Stockscores.com Perspectives
For the week ending June 13, 2004
In this week's issue:
Are you looking for an alternative to Mutual Fund investing? Since most fund managers do not consistently outperform the overall stock market, many Mutual Fund investors are left unhappy about the performance of their portfolios. But with limited time and financial acumen, most investors have accepted the need to contribute to Mutual Funds simply because they represent the easiest solution to their investment needs. There is, however, an alternative.
Exchange Traded Funds (ETFs) allow an investor to buy a basket of stocks, but unlike Mutual Funds, ETFs trade like a stock, and can be quickly and easily bought and sold. This makes it possible to apply the Stockscores Approach to analyzing a Mutual Fund like investment, but enjoy the liquidity and freedom of an individual stock.
For example, the Nasdaq 100 Trust (Symbol: QQQ) is a basket of the 100 largest companies listed on the Nasdaq stock market. The QQQ trades like a stock, but does not have some of the risks inherent in the purchase of an individual name. While one stock can announce a significant fundamental event that causes it to drop rapidly, the diversification inherent in a basket of stocks mitigates this risk.
ETFs trade in the US and Canada, primarily on the AMEX and TSX markets respectively. The major ETFs are:
US
QQQ - Nasdaq 100 Index
DIA - Dow 30 Diamonds
SPY - S&P 500 Spiders
EWJ - iShares Japan
IWM - iShares Russell 200
IBB - Nasdaq Biotechnology
XLE - Select Sector SPDR Energy
XLK - Select Sector SPDR Technology
XLF - Select Sector SPDR Financial
MDY - Midcap SPDR
IWO - iShares Russell 2000 Growth
XLI - Select Sector SPDR Industrials
XLU - Select Sector SPDR Utilities
(a full listing can be found at www.amex.com)
Canada
T.XIU - iUnits TSX 60
T.XMD - iUnits TSX Midcap
T.XEG - iUnits TSX Energy
T.XFN - iUnits TSX Financials
T.XGD - iUnits TSX Gold
T.XIT - iUnits TSX TEchnology
T.XSP - iUnits TSX S&P 500 RSP Fund
(a full listing can be found at www.tsx.com)
Unlike a Mutual Fund, ETFs can be bought or sold short in an instant, just like a stock (actually, they can be sold short easier than a stock, because ETFs can be shorted on downticks in price). Since they trade like a stock, we can apply the Stockscores analysis to their trading history to determine their Sentiment and Signal Stockscores.
To identify opportunities in ETFs, I use the Portfolio Creator on Stockscores.com to create a list of the ETFs. I can then view the charts of the ETFs to seek out those meeting the criteria of the Stockscores Approach. I can also utilize the Market Scan tool to filter through my portfolio of ETFs to find those that meet the specific criteria of a Market Scan strategy.
For example, I like to focus on ETFs that have a Sentiment Stockscore above 60, and a Signal Stockscore breaking above 80. The Sentiment Stockscore uses trading activity to determine whether investors are more eager to buy than sell (therefore displaying optimism) and the Signal Stockscores seeks out abnormal trading activity that can highlight a change in investor psychology or significant fundamental change. Essentially, breaks from good chart patterns will typically correspond to the 60/80 Stockscores rules. If the Stockscores are in the right place, and the chart pattern is strong, a good opportunity is identified.
If you are frustrated with the performance of your Mutual Fund investments, consider ETFs as an alternative that offers you more control. No one cares more about your money than you, so managing a portfolio of ETFs offers the risk management of diversification, but the return potential of market timing. Being able to short sell ETFs is an added benefit that allows the investor to take advantage of downward moves in the market (short selling may not be permitted in some retirement accounts).
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After creating a portfolio of ETfs, I ran a market scan on that portfolio. I simply wanted to see which ETFs had a Sentiment Stockscore of 60 or higher. There were 7 ETFs that met this simple requirement, and from the charts, a few look to have good potential. See them below:Back To Top
1. XLP
The Consumer Staples ETF recent broke through resistance and is already in a good upward trend. I expect that this fund may pull back a little bit in the short term, but looks good to outperform the overall market.
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2. T.XIN
The International Equity RSP fund is locked in a sideways trading pattern, but is now just below resistsance and could make a breakout soon. There appears to be optimism in this sector, and I think a breakout to the upside could happen soon.
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3. T.XSP
The S&P 500 RSP fund is trading in an ascending triangle pattern, which tends to lead in to up trends. The ETF is trading right under resistance right now, which makes me think that it could break to the upside through the $16 resistance level soon. It may get stuck under resistance for a while, but for a longer term time horizon, I think it has good potential.
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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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