3 ETF Indicators With Bearish Implications
21 January 2010 at 3:02 pm by Gary Gordon
There are plenty of reasons to remain bullish on stocks. The Index of Leading Economic Indicators is at the highest level in 1 year. More than 4 out of 5 corporations are beating earnings expectations. Inflation, while beginning to rise, is tame around the world. And global monetary/fiscal policy is mostly stimulative.
That last one, though, doesn’t exactly include China. The country grew at 10.7% last quarter, further persuading investors that the tightening cycle for the world’s most successful economy is now in full swing.
It follows that one of the first bearish indicators for stocks is the well-being (or lack thereof) of the iShares China 25 Index (FXI). Yesterday, I expressed the likely FXI downtrend associated with its “lower lows.” Today we need only identify the extent of its correction (-14%) and its official drop below a long-term, 200-day MA.
Bearish ETF indicator #2? We’re seeing weak buying interest on the broader S&P 500 SPDR Trust (SPY) during up days, yet strong selling interest on down days.
For instance, SPY actually hit a new 15-month high as recently as Tuesday, 1/19/10. It did so on below-average share volume of 139 million (3-month average 162M). However, on the down days of 1/15, 1/20 and 1/21, the above-average share volume hit 212M, 216M and 331M!
A 3rd discouraging ETF sign with bearish implications was the decided lack of “buying on weakness.” In markets where the bulls and bears are somewhat evenly distributed, you’ll have those who will sell popular ETFs into a rising market. Similarly, you’ll have those who will snap up popular ETFs on large price declines.
On 1/21/10, however, only 2 S&P 500 sector funds had positive money flow: (1) SPDR Select Energy (XLE) and (2) SPDR Select Financials (XLF). Even the amount of money flowing in was nothing to write home about… 0.5% and 0.4% of assets under management respectively.
Technology, Materials, Consumer, Industrials, Healthcare? Forget about it. When stock prices are down, but major economic segments fail to attract substantial dollar inflows, you may be looking into the eye of the next pullback.
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Disclosure Statement: ETF Expert is a web log (”blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company and/or its clients may hold positions in the ETFs, mutual funds and/or index funds mentioned above. The company does not receive compensation from any of the fund providers covered in this feature. Moreover, the commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.
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