find those that are meeting the criteria of one of the StockScores trading strategies.
A real simple strategy that you might do is to scan through your watch list of ETFs to find those that have a Sentiment Stockscore of 60 or higher. The next step will be to look at the charts of those ETFs to find those that are breaking through long term resistance for the first time in a number of months. Ideally, we want to catch these groups when they are just starting an upward trend.
For example, take a look at the chart of XLP, which represents a basket of Consumer Staple stocks in the United States. The Sentiment Stockscore for this sector has been above 60 since the middle of September and the ETF made a break of its downward trend line on September 18th. It made a break through long term resistance on October 10th. Since then, this ETF has performed much better than the market in general which, as we are painfully aware, has suffered a major correction during that time.
Now, you can carry it one step further and use the ETF to focus on individual stocks. With a little bit of extra work, you can figure out what kind of stocks make up an ETF. The Consumer Staples ETF represents stocks like Coca Cola (KO) and Proctor and Gamble (PG). With the knowledge that the ETF is performing well, the savvy investor can look at the charts of the underlying stocks to see if there are opportunities to take advantage of. Both KO and PG have outperformed the broad market over the past few months.
Here is a list of the major sector based ETFs that trade on the Canadian and US markets as well as a link to the website offering a complete list of ETfs for consideration. For the more conservative investor seeking to diversify away some risk but still have the freedom of trading opportunities quickly, the ETFs are well worth considering.
Canada - iShares
Energy - T.XEG
Bonds- T.XSB
Financials - T.XFN
REIT - T.XRE
Materials - T.XMA
Income Trust - T.XTR
Information Technology - T.XIT
SmallCap - T.XCS
Gold - T.XGD
(for a complete list of Canadian ETFs, Click Here)
US - SPDR
Consumer Discretionary - XLY
Consumer Staples - XLP
Energy - XLE
Financial - XLF
Health Care - XLV
Industrial - XLI
Materials - XLB
Technology - XLK
Utilities - XLU
(for a complete list of US ETFs, Click Here)
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I inspected the charts of each of the ETFs listed above to give you my picks for the best looking ETF in both Canada and the US. In doing this, I was seeking ETFs that had a Sentiment Stockscore of at least 60 but I preferred those that were not already well in to their upward trends. As investors, you can consider the ETF or you can try to seek out stocks within the Sector Group that the strong stocks represent.Back To Top
1. T.XIT
Technology? Sure, the Canadian markets are not often renowned for Technology stocks but this sector seems to be insulated from the problems in the areas that normally lead in Canada. Check out the Stockscores Sector Watch for a breakdown of the main technology names in Canada
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2. XLV
No country spends more on Healthcare than the US, and no matter what state the economy is in, people get sick. This sector is just now testing resistance, it may stall in the short term but I like how the buyers seem to be taking control and I think we can find individual stocks in this sector that will do well.
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References
Get the Stockscore on any of over 20,000 North American stocks.
Background on the theories used by Stockscores.
Strategies that can help you find new opportunities.
Scan the market using extensive filter criteria.
Build a portfolio of stocks and view a slide show of their charts.
See which sectors are leading the market, and their components.
Disclaimer
This is not an investment advisory, and should not be used to make
investment decisions. Information in Stockscores Perspectives is often
opinionated and should be considered for information purposes only. No
stock exchange anywhere has approved or disapproved of the information
contained herein. There is no express or implied solicitation to buy or
sell securities. The writers and editors of Perspectives may have positions
in the stocks discussed above and may trade in the stocks mentioned. Don't
consider buying or selling any stock without conducting your own due diligence.
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