ETF Expert

Back on March 11, shortly before the Bear Stearns debacle, I spoke about overbought/oversold ETFs. Tops on the sector list had been the financials, retail and semiconductors.

How have things changed for these sectors since the market hit a March 17 intra-day bearish low? For the better or for the worse? Interestingly enough, the results are what a statistician might call, "inconclusive."

Remember, analysts typically make overbought and oversold determinations through the use of the "Relative Strength Index (RSI)." RSI travels between 0 to 100 such that… when things are bearish… an ultra-weak, sub-20 showing may be indicative of a strong buy. (At least that’s what contrarians will tell you.)

The previously profiled sectors (financials, retail, semiconductors) are a mixed bunch over the last 6 weeks. Financials and retail remain "oversold" with RSI readings at about the same abysmal level they had been at previously… 3.7 and 6.1 respectively.

In contrast, Semiconductor HOLDR (SMH) have jumped 10 points higher from 18 to 28 in relative strength. Better still, the 1-week, 1-month and 3-month returns are all positive at 1.8%, 3.4% and 9.2 respectively.

Other semi indexes have shown similar progress. For example, even as the RSI reading for the SPDR Semiconductor ETF (XSD) remains below 20 at 15, it has produced 3.8%, 8.2% and 10.2% over 1 week, 1 month and 3 month intervals.

It follows that, when comparing the state of semiconductor ETFs to the market at large since my last look at oversold ETFs, semis are roughly 5% higher than the the SPDR S&P 500 Trust (SPY). Perhaps there’s something to the idea that relative weakness in a bearish environ should be seen as a solid buying opportunity.

Unfortunately, the results for financials and for retail are far less encouraging. In spite of the exceptionally oversold conditions that occurred before the Bear Stearns-induced March lows, there has been a moderate recovery for the financial sector (XLF) and the consumer-dependent retailers (XRT). The iShares S&P Global Financials (IXG) did take greater solace in the perception that a crisis may have ended.

We might note, then, that every area has gained ground since the March lows. Yet financials are about on par with the S&P 500 Trust (SPY) whereas retail has actually underachieved.

What it means is that, relative weakness in a bearish environment may or may not be helpful in identifying oversold ETF sectors. This should probably not come as a big surprise, as no single piece of info stands alone as a premier predictor of future performance.

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.