ETF Expert: Sector ETF Performance In The Summertime Correction
10 July 2009 at 1:49 pm by Gary Gordon
In mid-June, I suggested the strong probability of a summertime slumber (See "Anatomy of a B— Market Rally.") As it turns out, the sleepiness might actually have kicked off in early May… the minute that financial stocks failed to move any higher.
More specifically, I noted that stock assets had moved vertically for 8 weeks through May 4, 2009, before moving horizontally over the next 6 weeks. By the end of June, the tally turned to 8 weeks up and 8 weeks sideways. By the 10th of July, the S&P 500 has moved a formidable 8% below its June pinnacle.
It's worth recognizing that the SPDR Select Financials (XLF) hit its most recent peak on May 8, while other segments reached high marks in June or July. This "reality" represents a familiar pattern where financial stocks first hinder the broader market and then… they drag the whole ship under.
Keep in mind, at every upswing in the 2007-2009 bear, SPDR Select Financials (XLF) rallied first. Early stage stalwarts in Energy (XLE), Materials (XLB) and Technology (XLK) would surge next, often defining a top for the S&P 500.
As financial stocks started to wane, there'd be a rotation into traditional safer haven stocks like Health Care (XLV) and Utilities (XLU). The further financial stocks fell, however, the further the overall market dropped like an anchor.
| Sector ETF Snap on 7/10/09 | |||
| Date and Price of High | % Below High | ||
| SPDR Select Consumer Staples (XLP) | 2-Jun | 23.64 | -3.0% |
| SPDR Select Health Care (XLV) | 29-Jun | 26.53 | -3.4% |
| SPDR Select Utilities (XLU) | 1-Jul | 28.25 | -4.6% |
| SPDR Select Technology (XLK) | 11-Jun | 18.35 | -4.8% |
| SPDR Select Consumer Discretionary (XLY) | 2-Jun | 24.33 | -9.3% |
| SPDR Select Industrials (XLI) | 8-Jun | 23.63 | -12.2% |
| SPDR Select Basic Materials (XLB) | 11-Jun | 28.16 | -13.7% |
| SPDR Select Financials (XLF) | 8-May | 12.95 | -15.3% |
| SPDR Select Energy (XLE) | 11-Jun | 53.31 | -16.3% |
Today, the markets find themselves in an eerily similar situation… with one likely difference; that is, the systemic risk to the entire financial system may have abated.
Still, we are left with a gruesome recession and an anemic recovery. An investor, in all likelihood, will want to see the SPDR Select Financials (XLF) register "higher lows." If XLF can find a support level off which to bounce, that could be the day that a cyclical bull begins. (It may be a short-lived bull inside of a secular bear… but a bullish trend nonetheless!)
If you'd like to learn more about ETF investing… then tune into "In the Money With Gary Gordon." You can listen to the show "LIVE", via podcast or on your iPod.
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 Adviser 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.
