ETF Expert

It didn’t take long to uncover a quick ditty on the importance of 50-Day Moving Averages (MAs) to the investment community. In fact, no sooner did I opine on flashing yellow lights from Small-Cap ETFs, did I find intriguing factoids from the Bespoke Investment Group.

Specifically, Bespoke notes that both financial stocks and energy stocks have a mere 1/3 of their sector constituents above a short-term trendline. The tech sector is also struggling to maintain an even balance (50/50) of companies above and below a respective 50-day MA.

In complete contrast, 3/4 of individual company stock prices in the three safer haven segments — Utilities, Health Care, and Consumer Staples – are above their 50-day moving averages. Not surprisingly, Bespoke Investment Group concludes that “investors have definitely taken a defensive position in recent weeks.”

We should, however, be wary of unequivocal statements. For one thing, if investors are truly taking a more defensive posture, shouldn’t we be seeing a similar breakdown in high-beta emerging market stocks? I don’t think we’re seeing that yet, as the “risk carry trade” is still winning the day.

Second, and more concretely, stock assets across the board have seen some “consolidation” and, ultimately, sideways movement since late September. In fact, over the last 50 days (10 weeks) from 9/21/09-11/27/09, the pace of S&P 500 stock momentum slowed to 2.5% growth. (Remember… this is within the context of 60%+ off the bottom… not a condemnation of 2.5% gains in 10 weeks time.)

The reason this is so important is that the slope of the 50-DA MA for financials, tech and energy have been rather steep. Any sort of pullback would lead to prices falling below short-term MAs. (See the slope of the SPDR Financials XLF in the chart below.)

 In contrast, the defensive sectors did not experience astronomical ascents; the slopes of the defensive sector moving averages were not as steep and, consequently, you’re unlikely to find current prices quickly falling below the trendline. (See the slope of the SPDR Consumer Staples Fund XLP in the chart below.) 

Do I believe that investors are becoming a little more risk-averse. Yes, actually… I think that they are. Yet by the same token, there are times when the slow-pokes simply have a bit of catching up to do while the rest of the market takes a breather.

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.

Tags | "etf aggressive", "etf defensive", "etf staples", "etfs health", Consumer ETFs